Who owed and collected use tax on lease payments under the 1965 opinion?

Plain-English summary

An unidentified correspondent's absent August 2, 1965 letter asked seven questions about new lease-tax law operative August 1. The response came August 5, only four days after effective date, and identifies no taxpayer, property, contract or amounts.

1. A pre-August 1 contract fell within grandfather clause if every element/obligation was fixed—including type, model, description, quantity and rent—even if not formally signed. Counsel described this as legislative-intent opinion.
2. Exercise of lessee's renewal option on a pre-August 1 lease was a renewal, with post-renewal rents taxable.
3. Except leases to United States Government, banks or insurance companies, lessee owed use tax and lessor collected when rent paid. Separate tax statement was immaterial. The three exception treatments were not explained.
4. Because leases were continuing sales, amounts called interest stayed in gross receipts; total paid for merchandise was measure.
5. Option exercise was taxed on specified selling price/additional amount paid.
6. Taxed prior lease payments could receive credit on option exercise to extent in absent Ruling 70. No credit existed if property purchase price was tax-paid.
7. Original lessor paid tax on rent actually collected before assignment/sale to bank. After without-recourse assignment, bank effectively became lessor and collected/paid tax on rent it received.

No full questions, contracts or transaction records appear. Ruling 70 is identified as enclosure but not reproduced.

Live Annotation 330.3040 publishes only answer three. It omits new-law timing, absent request/facts, six other answers, unexplained exception treatment, missing Ruling 70 and later outcome.

No request, taxpayer/property, pre-law agreement, signature/terms, renewal, rent/use-tax invoice/payment, exception status, interest, option/exercise/price, prior rent/purchase tax, credit, assignment/sale/recourse, bank collection/return, Ruling 70 enclosure, audit, assessment, claim, appeal or later outcome appears.

What this means for you

Preserve exact contract and law-effective dates, every fixed term/signature, party status, rent and tax collection, interest, option price/prior taxes and assignment/recourse. This is historical transition guidance, not a current-law shortcut.

Common questions

Who owed use tax generally?

The lessee.

Who collected it?

The lessor, when rental payments were paid under the lease.

Did lease need separate tax statement?

No. The opinion said separate statement was immaterial.

Which categories were excepted?

Leases to the United States Government, banks, and insurance companies.

Did source explain those exceptions?

No.

Were post-renewal rents taxable?

Yes under answer two.

Was stated interest excluded?

No under answer four.

Who collected after bank assignment?

Bank, if assignment/sale was without recourse.

Is Ruling 70 available here?

No.

Citations and references

• Former section 6006.3 — pre-August 1 grandfather clause
• Former Ruling 70 — option credit; enclosure absent
• Answer three — no numbered authority
• Request/questions and every lease/renewal/rent/option/credit/assignment/tax/outcome record — absent
• Live Annotation 330.3040 — answer three only

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 330.3040
• Original supporting opinion: 330.3040 PDF

Original ruling text

STATE OF CALIFORNIA

330.3040

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-5550

August 5, 1965

--- --- ----- --- ----- --- --Dear Mr. ---:
This is in reply to your letter of August 2, 1965, asking a number of questions concerning the application of the new law, operative August 1, 1965, with respect to the application of sales and use taxes to leases of tangible personal property. Answering your questions in order, we advise: 1. The intention of the Legislature, in our opinion, was to afford relief from the added economic impact of the extension of the tax to leasing to those who had become previously bound in all respects to perform fixed obligations for fixed periods under prior existing agreements. Thus, where all elements of a lease contract have been fixed by the parties prior to August 1, 1965, and all terms and conditions, including the types, models, descriptions, quantities, and rental terms, etc., have been fully contracted, we will consider that the leasing of the property so designated is within the protection of the so-called “grandfather clause,” § 6006.3. If these conditions are present even though the lease has not been formally signed, as mentioned in your question, we will, nevertheless, consider that the lease was executed or entered into prior to August 1. 2. As long as the lessee has the option to renew a lease entered into prior to August 1, 1965, the exercise of such option constitutes, in our opinion, as a renewal, and, consequently, rentals received subsequent to such renewal would be subject to the tax. 3. Except in the cases of leases to the United States Government, to banks, or to insurance companies, the lessee is liable for payment of the use tax on the lease payments which the lessor is required to collect from the lessee at the time rentals are paid by the lessee under the lease. Whether or not the amount of the tax is separately stated in the lease document would be immaterial. The lessee is under a legal liability for the tax in any event. 4. Inasmuch as leases are continuing sales under the terms of the new law, it is our opinion that the amount designated as interest is not excludable from gross receipts with respect to which the tax applies. The lessee pays a certain amount of money for the merchandise and this, in our opinion, constitutes the measure of the tax.

Mr. --- ---

-2-

August 5, 1965
330.3040

5.
There would be a tax due upon the exercise of an option to buy by the lessee and the tax would be due upon the specified selling price, i.e., amount paid by the lessee upon exercise of the option to purchase. 6. Upon the exercise of an option to buy, credits for prior lease payments upon which tax has been paid, may be allowed to the extent indicated in the paragraph immediately preceding the concluding paragraph of ruling 70, copy enclosed. You will note that there is no provision for a credit when the property was purchased with tax paid on the purchase price. 7. The lessor is required to pay tax on the amounts of rent which it actually collects prior to the assignment or sale of the lease to the bank. Thereafter, if the assignment or sale is without recourse on the lessor, the bank becomes in effect the lessor and must collect and pay the amount of the tax upon the rental receipts which it receives. Very truly yours,

E. H. Stetson
Tax Counsel

EHS:fb
Enclosure
cc:

--- – District Administrator