Who received a refund when a bank paid tax on its lease but the sublessor also collected use tax from final users?

Plain-English summary

The July 13, 1984 memo follows an unreproduced June 15 discussion with a copied individual whose role is not stated. It covers unspecified tangible property, leases and subleases involving a redacted bank and taxpayer. The live annotation calls the bank California-based; the supporting memo does not.

The bank bought property without sales-tax reimbursement or purchase-price use tax, then leased to the taxpayer, which leased to functional users. The taxpayer gave no resale certificate but collected rent-measured use tax from its lessees. No record shows those collections or their remittance.

Without a certificate, the bank paid the Board an amount equal to tax it would have collected if its prime lease were retail. It did not charge/recover that amount from the taxpayer. The memo characterizes tax as paid twice but supplies neither amount nor payment records and does not separately state that the taxpayer remitted downstream collections.

Counsel concluded the bank was entitled to refund. His phrasing says tax was not paid on the lease from Bank to taxpayer: the taxpayer in fact paid nothing upstream, even though the bank separately paid the Board. Because the taxpayer paid no qualifying acquisition tax, its final-user leases were taxable sales/purchases. The bank-to-taxpayer lease was thus for resale.

Absence of section 6202 receipts further supported that the taxpayer paid no acquisition use tax. The source supplies no receipt search, purchase/lease invoice, certificate, rent, tax calculation, collection/remittance, bank payment or refund claim.

Live Annotation 330.2887 expands the facts and calls the bank payment erroneous, then publishes the same downstream-tax/upstream-resale and bank-refund result. It omits the June discussion, no property/amount/period, unsupported double-payment characterization, distinction between no taxpayer upstream payment and bank's direct Board payment, missing remittance evidence and absent refund outcome.

No discussion record, property, purchase invoice/tax, prime lease, sublease, functional-use evidence, certificate, section 6202 receipt search, rental/tax invoice, downstream collection/remittance, bank calculation/payment, reimbursement, return, refund claim/payment, audit, assessment, appeal or later outcome appears.

What this means for you

Trace each payment separately: acquisition tax, upstream reimbursement, downstream collection/remittance and any direct protective payment. Preserve contracts, certificates and section 6202 receipts. A statement that tax was paid twice is not a substitute for matching two payments to the same taxable measure.

Common questions

Did the missing certificate make the bank lease retail?

Not on these facts. The actual downstream taxable subleases established that the bank's lease was for resale.

Why were the taxpayer's subleases taxable?

The taxpayer had not paid sales-tax reimbursement or purchase-price use tax on the property.

Who was entitled to recover the duplicate amount?

The bank, because its upstream payment was the one that did not belong in the chain.

What receipt was missing?

The source says the taxpayer did not possess the acquisition-tax receipt described in Revenue and Taxation Code section 6202.

Did the source prove downstream tax was remitted?

No. It says the taxpayer collected tax and calls tax paid twice, but provides no collection or remittance record.

Was the bank's refund actually issued?

No outcome appears.

Citations and references

• Sections 6006, 6010 — lease and qualifying purchase-price tax
• Section 6202 — acquisition-tax receipt cited as absent
• June discussion and all property/lease/certificate/payment/refund records — absent
• Live Annotation 330.2887 — expanded summary without evidence posture

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 330.2887
• Original supporting memorandum: 330.2887 PDF

Original ruling text

State of California

Board of Equalization
Legal Division (MIC:82)

Memorandum
To:

Les Sorensen

From:

Gary J. Jugum

Subject:

S--- of C---, Inc.
S- -- XX-XXXXXX

330.2887
Date:

July 13, 1984

On June 15, 1984, we discussed with Mr. Hennessy proper application of the lease tax provisions to certain leases and subleases involving the referenced taxpayer. The facts are that the B--- (Bank) purchased certain items of tangible personal property without payment of sales tax reimbursement and without payment of use tax measured by the purchase price of the property. Bank leased the property to taxpayer who in turn leased the property to persons who functionally used the property. Taxpayer did not tender resale certificates to Bank. However, taxpayer did collect use tax from its lessees, measured by rental receipts collected from the lessees. Since Bank had not obtained resale certificates from taxpayer, Bank paid to the Board an amount equal to the tax it would have been required to collect from taxpayer if the sales (leases) to taxpayer were retail transactions. Bank did not reimburse itself from taxpayer for these amounts. In essence, the “tax” has been paid twice, and the question is - - who is entitled to a refund? We believe that Bank is entitled to a refund of the amounts it paid to the Board. The reason is that tax was not paid on the lease from Bank to taxpayer; therefore, tax did apply on the lease from taxpayer to its sublessees. Revenue and Taxation Code Sections 6006 and 6010 provide that “sale” and “purchase” do not include leases of tangible personal property as to which the lessor “…has paid sales tax reimbursement or has paid use tax measured by the purchase price of the property.” Taxpayer in fact paid nothing; therefore, taxpayer’s leases to its lessees were “sales” and “purchases,” and leases to taxpayer were sales for resale. That taxpayer had not paid use tax on its acquisition of the property is further supported by the fact that taxpayer does not have in its possession the receipts described in Revenue and Taxation Code Section 6202.

GJJ:dah
cc:

Don Hennessy