Was a ready-mix truck taxable when moved to California after first use and more than 90 days of leasing outside the state?

Plain-English summary

A leasing accountant described a ready-mix truck leased to a customer outside California and a plan to bring it here for a new lease after the first ended. The letter assumed, rather than verified, that the original purchase and first functional use occurred outside California.

California assumed the truck could transport cement at highway speeds and therefore was MTE. The lessor's use occurred through its leases, and the lessee's first functional use was attributed to the lessor.

Because the truck was purchased outside California, first functionally used there, and used outside the state for more than 90 days before entry, its later California use and lease were not subject to sales or use tax under the historical rule. The current annotation page separately warns that later law applies a 12-month presumption in specified periods.

Assumptions and timing limits

Tax Counsel David H. Levine's September 12, 1988 letter responds to an August 27 request from leasing accountant B--- W. F--- at M--- F---, Inc. “Repossess” is interpreted as retaking possession at lease termination, not a change in ownership. The author also assumes cement-transport use and highway-speed capability in classifying the truck as MTE. No contract, registration or equipment specifications are attached.

The historical Regulation 1620(b)(3) test described in the PDF required first functional use outside California and more than 90 days of qualifying out-of-state use between purchase and entry. Time spent shipping to California or storing for that shipment was excluded. The letter assumes the truck met the test; it supplies no purchase date, use log, shipment/storage period or California-entry date.

The source cites Annotation 335.0071, dated May 17, 1978, for highway-speed capability, but does not reproduce that opinion. It also prints section 6016(e)(4) alongside section 6006(g)(4); that source citation remains as printed. A copy of Regulation 1661 is promised as an enclosure but is absent from the two-page PDF. No truck price, rent, tax payment or later transaction outcome is reported.

The live annotation recasts the assumed purchase and use as summary facts and marks amendments 2006–1 and 2008–1. Its separate Regulation 1620(b)(5) note describes a conditional 12-month presumption for October 2, 2004–June 30, 2007 and after September 30, 2008. Those later dates and that regulation note come from the live entry, not the 1988 letter; the page does not independently establish today's complete vehicle-entry rules.

Common questions

Did moving the truck to California for another lease create a new taxable sale?

No under the source's assumptions. An MTE lease was the lessor's use, not a sale or purchase.

Can taxpayers still rely on the historical 90-day rule without checking current law?

No. The official annotation itself carries a later-law note about a 12-month presumption.

Could shipping or storage for shipment supply the missing days?

No. The historical test quoted in the letter excludes those periods.

Did the letter establish that ownership changed when the truck was repossessed?

No. It expressly assumed there was no ownership change.

Citations and references

• California Revenue and Taxation Code sections 6006(g)(4), 6051, 6092.1, 6201, and 6243.1
• California Sales and Use Tax Regulations 1620(b)(3), 1620(b)(5), and 1661(b)(1)
• Business Taxes Law Guide Annotation 335.0071

Verbatim support

From the official September 12, 1988 letter:

By “repossess” I assume you do not mean that there is any change of ownership, but rather simply mean that M--- will retake possession upon termination of the lease.

I assume the MTE about which you inquire was purchased outside California, was first functionally used outside California, and was so used for over 90 days before its entry into California.

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/335-0021.pdf

Original ruling text

335.0021

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
(916) 445-5550

September 12, 1988

Mr. B--- W. F--Leasing Accountant
M--- F---, Inc.
P. O. Box XX
--- ---, MN XXXXX
Re:

SS -- XX-XXXXXX

Dear Mr. F---:
This is in response to your letter dated August 27, 1988 regarding the application of sales and use tax to a lease of a ready mix concrete truck. M--- owns a ready mix truck/mixer which it leases to a customer outside California. Upon termination of the lease, M--- will repossess the truck and it will be brought into California for lease to a California customer. By “repossess” I assume you do not mean that there is any change of ownership, but rather simply mean that M--- will retake possession upon termination of the lease. You state that M--- F--- originally purchased the truck for use outside the state of California. Mobile transportation equipment (MTE) includes only equipment for use in transporting persons or property for substantial distances. (Reg. 1661(b)(1).) Equipment is considered capable of traveling substantial distances if it is able to travel at highway speeds. (Business Taxes Law Guide Anno. 335.0071 (5/17/78).) I assume the trucks about which you inquire are used to transport cement and are capable of traveling at highway speeds. They are therefore classified as MTE. A lease of MTE is not a sale or purchase under the Sales and Use Tax Law. (Rev. & Tax. Code §§ 6006(g)(4), 6016(e)(4).) Rather, the lessor is the consumer of the MTE. The sale of MTE in California for the purpose of leasing is subject to sales tax or the purchaser owes use tax on its use of MTE in California. (Rev. & Tax. Code §§ 6051, 6201.) This tax liability is measured by purchase price, or upon timely election, by fair rental value. (Rev & Tax Code §§ 6092.1, 6243.1, Reg. 1661.)

Mr. B--- W. F---

-2-

September 12, 1988
335.0021

The use of property purchased outside California is subject to use tax if it was purchased for use in California. If such property’s first functional use is in California, it is regarded as having been purchased for use in California. (Reg. 1620(b)(3).) Since a lessor of MTE uses the MTE by leasing it, if the lessee first functionally uses the MTE in California, the lessor is regarded as having purchased the MTE for use in California. If the property is first functionally used outside California, prior out-of-state use in excess of 90 days from the date of purchase to the date of entry into California, exclusive of any time of shipment to California or time of storage for shipment to California, will be accepted as proof of an intent that the property was not purchased for use in California. (Id.) I assume the MTE about which you inquire was purchased outside California, was first functionally used outside California, and was so used for over 90 days before its entry into California. Based on the facts and assumptions set forth herein, the use of the MTE by M--- in California is not subject to sales or use tax. Since the lease of MTE by M--- is considered to be M---’ own use, and not a sale or purchase under the Sales and Use Tax Law, the lease of such MTE by M--- in California is also not subject to sales or use tax. Enclose for your information is a copy of Regulation 1661. If you have further questions, feel free to write again. Sincerely,

David H. Levine
Tax Counsel

DHL:rar
Enclosure