Were automobile-lease due-date change, assumption, and optional GAP-waiver charges included in taxable rental receipts?

Plain-English summary

A redacted lessor's March 19, 1997 letter described three fees said not to be included in its vehicle lease agreement. The letter and every agreement are absent. The lessor had not paid California sales-tax reimbursement or use tax when buying its vehicles. For periods when vehicles were in California, the leases were continuing sales and purchases taxed on rentals, with the lessor collecting use tax from lessees.

A first monthly due-date change usually was free. Later changes generated a fee varying with vehicle value and extension length, and moved the lease ending date by the same number of days. The opinion treated that fee as a payment required to lease the vehicle, so it was taxable rent.

The $250 fee charged to a replacement lessee to assume an existing lease was taxable for the same reason, although it covered a credit report, the lessor's and funding bank's approval processes, title correction and similar costs.

The later optional GAP waiver was different. If a lessee did not buy the lease's item 7 “Insurance Proceeds Deficiency Liability Release” at signing, the lessor might offer an Optional GAP Waiver Agreement a couple of months later for $400 to $500. The later agreement waived unspecified liabilities and its charge was separate from vehicle-lease charges. The opinion found it optional, not required by the lease, outside rental receipts and nontaxable.

The source does not reconcile its premise that all three fees were not included in the lease agreement with its conclusion that due-date and assumption fees were “required by the lease.” Annotation 330.3194, cited for that conclusion, addressed another auto lessor and called assumption, deferral and other fees required lease payments; its actual lease provisions were also absent and it invited representative provisions in any follow-up.

The opinion cited Annotation 330.2840 for the optional waiver, but that 1969 entry is absent from the current live 330 collection and repository. Its conventional, unlinked PDF path returned HTTP 404 directly and HTTP 4xx through the required Sofya retry, so its facts and limits remain unavailable. Live Annotation 330.3174 matches all three outcomes. No request, lease, fee schedule, GAP agreement, invoice, vehicle-location record, purchase-tax proof, return, audit, refund or later result appears.

Common questions

Was the due-date change fee taxable?

Yes. It changed the payment date and extended the lease term, making it a required lease payment.

Was the lease-assumption fee taxable?

Yes. The opinion included the $250 fee in rent even though it covered credit, bank-approval and title costs.

Was the optional GAP-waiver charge taxable?

No, under the described later, optional, separately stated agreement.

How much was the GAP waiver?

$400 to $500, offered a couple of months after lease signing to someone who did not buy the original liability release.

Were the fees actually written into the lease?

The request reportedly said they were not, yet the opinion called the due-date and assumption fees required by the lease. With no lease included, that tension is unresolved.

Are the cited earlier annotations available?

The 1987 Annotation 330.3194 source is available and involved broader auto-lease fees. The cited 1969 Annotation 330.2840 is no longer found in the live collection and its conventional PDF path fails.

Citations and references

• Cal. Rev. & Tax. Code §§ 6006(g)(5), 6006.1, 6010(e)(5), and 6010.1; Cal. Code Regs., tit. 18, reg. 1660(b)(1), (c)(1), and (c)(2) — lease status and rental-receipts measure
• Cal. Rev. & Tax. Code §§ 6051, 6201, and 6401 — sales tax, use tax, and exemption framework
• Cal. Rev. & Tax. Code §§ 6202, 6203, and 6204 — lessee liability and lessor collection duties
• Annotation 330.3194 PDF — broader auto-fee opinion treating assumption and deferral fees as required payments
• BTLG Annotation 330.2840 (May 13, 1969) — optional-waiver authority cited but unavailable in the current collection
• Live Annotation 330.3174 — matches the due-date, $250 assumption and $400–$500 GAP-waiver results
• Request, agreements and every fee, vehicle, tax and outcome record — absent

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.3174
• Original supporting opinion: 330.3174 PDF

Original ruling text

330.3174

STATE OF CALIFORNIA

JOHAN KLEHS
First District, Hayward

STATE BOARD OF EQUALIZATION
LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
TELEPHONE (916) 324-2614
FAX (916) 323-3387

DEAN F. ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
KATHLEEN CONNELL
Controller, Sacramento
________

April 30, 1997

JOHN CHIANG
Acting Member
Fourth District, Los Angeles
________
E. L. SORENSEN, JR.
Executive Director

