Could California vehicle lessees credit Illinois tax paid after their lease had already begun in California?

Plain-English summary

A redacted November 11, 1992 letter said a vehicle lessor leased a car to two redacted lessees on March 17, 1990 and collected $24.48 California use tax on each monthly rental. When the lessees moved to Illinois in August 1990, the lessor stopped collecting. Tax Counsel expressly assumed—but the reproduced record does not prove—that the car left California then.

In March 1991 the lessor filed an Illinois motor-vehicle use-tax return and paid $1,224. The lessees returned to California on October 15, 1992, and the lessor restored the tax portion of their monthly payment. The source then asks whether the lessees received credit for tax “they paid” to Illinois, conflicting with its earlier statement that the lessor paid. The request, return and payment evidence are absent, so the letter does not resolve that payer wording.

Sections 6051 and 6201 supplied the sales- and use-tax framework. Unless substantially unchanged property had already borne sales-tax reimbursement or purchase-price use tax, sections 6006(g), 6010(e), 6006.1 and 6010.1 treated its lease as a continuing sale and purchase. Although use tax fell on the lessee, regulation 1660(c)(1) required the lessor to collect it when rent was paid and issue a receipt.

Rent was taxable only while the vehicle was located in California. That rule explains the described stop and restart, but the letter rests on the stated movements and its explicit Illinois-removal assumption; no lease, vehicle-location evidence, collection return or remittance appears.

California denied the credit for two reasons. First, regulation 1660(c)(2) required an untaxed-property lessor electing purchase-price treatment to report and timely pay with the return for the period in which the property first entered rental service. The lessor made no such election in March 1990, so regulation 1660(c)(8) did not permit later tax-paid-lease treatment and other-state credit.

Second, section 6406 and Regulation 1660(c)(8) required the qualifying other-state tax to be paid before the property's California use or lease. Illinois tax was paid only after the vehicle had already been leased in California.

The PDF gives advice only and shows no audit, refund/credit calculation or later action. Live Annotation 330.3770 states the same location and prior-payment rules but adds that the property was a “passenger vehicle” as Vehicle Code section 465 defined it and that neither sales nor use tax had been paid. The PDF identifies only a vehicle/car, says no timely purchase-price election occurred and does not cite section 465 or affirmatively state its acquisition-tax history.

Common questions

Was California tax due while the vehicle was in Illinois?

No. Under the opinion's facts, rent was taxable only while the leased vehicle was located in California.

Did the record establish exactly when the car left California?

No. Counsel assumed removal when the lessees moved to Illinois in August 1990.

Why did the Illinois payment not create a credit when the car returned?

There was no timely purchase-price election, and the Illinois tax was paid after California leasing had already occurred.

Could the lessor make the purchase-price election later?

No. Regulation 1660(c)(2) required the election on the timely return for the period when the property was first placed in rental service.

Who paid the $1,224 Illinois tax?

The facts say the lessor filed the return and paid it. The question then refers to credit for tax the lessees paid. No underlying request, return or receipt resolves that conflict.

Did the letter prove acquisition tax had never been paid?

No. It states the general substantially-same-form exception and finds no March 1990 purchase-price election. The live annotation adds a premise that neither sales nor use tax had been paid, but the PDF supplies no acquisition record.

Was the later California credit actually processed or denied on a return?

The source shows counsel's answer only. It includes no California return, audit, credit computation, refund claim or later outcome.

Did the PDF call the car a Vehicle Code passenger vehicle?

No. That classification and Vehicle Code section 465 appear only in live Annotation 330.3770.

