Could a lessor credit tax paid on materials when altered property was later rented and rent became taxable?

Plain-English summary

An absent July 21, 1965 letter sent to the Board's Pasadena headquarters was referred to Tax Counsel; the source does not say when, how or by whom. The July 26 response describes lease-tax rules to begin August 1, 1965 without citing a numbered statute or regulation.

Under the response, avoiding rent tax required both lease in substantially the same form and lessor payment of sales-tax reimbursement to the vendor or use tax measured by purchase price. A form change independently made rent taxable. Property bought ex-tax for resale also produced rent-tax reporting and payment.

It nevertheless allowed the lessor to credit the amount of tax paid on the purchased materials against the tax due on rental receipts.

The current annotation adds that no use was made of the property before leasing it. The supporting letter does not state that fact or condition, so this page does not infer how the credit would apply after pre-lease use.

Counsel said a special report explaining the changed law was enclosed and detailed regulations would become available shortly after August 1. Neither the report nor any later regulation, transaction, return, credit computation or outcome appears.

Common questions

Why was rent taxable despite tax paid at acquisition?

Because the property was not leased in substantially the same form as acquired.

What other route made rent taxable?

Buying the property without tax for resale, according to the letter's unnumbered description of the new rule.

What credit did the letter allow?

Credit for tax paid on the purchase of the materials.

Did the supporting letter discuss use before the lease?

No. That condition appears in the current annotation, not the complete supporting opinion.

Did the source identify the property or tax amount?

No. It states a general rule without the request, property, materials, payment, lease, rent or credit record.

Was the enclosed explanation preserved?

No. The special report is referenced but absent; the response also says detailed regulations would follow later.

Citations and references

• No numbered statute, regulation, ruling, or case citation appears in the supporting opinion.
• July 21, 1965 letter and referral — referenced, absent
• Board special report on August 1, 1965 changes — referenced enclosure, absent
• Live Annotation 330.3960 — adds no prelease use
• Property, acquisition tax, form/use, lease, rent, return, credit and outcome — absent

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.3960
• Original supporting opinion: 330.3960 PDF

Original ruling text

330.3960

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

July 26, 1965

--- --- ----- --- ----- --- --Gentlemen:
Your letter of July 21 addressed to our Pasadena headquarters office has been referred to this office for reply. Commencing August 1, 1965, lessor must pay tax on rental receipts unless the property is leased in substantially the same form in which it was acquired by the lessor, and the lessor has paid sales tax reimbursement to his vendor or has paid use tax measured by the purchase price of the property. If the property which is leased is not in substantially the same form as acquired or has been purchased without tax for resale, the lessor must report and pay tax on rental receipts. If the property leased is not in substantially the same form as acquired, but tax was paid upon the acquisition of the property, the lessor although he must pay the tax on his rental receipts may take a credit for the amount of the tax paid on the purchase of the materials. Enclosed is a copy of a special report which has been issued to explain the changes in the law. Detailed regulations will be available shortly after August 1. Very truly yours,

E. H. Stetson
Tax Counsel

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