Could a manufacturer's long-term lease of pickups to dealers qualify as a sale for resale when dealers made short-term customer rentals?

Plain-English summary

A vehicle manufacturer leased passenger vehicles, pickups, and vans to franchise dealers for six to 15 months. Dealers then rented them daily to customers whose vehicles were being repaired or to the general public. The manufacturer had blanket resale certificates but no specific certificate for the lease program.

The manufacturer reportedly had not paid tax on its truck cost and, despite being a registered vehicle dealer, had not elected to report tax on fair rental value. Chicago audit staff had initially advised that the manufacturer was the consumer of MTE and owed tax on cost. The memorandum's final view allowed a different result only under the stated certification condition.

California concluded that the manufacturer's truck leases to dealers could be treated as sales for resale if each purchasing dealer certified, as part of the resale certificate, that the trucks would be subleased as qualifying one-way rental trucks or as house cars.

The downstream classification mattered because dealer responses said most dealers believed their leases met the one-way-rental-truck definition and therefore reported tax on rental receipts. Other dealers reportedly added campers, registered pickups as house cars rather than trucks, and reported rentals even for periods longer than 30 days. The memorandum did not independently verify either classification.

The source emphasized that the statutes did not specifically cover this arrangement. Its answer depended on the dealer's specific certification, not merely the existing blanket certificate.

Program terms, scope, and missing proof

The reported manufacturer-to-dealer agreement ran for at most 15 months and could be terminated after six months. At termination the dealer paid the vehicle's wholesale price, received a partial credit for rent already paid, and had to sell the vehicle as used. The official PDF supplies no agreement, price, rent schedule, credit calculation, termination record, or used-vehicle sale.

The broader program included passenger vehicles, pickups, and vans, but the Chicago office asked only about trucks. The memorandum therefore does not decide treatment for the program's passenger vehicles. It also does not identify a particular truck, dealer, customer rental, or completed manufacturer-to-dealer transfer.

The source recounts the manufacturer's blanket resale certificates, later dealer inquiries, dealer responses, and DMV registrations, but none of those records is included. The responses establish what dealers reported and believed, not that the rental facts legally met either downstream classification. The opinion instead made resale treatment conditional on a purchaser's specific certification that the trucks were to be subleased as one-way rental trucks or house cars.

The live annotation narrows the summary to pickups, daily rentals during customer repairs, and certification of qualifying one-way-rental-truck subleases. It omits vans, public rentals, house cars, the longer program terms and credits, prior cost-tax advice, and the absent records.

Common questions

Was the manufacturer's blanket resale certificate enough?

The source required more: the dealer had to certify specifically that the trucks would be subleased as one-way rental trucks or house cars.

What were the dealers doing with the vehicles?

They made daily rentals to repair customers or the general public; some added campers and registered pickups as house cars.

Did the opinion say the statutes specifically addressed this program?

No. It expressly said the transactions were not covered specifically in the statutes and then gave the agency's opinion.

Did the memorandum verify that any dealer rental actually qualified?

No. It reported dealer beliefs and practices and conditioned its answer on specific certification; the inquiries, responses, registrations, leases, and rental records are absent.

Citations and references

• The source discussed one-way rental trucks, house cars, MTE, and resale certificates without citing a statute or regulation by number.
• June 21 Chicago office memorandum — facts quoted, but the year and copy are not provided
• Manufacturer-dealer agreements — reported terms summarized, but dates, dealers, complete terms, and copies are not provided
• Blanket resale certificates — reported, but dates, dealers, certificate numbers, contents, and copies are not provided
• Manufacturer's dealer inquiries and responses — reported, but dates, dealers, forms, contents, and copies are not provided
• DMV registrations — reported for program vehicles, including camper-equipped pickups registered as house cars, but dates, vehicles, numbers, and copies are not provided

Verbatim support

From the official July 12, 1976 memorandum:

While the application of tax to these transactions is not covered specifically in the statutes, it is our opinion Ford’s leases to its dealers can be allowed as a sale for resale provided the purchaser certifies as part of the resale certificate that the trucks are to be subleased either as one-way rental trucks or house cars.

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/335-0065.pdf

Original ruling text

335.0065

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

July 12, 1976

To:

Mr. Robert Nunes

From:

Glenn L. Rigby

This is in response to the Chicago office's June 21 memo requesting our opinion concerning leases of trucks. The facts, as stated in their memo, are as follows:
--- a program whereby it leases vehicles to franchised dealers for use by the dealers in a daily rental or service rental operation. These vehicles are typically rented to customers who must leave their own vehicles with the dealer for several days for repair or are rented to the general public in much the same manner as is done by Hertz or Avis. The vehicles are registered by the dealers with DMV in the name of --- The term of ---'s lease agreement with the dealer is for a maximum of 15 months and may be terminated by the dealer after six months. Upon termination, the dealer pays for the wholesale price of the car but receives a partial credit for rentals previously paid. The dealer must then sell the vehicle as a used car. Both passenger vehicles and trucks (pickups and vans) are leased under this program. Chicago's only problem concerns the leasing of trucks.
---tor Company has not paid tax on its cost of the trucks nor has it elected, as a registered vehicle dealer, to pay tax measured by fair rental value. Ford has a blanket resale certificate from each of its dealers, but it does not have a specific certificate covering cars and trucks under the lease program. Chicago initially advised --- that it was the consumer of mobile transportation equipment and liable for tax on cost. In order to determine how the dealers were handling their leases, Ford sent out a number of inquiries. The dealers' responses indicate:

1. Most of the dealers feel that their leases come within the definition of “one way rental
   trucks”. Since these are excluded from the definition of mobile transportation equipment, the dealers have collected and reported tax on a rental receipts basis.

2. Some of the dealers have added campers to the pickup trucks and registered them as “house cars” rather than as trucks. These are also excluded from the definition of mobile transportation equipment and the dealer would report rentals even though rented for periods exceeding 30 days. While the application of tax to these transactions is not covered specifically in the statutes, it is our opinion Ford’s leases to its dealers can be allowed as a sale for resale provided the purchaser certifies as part of the resale certificate that the trucks are to be subleased either as one-way rental trucks or house cars.

GLR: lb
cc: Mr. T. P. Putnam