Citations and references

• Revenue and Taxation Code section 6051 — sales tax on retail gross receipts
• Revenue and Taxation Code section 6201 — use tax on California storage, use or consumption
• Revenue and Taxation Code sections 6006(g), 6010(e), 6006.1 and 6010.1 — continuing leases while property is in California
• Regulation 1660(c)(1) — lessor collection and receipt duties
• Regulation 1660(c)(2) — timely first-rental-period purchase-price election
• Revenue and Taxation Code section 6406 and regulation 1660(c)(8) — other-state credit and prior-payment requirement
• Live Annotation 330.3770 — passenger-vehicle and no-acquisition-tax premises, location rule and credit denial
• November 11, 1992 request, acquisition/lease/location evidence, Illinois return/payment, California reporting and later outcome — absent

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.3770
• Original supporting opinion: 330.3770 PDF

Original ruling text

330.3770

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-8208

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

February 17, 1993

GRAY DAVIS
Controller, Sacramento
────────

Mr. P--- H. L--The M--- B--XXX --- --- Drive
---, CA XXXXX
Re:

BURTON W. OLIVER
Executive Director

SS -- XX-XXXXXX

Dear Mr. L---:
This is in response to your letter dated November 11, 1992 which was addressed to Gerald Jung, a tax auditor with the State Board of Equalization. According to your letter, on March 17, 1990, M--- B--- leased a vehicle to B--- L--- and M--- N---. M--- B--- collected from the lessees $24.48 in use tax on each of the monthly rentals. M--- B--- stopped collecting use tax on the monthly rentals after the lessees moved to Illinois in August, 1990. (We assume the lessees removed the car from California at that time.) Sometime in March of 1991, M--- B--- filed a motor vehicle use tax return with the State of Illinois and paid $1,224 in tax. Subsequently, on October 15, 1992, the lessees moved back to California, and M--- B--- reinstated the tax portion of their monthly payment and began collecting California use tax. You inquire whether the lessees are entitled to a credit for the tax they paid to the State of Illinois. Revenue and Taxation Code section 6051 imposes a sales tax on all retailers measured by their gross receipts from retail sales of tangible personal property. Revenue and Taxation Code section 6201 imposes an excise tax, commonly referred to as the use tax, on the storage, use, or other consumption in this state of tangible personal property purchased from any retailer for storage, use, or other consumption in this state. The use tax complements the sales tax and is most frequently imposed upon in-state leases and out-of-state purchases of property for use in California. Unless tangible personal property is leased in substantially the same form as acquired by the lessor and the lessor has paid sales tax reimbursement or use tax measured by the purchase price of the property, a lease of tangible personal property is a continuing sale and purchase, and

Mr. P--- H. L---

-2-

February 17, 1993
330.3770

the lessor must collect and pay use tax measured by the rental payments. Rev. & Tax. Code §§ 6006(g), 6010(e), 6006.1, and 6010.1. Although the use tax is imposed on the lessee, the lessor must collect the tax from the lessee at the time rentals are paid by the lessee and give the lessee a receipt. Sales and Use Tax Regulation 1660(c)(1). The rentals, however, are subject to tax only while the leased property is located in California. Rev. & Tax. Code § 6006.1 and 6010.1. Revenue and Taxation Code section 6406 allows a credit against California use tax for certain sales and use taxes or tax reimbursement therefor imposed by other states. With respect to leases, to be entitled to the credit the lessor must make a timely election to measure any tax liability for the property by its purchase price. Regulation 1660(c)(8). A lessor who acquires leased property without paying use tax or sales tax reimbursement may elect to pay tax measured by the property's purchase price but must make that election by reporting and paying timely such tax with its return for the period during which the property is first placed in rental service. Regulation 1660(c)(2). With respect to the present lease, M--- B--- did not elect to pay tax measured by the property's purchase price when the property was initially placed in rental service in March of 1990. Therefor, M--- B--- may not treat this lease as a tax-paid lease and may not take a credit for the tax imposed by the State of Illinois. A second reason why no credit is allowed is that Revenue and Taxation Code section 6406 provides that the retail sales or use tax or reimbursement therefore imposed by any other state must be paid "prior to the storage, use, or other consumption of that property in this state." Regulation 1660(c)(8) also requires that the tax or reimbursement therefor imposed by any other state must be paid prior to leasing the property in this state. In the present matter, the property was leased in California prior to payment of the Illinois motor vehicle use tax. Therefor, no credit is allowed under Revenue and Taxation Code section 6406. If you have further questions regarding Sales and Use Tax Law, please do not hesitate to write again.

Sincerely,

Elizabeth Abreu
Tax Counsel
EA:cl