Were California vehicle-license reimbursements and insurance amounts inside an automobile lessor's lump-sum monthly charge taxable rent?

Plain-English summary

Counsel for a redacted automobile lessor wrote on August 4, 1969 about a redetermination petition. Unable to attend the scheduled hearing, counsel asked the Board to recommend on its existing facts and information. The request, hearing record and petition are absent.

The lessor charged monthly lump-sum automobile rent, moved amounts into internal insurance and license reserves, and reported the net receipts for sales tax. The auditor restored both reserves to taxable rental receipts. No amounts, invoices, accounts, returns or workpapers are published.

Section 6006 treated a tangible-personal-property lease for consideration as a sale. Section 6011 defined sales price as total sale, lease or rental price without deducting materials, labor or service, interest, losses or other expenses.

For license fees, an absent lease in the audit workpapers made registration, permits and required vehicle taxes the lessor's primary duty under paragraph 2, with lessee reimbursement under paragraph 3(b). The petition reportedly included reimbursements in monthly payment; workpapers reportedly showed internal segregation.

Section 6011(h) excluded a motor-vehicle fee or tax imposed by and paid to California that was added to or measured by a stated percentage of vehicle sales or purchase price. The recommendation applied that exclusion to the fees and taxes paid by the lessor and held their reimbursement was not taxable rent.

For insurance, four historical California Tax Service annotations required the lessee's obligation, lessee's benefit, lessee insurer choice and separate statement. Lease paragraph 3(g) made the lessee procure public-liability, property-damage and other insurance; paragraph 3(f) made it indemnify the lessor. The lessee could select an insurer acceptable to the lessor.

Those insurance conditions were met except separate statement. The lessee chose insurance through the lessor, and an absent proposal accepted and incorporated into the lease used one monthly lump sum. The insurance amount was included but unstated, so the reserve remained taxable.

The letter recommended deleting license fees from the determination and making no adjustment to insurance. It promised notice of action, but no final action appears. Live Annotation 330.3600 publishes only the license-fee result and omits the insurance analysis and recommendation posture.

Common questions

Did lump-sum billing make the vehicle-license reimbursement taxable?

No. The statutory motor-vehicle-fee exclusion applied to the supported amount.

Why was insurance treated differently?

The historical exclusion required separate statement, which the lump-sum proposal lacked.

Did the lessee have insurance responsibility?

Yes. The lessee had to procure and maintain coverage for its benefit and could select the insurer, subject to lessor acceptance.

Was this the final Board decision?

No. The letter stated the recommendation and said the taxpayer would later be notified of the action taken.

What did the lease require for vehicle fees?

The source says paragraph 2 required the lessor to register each vehicle in its name, obtain permits and pay required taxes; paragraph 3(b) required lessee reimbursement. The lease is absent.

What insurance conditions were satisfied?

The lessee bore procurement, received the benefit, indemnified the lessor and could choose an insurer acceptable to the lessor. Only separate statement failed.

Were the audit amounts or final action published?

No. The scan supplies no dollar amounts, workpapers, accounts, invoices, return, determination after recommendation or later outcome.

Citations and references

• Revenue and Taxation Code section 6006 — lease for consideration as a sale
• Revenue and Taxation Code section 6011 — total lease price without expense deductions
• Revenue and Taxation Code section 6011(h) — specified California motor-vehicle fee and tax exclusion
• California Tax Service Annotation numbers 1536.10, 1536.12, 1536.15 and 1536.16 — historical insurance-charge test
• Live Annotation 330.3600 — license-fee exclusion dated August 26, 1969; insurance omitted
• Request, hearing, petition, lease, proposal, billing, account, audit, tax, historical-ruling, final-action and outcome records — absent

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.3600
• Original supporting opinion: 330.3600 PDF

Original ruling text

330 . 3600

August 26, 1969 ·

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Dear Mr J _

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This is i n reply to your letter of August 4, 1969 , with r~gard to the p~ti tion for redet~rmi nj;l t i
:1.ed on
b~half of your cliP.nt ! .
.. ...-- ---.,, .. --.-~-· .,...., ..-..,r.-. Since you were unabl~ to appear at t he h~ari ng s cheduled on the matt~r, you request that we mo.lee our reco.r..m n'ia tion on th~ bas1.s of the facts ann information in our pos session.
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The item b~ing protested is the inclusion of i nsurance an1 license f~Ps in the taxable measure of r~ntal rP.ceipts. We unders tand that petitioner is the lP.ssor of automobiles for which a monthly lumn-sum charge is ma1e to its lP.ssees. From the total r ental r~cP.ipts, petitioner detiucts a certain amount which it enters to SP.parate accounts in its recor~s designated as a: reserve for insurancP- and licans(!'. 'l'hP- mit amount of the rental rP-ceipts a re r eporte~ for sales tax purposP-s. The auditor has included the amounts d~signated reserve for insurance an~ lic~nse in the t a xable measure of rental r~ceipts. It is your contention that the tax should not apply to the i nsurance ·and license fees inclu~ed as a part of the total monthly amount charged to the l essee for•the lease of the automobi le .

