Could a truck lessor charge tax on every rental after paying purchase-price tax on some trucks and electing FRV only for future trucks?

Plain-English summary

A truck lessor had paid tax on the purchase price of its existing MTE. For future trucks, it proposed using resale certificates and fair-rental-value (FRV) treatment. To simplify accounting, it wanted to label and collect “sales tax” on every rental, including existing tax-paid trucks, and remit all collections to California.

California said no. An MTE lease was the lessor's use, and the lessor—not the lessee—owed use tax on property acquired under the limited FRV procedure.

The live annotation says the company could not create a new FRV election for its existing tax-paid trucks by collecting further tax from lessees; it had to keep the consequences of its purchase-price choice. The PDF contains different election wording, disclosed below. Both sources reject shifting use-tax liability to the lessee, and the PDF expressly rejects improper collection even when the money is remitted.

Proposed practice and source conflicts

Senior Tax Counsel Ronald L. Dick responded to attorney M--- M. B--- about H--- M--- Company. The letter quotes the June 5, 1990 request: the truck lessor had paid tax on vehicle purchases, wanted to change treatment for future purchases, and proposed charging “sales tax” on every rental for accounting simplicity and customer consistency. It offered to remit all collections, including excess reimbursement, so it would not benefit from them. The full request, truck purchases, certificates, elections, invoices and returns are not attached, and no dollar amount or actual customer collection is established.

The legal analysis treats an MTE lease as the lessor's use under sections 6006(g)(4), 6010(e)(4) and 6009, with the sale to the lessor a retail sale under section 6007. Section 6092.1 permits a limited resale certificate to report the lessor's use tax on fair rental value under sections 6094(d) and 6244(d); it does not make the customer the taxpayer.

The PDF then says, “Since H--- made an election to pay its use tax measured by fair rental value by collecting further tax from the lessees, H--- must abide by the tax consequences of its choice.” The live annotation instead says the lessor did not make a timely FRV election for existing inventory and has no election to do so by collecting further tax. These are materially different statements; the published record supplies no clarification or election documents. This page attributes the no-new-election explanation to the live annotation rather than silently rewriting the PDF.

The letter's direct instruction is clear despite that conflict: the Board would not condone improper tax collection even if the money was remitted, and counsel should urge the company not to collect use-tax reimbursement when no tax was due. The source does not decide the amount of an assessment, customer refund or penalty.

The first page and live entry use July 30, 1990; the second-page header says June 30, 1990. The page retains the first-page issue date and preserves both source dates. The second page also visibly prints the Decorative Carpets citation as “5 Cal.2d 252.” That reporter string is preserved as printed, not silently corrected or represented as independent confirmation of the named case.

Common questions

Did remitting every collected dollar cure the improper charge?

No. The Board said it would not condone collecting tax when none was due.

Could future trucks use FRV treatment?

The letter describes limited resale-certificate reporting under the FRV statutes. It does not provide an election deadline or certify that a proposed future purchase satisfies every requirement.

Does the PDF itself say the existing-truck FRV election was untimely?

No. That explanation appears in the live annotation; the PDF's election sentence says something different. The two statements should not be conflated.

Citations and references

• California Revenue and Taxation Code sections 6006(g)(4), 6007, 6009, 6010(e)(4), 6092.1, 6094(d), and 6244(d)
• Freeman v. Commissioner of Internal Revenue, 303 F.2d 580
• Decorative Carpets, Inc. v. State Board of Equalization, 5 Cal.2d 252

Verbatim support

From the official opinion:

The use tax liability on the lease of mobile transportation equipment purchased under a resale certificate is payable by the lessor rather than the lessee.

The Board cannot condone a practice whereby taxes are improperly collected even though the taxes are paid to the Board.

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/335-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/335-0009-700.pdf

Original ruling text

335.0009.700

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 446-6450

July 30, 1990

Mr. M--- M. B--Attorney at Law
XXXX --- Street, Suite XXX
---, CA XXXXX
Re:

H--- M--- Company
SR -- XX-XXXXXX

Dear Mr. B---:
This is in reply to your June 5, 1990 letter regarding the application of use tax to leases of mobile transportation equipment by H--- M--- Company, a retailer engaged in the rental of trucks. You noted the following facts: “H--- M--- Company is engaged in the lease of ‘mobile transportation equipment’ ad defined under Revenue and Taxation Code Section 6023. As a lessor of mobile transportation equipment, H--- may elect to pay their use tax liability measured by either the fair rental value or the purchase price of the mobile transportation equipment. Up until the present time, H--- has elected to pay the tax upon purchase of the vehicles and, therefore, no sales tax is charged by H--- to its rental customers. “H--- has decided to change its election with respect to vehicles purchased in the future. Instead, H--- will use its resale permit to purchase the vehicles on a non-taxable basis and subsequently charge sales tax to its customers as the trucks are rented based upon the fair rental value. “To simplify accounting procedures and to treat customers with consistency, H--- plans to charge sales tax on all vehicle rentals whether or not it has previously paid sales tax upon the purchase of a specific vehicle. All sales tax collected including the excess

Mr. M--- M. B---

-2-

June 30, 1990
335.0009.700

sales tax reimbursement will be remitted to the state so that H--will not be unjustly enriched or benefitted by the transaction.” Sections 6006, subdivision (g)(4), and 6010, subdivision (e)(4), of the Revenue and Taxation Code respectively exclude from “sale” and “purchase” a lease of mobile transportation equipment for use in transportation of persons or property. The tax consequences of the exclusion are that the lease is a use of the property by the lessor. (Rev. & Tax. Code § 6009.) The sale to the lessor is a retail sale. (Rev. & Tax. Code § 6007.) Under Section 6092.1, a person who leases mobile transportation equipment and who cannot otherwise properly issue a resale certificate may issue such a certificate for the limited purpose of reporting the use tax liability based on fair rental value as provided in subdivision (d) of section 6094 and subdivision (d) of section 6244. The use tax liability on the lease of mobile transportation equipment purchased under a resale certificate is payable by the lessor rather than the lessee. Since H--- made an election to pay its use tax measured by fair rental value by collecting further tax from the lessees, H--- must abide by the tax consequences of its choice. (Freeman v. C.I.R., 303 F.2d 580.) As the agency charged with the administration of the sales and use tax, this Board has a vital interest in upholding the integrity of those taxes. (Decorative Carpets, Inc. v. State Board of Equalization, 5 Cal.2d 252.) The Board cannot condone a practice whereby taxes are improperly collected even though the taxes are paid to the Board. Therefore, we ask that you urge H--- not to collect reimbursement for use tax from its customers when, in fact, no tax is due. We hope this answers your questions; however, if you need further information, feel free to write again. Very truly yours,

Ronald L. Dick
Senior Tax Counsel

RLD:sr
bc:

--- --- District Administrator