Could New York tax paid by a vehicle lessor offset California use tax on rents after the lessee moved the vehicle to California more than 90 days later?

Plain-English summary

A redacted individual wrote the Audit Review and Refunds Section on June 18, 1993 and faxed a copy October 12 after referral confusion. The submissions are absent; the opinion's subject line says “No Permit No.”

The requester said that as a New York resident in September 1990, he leased a 1990 Toyota Camry through a New York dealer, then moved with it to San Jose in November 1992. The lessor reportedly said New York law required upfront sales tax on full vehicle purchase price, added its paid tax to vehicle cost, and calculated rent on the tax-inclusive total. The lessee asked to credit that amount against California tax.

Sections 6006(g), 6006.1, 6010(e), 6010.1 and regulation 1660(c)(1) generally made leases continuing sales/purchases, with use tax measured by rent, owed by the lessee and collected by the lessor.

A same-form lessor could elect purchase-price tax by paying its California vendor or timely reporting use tax for the period property first entered rental service. That election treated it as consumer and made rent nontaxable, but—absent a statute such as section 6094.1—required the lessor's own use to be subject to California use tax.

Property used outside California over 90 days before entry was not purchased for California use, so its owner owed no California use tax on its own consumption. The lease began in September 1990 and the car entered in November 1992. The PDF says the lessor purchased no later than September 1990, but also says entry occurred more than three years after purchase and first rental. It gives no exact purchase date or prior rental record to resolve that wording. The stated lease-to-entry interval still exceeded 90 days.

Because the lessor owed no California acquisition/use tax, it could not elect purchase-price tax or apply section 6406 credit for its New York payment. No California tax had been paid on purchase price, so the lease remained a taxable continuing sale. The lessee owed rent tax; the lessor's different New York payment could not credit a liability it did not owe.

The PDF says “Enclosures” but identifies or supplies none. Live Annotation 330.3680 matches the basic facts and result, adds amendment markers 2006-1 and 2008-1, and appends a historical regulation 1620(b)(5) note: from October 2, 2004 through June 30, 2007, specified property brought into California within 12 months was presumed acquired for California use under certain conditions. That later note did not govern the 1990–1992 facts.

No request/fax, vehicle, purchase, lease, New York authority or payment proof, rent calculation, California move/use record, return, collection, audit, enclosure, amendment history or later outcome appears.

Common questions

Were California rents taxable after the move?

Yes.

Could the lessor credit its New York tax?

No, because it owed no California acquisition tax.

Could the lessee use the lessor's New York tax as a credit?

No. The taxes were imposed on different people and transactions.

How long was the stated lease-to-entry period?

September 1990 to November 1992 is about 26 months. The PDF also says entry was more than three years after purchase and first rental, but gives no exact purchase or earlier-rental date. Either account exceeds 90 days.

Why could the lessor not elect California purchase-price tax?

Because the vehicle was not regarded as purchased for California use, the lessor owed no California tax on its own use to elect and offset.

What do the 2006-1 and 2008-1 markers add?

The live page gives no amendment history. It adds a historical 12-month presumption note for October 2, 2004 through June 30, 2007 under regulation 1620(b)(5).

Were the stated enclosures published?

No. The PDF identifies none and contains only the letter.

Citations and references

• Revenue and Taxation Code sections 6006(g), 6006.1, 6010(e) and 6010.1; regulation 1660(c)(1) — continuing lease and rent tax
• Revenue and Taxation Code section 6094.1 — statutory exception referenced in limiting purchase-price elections
• Revenue and Taxation Code section 6406 — same-payer other-state credit
• September 1990 lease and November 1992 entry — over 90 days; exact purchase timing and the PDF's “more than three years” statement remain unresolved
• Live Annotation 330.3680 — rent-tax/no-credit result, amendments 2006-1 and 2008-1
• Regulation 1620(b)(5) — live-only historical October 2004–June 2007 twelve-month note
• Request/fax, vehicle/lease, New York law/tax, rent, California use, tax records, enclosures, amendment history and outcome — absent

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.3680
• Original supporting opinion: 330.3680 PDF

Original ruling text

330.3680

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

LEGAL DIVISION (MIC:85)
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-2642

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles
GRAY DAVIS
Controller, Sacramento

December 7, 1993
BURTON W. OLIVER
Executive Director

Mr. J--- A. D--Consultant in Nonprofit Management
XXXX --- Drive
---, CA XXXXX

Re:

Application of Tax
Regulation 166O(c)(8), (6406)
Tax Credit for Vehicles
Leased Out of State and
Brought into California
No Permit No.