We will discuss t hA protested i tems separately, 1.

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License F~esi

s~ction 6006 of the RP-venue an~ Taxation Cone prov11es in part that sale mF>a ns ana inclunes "Any leas~ of tangible personal property in any maru1Pr or by any m~ans whatsoever for a consid~ration. 11 I

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330.
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August 26, 1969

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Section 6011 of the Code provides, in pP.rt1nent part, that "sal~s price" means the total amount for which tangible personal prop~rty is sol1 or leased or rent~'1 without nen.uction on account of the cost of materials used, labor or service cost, inter~st charged, losses, or any other expenses. Under the terms of the lease agreem~nt, a copy of which was attached to the audit working pap~rs, paym~nt of the license fees are th~ primary obligation of the lessor. Paragraph (2) of that agreement provi ~es that. th~ lessor sh~ll ffr~giater each lP.ased vehicle in its name, obtain license p~rmits thArefor, and pay re,quirerl taxP.s therP-on ." Para graph ( 3).(b), however , provi1es that thE' lessor shall b" reimbursed by the lPssee for such license fees and taxes. J.n the petition it is stated that the reimburs~ment for the license f~es are included in the total monthly payment figure, and accor1ing to tn~ audit workpapers, an amount is segregate~ in rPtitionP.r's rP.corns from each mon thly rental payment as applicable to reimbursement for license fees.

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Section 6011 (h) of the Cone provines that, rr salPs price" 1 tThe amount of any motor vehicle fee or tax imposeti by and paid to the State of Culifornia that has been added to or is measured by a stat~~ percentage of the sales or purchase price of a motor vnh1cle.~ r\o'::"s not include,

The 11cens~ fees involved are imposed by an1 pa id to the State of California and ar8 included in the sales (lease) price of the v~hicles . It is our opinion that the exclusionary prov i sions of 60ll(h ) are applicable to the amount s paid by., th~ lessor on account of the vehicle fees and taxes imposP.1 by th~ State of California and the reimbursement of those fees and taxes from the r ental r e ceipts pai~ by th~ lessee do~s not constitute taxable rAntal payments. 2.

Insurance:

By letter rulings, th~ board consistently his held that charg~s for insurancA under a lease contract, the procurement of which 1s an obligation of th~ l RsseA , for the less~e ' s benefit and un ..ler which thf.! lessee has an option in selecting thP. insurer, are exclu11bli:? from rental receipts provir!l')d such charr, ~s arP SP,parately statP.r:t. (Cal . Tax Serv. Anno. Nos. 1536.10, 1536.12, 1536.15, and 1536.16.) SUbparagr~ph (3)(g) of th~ lP.aS~ agr~~ment p~pressly provi~es that JrOCUrP.ment of insurance is the obligation of the

330.3600
August 26, 1969

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l @ss~e who must, "Procure, pay for and maintain public liability, prop~rty namag~ and other insurance •••• n The 1nsurnnce is for the b 0 n~fit of the lessee who a grees unner (3)(f) to 11 In1~mn.1fy an➔ hold lessor harmlAss from all ~amage to said v~hicl e s an1 from and against all claims or causes of action ••• which may arise out of or be caused by the use of said v~hicles by lessee ••• • n Th~ agreement further provides· that the insur~r -may be sP-lected by lesseA. The only condition being the acceptability of the 1nnurer by the lessor. Under the above l ~ase agreement provisions, the t~st of exclud1b111ty of the insurance paymants from th~ tax is met with the exception of the requirement of separately stated charges. In the instant case the less~e has el~cted to procure the insurance through the lessor. According to the l ~as~ proposal, a copy of which also is attached to the audit working papP.rs, accepted by lessee and incorporated by refer~ncA into the lease agreement, the rental payments ar~ a lump-sum w)u Lr1ly amount. The charg~s for the insurance are include~ but a re not sBparat ~ly stat~a as rP-quired by board ruling s to afford ~xcludibility from the tax. I

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In vi~w of the abov~, the amounts attributable to insurance an~ deducted from th~ rental receipts by thP l~ssor, Rainier LP.asing Corporation, constitute taxablP. :recP.ipts 1ncludible in the measure of rental payments subject to the t ax .

It will be our recommendation that:

1.

The license fe~s be deleted from th~ d~t~rmination .

2. No adjustment be ma~e with respect to the insurance
   - charges included in the determination .

You will be notified of the action taken.
Very truly yours,

T. P. Putnam
Tax Counsel
BY_ _ _ _ _ _ _ _ _ _ _ __

J os0ph Na.narolla

out- of- Sta te - Dist . Admin.

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