Was personal property tax paid by a bank lessor's lessee taxable rent when banks themselves were not subject to that property tax?

Plain-English summary

An unidentified correspondent's absent November 4, 1968 letter asked whether personal property tax entered the tax measure on rental receipts. The Board had also been reviewing letters from other lessors, none of which is reproduced.

The stated general rule treated any personal property tax a rental contract required the lessee to pay as taxable rental receipts, whether the tax was assessed directly against the lessee or the lessor.

Banks were different because the letter said they were not subject to personal property tax. Bank-owned leased property was taxed on the theory that the lease was a conditional sale and the lessee was the owner.

If the property was on the unsecured roll, the taxing authority could obtain a personal judgment against the lessee. The lessee's tax payment therefore discharged its own obligation, did not benefit the bank lessor and was excluded from taxable rental receipts.

Possible action against property on the secured roll, or seizure and sale on the unsecured roll, did not change that answer. Counsel added that those remedies were not generally followed in practice. Routing the money first through the bank, which then paid the tax collector, also did not alter the result.

The author expressly corrected his October 30, 1968 reply, which had overlooked that banks were not subject to personal property tax. That earlier reply is absent.

A separate October 23 request asked about sale-and-leaseback taxability. The March 5 letter says that review was unfinished and promises a later answer; neither the request nor any later answer appears here.

Live Annotation 330.3530 publishes only the bank-lessee exclusion. It supplies no request, contract, party identity, property, roll, amount, payment, collector record, tax computation, corrected prior letter, sale-and-leaseback answer or later outcome.

Common questions

Why was a bank lessor treated differently?

The source says the bank was not liable for the personal property tax.

What was the rule for other contract-required property-tax payments?

The letter treated them as taxable rent whether the assessment named the lessee or lessor. The bank exception rested on the bank owing no personal property tax.

Whose obligation did the lessee pay?

Its own, because the leased property was assessed to it as owner under the historical conditional-sale treatment.

Did paying through the bank make the amount rent?

No.

Did possible seizure of the property benefit the bank enough to change the result?

No. The letter said those collection remedies were not determinative and were not generally followed in practice.

Did the letter change an earlier answer?

Yes. Assistant Counsel said his October 30 reply had overlooked the bank exemption and called that fact determinative. The prior reply is not reproduced.

Did it decide the separate sale-and-leaseback question?

No. That review remained unfinished, and no promised later answer appears in this source.

Does the source show an actual assessment or tax computation?

No. It supplies no contract, property, assessment roll, amount, payment, collector record or later result.

Citations and references

• No numbered statute, regulation, case or prior ruling appears in the supporting letter.
• November 4 request and other lessor letters — personal-property-tax questions reviewed but all absent
• October 23 request — separate sale-and-leaseback question left unresolved; request and later answer absent
• October 30 reply — expressly corrected for overlooking the bank exemption; reply absent
• Live Annotation 330.3530 — bank-lessee personal-property-tax exclusion
• Rental contract and every identity, property, assessment, amount, payment, collector, tax and outcome record — absent

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.3530
• Original supporting opinion and correction: 330.3530 PDF

Original ruling text

STATE OF CALIFORNIA

330.3530

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

March 5, 1969

Dear Mr. ---:
Please excuse the extreme delay in responding to your letter of November 4, 1968 concerning the inclusion of personal property taxes in the measure of tax on rental receipts. We have been thoroughly reviewing this subject in response to your letter and those of other lessors. The same kind of review is also being undertaken in regard to the taxability of sale-and-leaseback transactions, the subject of a letter from you dated October 23, 1968. We have not yet concluded our review of that subject but will write to you as soon as our position is established. In summary, our position on personal property is this: Where a lessee is required by the rental contract to pay any personal property tax as assessed on the leased property, the amount so paid will be regarded as part of the taxable rental receipts whether the tax is assessed directly against the lessee or the lessor. In the case of banks, the rule is different because banks are not subject to payment of personal property taxes. Leased property owned by the bank is subject to that tax on the theory the lease is a conditional sale contract and the lessee is the owner. If the property is on the unsecured roll, the taxing authority can gain a personal judgement against the lessee. Accordingly, it is our view that the payment of tax by the lessee is payment of a personal obligation, is not for the benefit of the lessor and is therefore not includible in taxable rental receipts. This is true even though there can be an action against the property if on the secured roll, and the property is subject to seizure and sale if on the unsecured roll. These latter remedies are not generally followed in practice. The fact that the amount for the tax is first paid to the bank and the bank pays it to the tax collector does not alter the rule. In my reply to you of October 30, 1968, I had overlooked the fact that banks are not subject to personal property taxes. This factor is determinative, and I apologize for my earlier oversight. Very truly yours,

Lawrence A. Augusta
Assistant Counsel
LAA:PH

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