Dear Mr. D---:

This is in response to your letter dated June 18, 1993, to Mr. Jeff Joy of the Audit Review and Refunds Section, a copy of which you forwarded to us by facsimile on October 12, 1993. As you know, there was apparently some confusion in referring your letter to us. We apologize for that confusion and the resulting delay in responding. Your question relates to the application of tax to a vehicle that you leased in New York and have now brought into California. My understanding is that in September, 1990 while you were a resident of --- ---, New York, you leased a 1990 Toyota Camry automobile, through T--- C--- Inc. in ---, New York. In November, 1992, you moved to San Jose and are now a California resident. The lessor informed you that under New York law they are required to pay New York sales tax "up front," on the full purchase price of the vehicle. The lessor added the amount of tax they had already paid to New York State to the total cost of the vehicle. The lessor then calculated your monthly rental payments based on the total cost (including the tax paid by the lessor). You ask whether the

Mr. J--- A. D---

-2-

December 7, 1993
330.3680

amount of sales tax previously paid by the lessor in New York and collected from you on a monthly installment basis can be allowed as a credit against your California tax liability. In California the general rule is that a lease of tangible personal property is a continuing sale and purchase. For most leases, the applicable tax is the use tax which is measured by rentals payable and which must be collected by the lessor from the lessee at the time rentals are paid. (Rev. & Tax. Code §§ 6006(g), 6006.1, 6010(e), and 6010.1 and Sales and Use Tax Regulation 1660(c)(1).) A lessor leasing tangible personal property in substantially the same form as acquired may elect to pay California tax measured by its purchase price. A lease of such California taxpaid property is not a taxable continuing sale. The lessor may make such an election by paying California sales tax reimbursement or use tax to its vendor when purchasing the property or by paying use tax measured by purchase price directly to the Board with its timely return for the reporting period in which the property is first placed into rental service. When a lessor makes an election to pay tax on purchase price (either to its vendor or by a timely payment directly to the Board), it is making an election to be treated as the consumer of the property rather than the reseller to the lessee. Unless provided by statute otherwise, it can make such an election only if its use would be subject to use tax. (Cf. Rev. & Tax. Code § 6094.1.) The question here is whether the lessor is entitled to a credit in California with respect to its payment of New York tax measured by purchase price such that your vehicle is regarded as California tax paid in the hands of the lessor. California use tax is imposed with respect to property purchased out of state only if the property was purchased for use in California. When property is used outside California for over 90 days prior to its entry into California it is not regarded as purchased for use in California. The owner of that property (here, the lessor) does not owe use tax on its use of the property in California (in this case the lessor's own use). In the present case, the lessor, purchased the vehicle no later than September of 1990, which is the time that your current lease term began. You brought the vehicle to San Jose, California in November of 1992. Therefore the vehicle was brought into California more than three years after it was purchased and first placed into rental service. Since the vehicle was purchased in New York more than three years ago and brought into California in November of 1992, the lessor is not regarded as having purchased it for use in California and the lessor therefore owes no tax with respect to the vehicle. Since the lessor of your vehicle did not purchase the vehicle for use in California and therefore owes no use tax on its use of the vehicle in this state, it may not elect to pay tax to California measured by purchase price. California does have a provision that allows a credit against a person's California tax liability for that person's payment of tax to another state. (Rev. & Tax. Code § 6406.) Here, however, the lessor paid the New York tax but owes no California tax, and has no election to pay California tax, against which to take a credit for such

Mr. J--- A. D---

-3-

December 7, 1993
330.3680

New York tax. Since no California tax has been paid on the purchase price, the lease is a taxable continuing sale. As noted above, you are the person owing that tax. The lessor, who paid the New York tax, has no California tax liability against which it may take a credit. If you have further questions, feel free to write again. Sincerely,

Gerald Morrow
Tax Counsel
GM/md
Enclosures
cc:

Ms. Oveta Riffle
Ms. Cheryl A. Hronec
Consumer Use Tax Section - MIC:37
Ms. S--- L--Leasing Customer Service
T--- M--- C--- C--XX --- --- Road, Suite XXX
---, NY XXXXX
San Jose - District Administrator