Did personal property tax enter taxable rentals when a financial-corporation lessor paid it and the lease required reimbursement from the lessee?

Plain-English summary

A redacted financial corporation's tax-administration manager asked how use tax applied to personal property tax assessed on leased property. The December 8, 1988 request is absent, but the opinion quotes four of its statements.

First, the requester characterized section 23183 as imposing California franchise tax on banks and financial corporations in lieu of other state, county and municipal licenses and taxes, subject to stated exceptions for real-property tax, sales and use tax, and motor-vehicle registration license fees.

Second, it said the company was a financial corporation exempt from personal property tax. It quoted section 235 as conclusively presuming the lessee to own tangible personal property belonging to a bank or financial corporation. It attributed to an absent Los Angeles County Assessor discussion the view that legal incidence and enforcement rested with the lessee.

Third, the requester said the lessor filed returns reporting leased equipment and paid the tax, while its lease required reimbursement from the lessee. The PDF supplies no return, lease, assessment, amount, payment or reimbursement record.

Fourth, it quoted the March 5, 1969 bank result published as Annotation 330.3530 and said financial corporations had been exempt from personal property tax only since 1981. The source supplies no statute versions, amendment record or separate support for that date beyond the requester's quotation.

Tax Counsel explained that 330.3530 treated the lessee as owner for property-tax purposes and therefore personally liable even when the bank collected and paid the amount. Because rules for property leased by banks and financial corporations were now the same, counsel applied the same analysis: the tax was the lessee's responsibility and was not part of taxable rentals payable.

Live Annotation 330.3533 matches that result. It supplies no request, assessor communication, lease, property, return, assessment, amount, payment, reimbursement, enforcement record, tax computation or later outcome.

Common questions

Did the lessor's payment make the reimbursement taxable rent?

No. Tax Counsel focused on who had the underlying personal liability, not who transmitted the payment.

Why did the bank rule apply to a financial corporation?

Tax Counsel said the personal-property-tax rules for property leased by the two institution types had become the same and applied Annotation 330.3530.

What facts came only from the requester?

The section 23183 description, section 235 quotation, county-assessor discussion, company status, 1981 timing, return filing, tax payment and contractual reimbursement were all quoted from the absent request.

Did the source reproduce the lease or property-tax records?

No. No lease, return, assessment, amount, payment, reimbursement or enforcement record appears.

Would every tax reimbursement under a lease be excluded?

The opinion does not say that. Its conclusion depends on the lessee being treated as owner and personally responsible for this tax.

Does the source show a later audit or other outcome?

No. It gives Tax Counsel's answer but no return adjustment, assessment, refund, appeal or later action.

Citations and references

• Revenue and Taxation Code section 23183 — franchise-tax-in-lieu rule, exceptions and exemption described in the absent request
• Revenue and Taxation Code section 235, Part 2 — conclusive lessee-ownership sentence quoted in the absent request
• Annotation 330.3530 (Mar. 5, 1969) — bank-lessee ownership, liability and rental-receipts analysis adopted by Tax Counsel
• Live Annotation 330.3533 — financial-corporation lessee-liability and rental-receipts result
• December 8 request and every assessor, lease, property, return, assessment, amount, payment, reimbursement, enforcement, tax and outcome record — absent

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.3533
• Original two-page supporting opinion: 330.3533 PDF

Original ruling text

330.3533
STATE OF CALIFORNIA

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

January 27, 1989

Mr. R--- W. O--Tax Administration Manager
T--- M--- C--- Corp.
P.O. Box XXXX
---, CA XXXXX-XXXX

Dear Mr. O---:
This is in response to your letter dated December 8, 1988 regarding the application of use tax to the amount of personal property tax assessed on leased property. You state: "1.

The California Franchise Tax on income is imposed on banks and financial corporations in lieu of all other state, county and municipal licenses and taxes. The exemption does not apply to real property taxes, sales and use taxes and motor vehicle registration license fees. [Sec. 23183]

"2.

TMCC is a financial corporation for California tax purposes and is therefore exempt from California personal property tax under the provisions of Sec. 23183. However, tangible personal property leased from TMCC is subject to personal property tax since, ‘…the lessee of tangible personal property owned by a bank or financial corporation shall be conclusively presumed the owner of that property.’
[Sec. 235, Part 2. Assessment]
Per discussion with the LA County Assessor’s office, with
respect to personal property leased from financial
corporations, under Sec. 235, the legal incidence of liability rests with the lessee and all enforcement proceedings resulting from any unpaid personal property taxes are against the lessee.

Mr. R--- O---

-2-

"3.

“TMCC files personal property tax returns reporting leased equipment and pays the tax. Under lease agreement, TMCC is reimbursed by the lessee for property taxes paid.

"4.

‘When a bank is the lessor of personal property and personal property tax is assessed against the property in the hands of the lessee, the amount of the personal property tax is not includable in the taxable rental receipts.’ [SBE Sales Tax Counsel Ruling 330.3530, 3/5/69]

January 27, 1989
330.3533

Although the 1969 ruling refers to banks only, financial
corporations have been exempt from personal property tax
only since 1981.”
The basis for the opinion in Annotation 330.3530 was that, for purposes of the personal property tax, the lessee is regarded as the owner of the leased property. The lessee therefore had personal liability for the personal property tax, even if collected from the lessee and paid by the bank, and the amount of the personal property tax was not part of the taxable rental receipts. Since the rules applicable to personal property taxes assessed against property leased by banks is now the same for property leased by financial corporations, the same analysis as set forth in Annotation 330.3530 would also apply. Therefore, personal property taxes assessed against property leased by financial corporations are the responsibility of the lessees and are not part of the taxable rentals payable. If you have further questions, feel free to write again.

Sincerely,

David H. Levine
Tax Counsel

DHL:ss
bc:

--- – District Administrator