Ms. M--- G. K--S--- L--P.O. Box XXXX
--- ---, CA XXXXX
Re:

S--- L--Account No. SR --- XX-XXXXXX

Dear Ms. K---:
This is in response to your letter dated March 19, 1997, in which you request a legal opinion addressing the application of tax to certain charges made by S--- L--- in connection with its leases of vehicles. You state that in the following circumstances, lessees are charged fees which are not included in the lease agreement. “Sometimes clients call us and ask if they can change their due date. They may for instance want to have their due date on the 15th of each month, instead of the 1st of the month. We usually agree to do this, which will also extend the ending date of the lease by the same number of days. The first time they want to change the date, we will usually do it free of charge. After that we charge a due date change fee. The amount of the fee will vary depending on the value of their car and the extension length. . . .” “Sometimes our lessees will want to get out of their leases, and will find someone to assume their leases. We charge a $250 assumption fee to the new lessee to cover costs associated with pulling up a credit report, our credit approval process and that of our funding bank, correcting the title, etc. . . .” “If a lessee did not purchase an ‘Insurance Proceeds Deficiency Liability Release’ at lease signing (#7 on the lease), a couple months into the lease we may call the lessee and offer that they can sign an ‘Optional GAP Waiver Agreement’ for a fee of $400 to $500. . . .”

Ms. M--- G. K---

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April 30, 1997
330.3174

DISCUSSION
Retail sales of tangible personal property in California are subject to sales tax, measured by the gross receipts, unless the sale is specifically exempt from taxation by statute. (Rev. & Tax. Code § 6051.) When sales tax does not apply, use tax, measured by the sales price, applies to the use of tangible personal property purchased from a retailer for the storage, use, or other consumption in California, unless the use is exempt from taxation by statute. (Rev. & Tax. Code §§ 6201, 6401.) As relevant here, a lease of tangible personal property in California is a continuing sale and purchase unless the lessor leases the property in substantially the same form as acquired and timely pays sales tax reimbursement or use tax measured by the purchase price of the property. (Rev. & Tax. Code §§ 6006(g)(5), 6006.1, 6010(e)(5), 6010.1; Reg. 1660, subds. (b)(1) and (c)(2).) When a lease is a continuing sale and purchase because either or both of the foregoing conditions have not been satisfied, the lease is subject to use tax measured by rentals payable. (Reg. 1660(c)(1).) Rentals payable include any payments required by the lease. (Id.) The lessee owes the tax, which the lessor is required to collect from the lessee and pay to this board. (Rev.
& Tax. Code §§ 6202, 6203, 6204; Reg. 1660(c)(1).)
Our understanding is that S--- L--- did not pay California sales tax reimbursement or use tax on its purchases of the vehicles it leases. Therefore, its lease of the vehicles is a continuing sale and purchase with respect to any period in which the vehicles are located in California, for which S--- L--- is required to collect use tax from the lessee measured by the rentals payable and pay it to this board. With regard to S--- L---’s charges to lessees to change the due date of the lease payments and the $250 assumption fee charged to a new lessee to assume an existing lease, such charges are payments required by the lease in order to lease the vehicle. (See BTLG Annot. 330.3194 (2/5/87).) Because the payment of the due date change fee and the assumption fee are required by the lease, and are not otherwise excludable from taxation, such payments are included in the rentals payable which are subject to tax. Therefore, S--- L--- is required to collect use tax from the lessee on these charges. However, with regard to the payment made by lessees pursuant to the “Optional GAP Waiver Agreement,” our understanding is that subsequent to the lease of the vehicle, a lessee has the option to purchase a waiver of certain liabilities by entering into the Optional GAP Waiver Agreement. The charge to purchase such a waiver is separately stated from the charges for the lease of the vehicle. Under these circumstances, we conclude that the payment required under the Optional Gap Waiver Agreement is not a payment required by the lease and is not part of the taxable rental receipts. Therefore, such payment is not subject to tax. (See BTLG Annot. 330.2840 (5/13/69).)

Ms. M--- G. K---

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If you have any further questions, please write again.
Sincerely,

Sophia H. Chung
Tax Counsel
SHC:cl
cc:

San Francisco District Administrator (BH)

April 30, 1997
330.3174