Did a resale certificate and tax reported by a crane sublessor shift MTE tax liability away from the prime lessor?

Plain-English summary

A corporation reportedly bought an Alpha 100 lift crane ex-tax for resale and leased it to another company on August 15, 1983. That company simultaneously issued a resale certificate, subleased the crane to a third company, and reported “tax” based on its downstream lease receipts.

California treated the crane as mobile transportation equipment because it was permanently mounted on a truck chassis and could travel substantial distances at highway speeds. MTE leases and subleases were not taxable sales or purchases; the lessor was the consumer.

The prime lessor therefore remained the entity liable for tax. Although an MTE lessor could timely elect to measure use tax by fair rental value, counsel said it “appears” the prime lessor had not made that election by the return due date for the period when the equipment was first leased. On that stated view, it owed tax measured by its purchase price.

The resale certificate issued by the sublessor and the tax it reported did not transfer liability. The source did, however, allow the prime lessor an offset under section 6901.5 for the amount the sublessor had paid as tax.

Reported facts, missing records, and live-summary difference

The letter responds to the controller's March 22 request. In an April 25 telephone conversation, the controller reportedly said the crane was permanently mounted on a truck chassis and could move substantial distances at highway speeds. Those oral facts drove MTE classification, but the official PDF includes no call record, equipment specifications, registration, inspection, photographs, or travel evidence.

The source reports the ex-tax purchase, prime lease, simultaneous resale certificate and sublease, and downstream reporting. It provides none of the purchase invoice, resale certificate, lease or sublease terms, returns, payment records, election history, purchase price, rent, tax amount, or section 6901.5 offset calculation. Regulation 1661(e) is marked as enclosed but is not reproduced. The cited Annotation 335.0048 source is also not included.

Counsel's late-election conclusion is expressly qualified as what “appears” from the circumstances. No return, due date, filing, election, audit workpaper, determination, or final assessment is present to establish the completed procedural outcome.

The live 335.0078.050 annotation preserves the prime-lessor liability and election rule but says a “sublessee” reports tax on sublease proceeds. The PDF instead identifies the middle lessee/sublessor as the company that reported tax based on its receipts from the downstream company. The live summary also omits the crane-classification facts, named transaction date, qualified “appears” language, and section 6901.5 offset.

Common questions

Who was liable: the prime lessor or the sublessor?

The prime lessor. The source treated it as the MTE consumer responsible for the tax.

Could tax be measured by fair rental value?

Only with a timely election. The prime lessor missed the stated deadline, so purchase price became the measure.

Did the sublessor's resale certificate and tax reporting eliminate the prime lessor's liability?

No. They did not shift liability, although the prime lessor could receive an offset for the downstream amount paid.

Did the letter prove that the election was late or calculate the offset?

No. Counsel said lateness “appears” from the reported circumstances; the returns, election record, payment evidence, and offset calculation are absent.

Citations and references

• California Revenue and Taxation Code sections 6006(g)(4), 6010(e)(4), 6023, 6092.1, 6094, 6243.1, 6244, and 6901.5
• California Sales and Use Tax Regulation 1661(e)
• Business Taxes Law Guide Annotation 335.0048 — mobile-crane classification cited
• Requester's March 22, 1984 letter and April 25 telephone statements — referenced but not included
• Regulation 1661(e) enclosure — listed but not included
• Crane purchase, prime lease, resale certificate, sublease, returns, payments, and offset records — not included

Verbatim support

From the official April 25, 1984 letter:

Applying the foregoing rules to the circumstances herein, it appears the A, the entity liable for the tax, failed to make a timely election to pay tax based on fair rental value. Having failed to so elect, A is liable for tax based upon its purchase price of the crane.

Pursuant to Revenue and Taxation Code Section 6901.5 the Board would permit A an offset against its tax liability in the amount paid as “tax” by M--

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/335-0078-050.pdf

Original ruling text

335.0078.050

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-8485

April 25, 1984

Mr. J--- E. G--Corporate Controller
M--- E--- Company
P. O. Box XXXX
--- ---, CA XXXXX

SY -- XX-XXXXXX

Dear Mr. G---:

This is in response to your letter of March 22, 1984. We understand that A Corporation (---) purchased an Alpha 100 Lift Crane ex-tax for resale. On August 15, 1983, A leased the crane to M--- E--- Company (M---) which, simultaneously issued a resale certificate to A and subleased the crane to B--- C--- and R--- Company (B---). M--- has been reporting “tax” to the Board based upon its lease receipts from B---. In our telephone conversation this morning you indicated that the crane in question is permanently mounted on a truck chassis and that the unit is capable of moving substantial distances at highway speeds. Under such circumstances, we consider the crane to be mobile transportation equipment (mte) as defined in Revenue and Taxation Code Section 6023 (see BTLG anno. 335.0048). Leases of mobile transportation equipment are not “sales” or “purchases” and hence are not subject to sales or use tax [Rev. & Tax. Code §§6006(g)(4); 6010(e)(4)]. However, lessor who purchase mte with the intention of leasing it may issue their vendors a resale certificate and elect to report their use tax liability based on the “fair rental value” of the property so long as the election to pay tax in this manner is made on or before the due date of a return for the period in which the equipment is first leased (Rev. & Tax. Code §§6092.1, 6094, 6243.1, 6244; Reg. 1661(e), copy enclosed). Applying the foregoing rules to the circumstances herein, it appears the A, the entity liable for the tax, failed to make a timely election to pay tax based on fair rental value. Having failed to so elect, A is liable for tax based upon its purchase price of the crane. Pursuant to Revenue and

Mr. J--- E. G---

-2-

April 25, 1984
335.0078.050

Taxation Code Section 6901.5 the Board would permit A an offset against its tax liability in the amount paid as “tax” by M--Very truly yours,

E. Leslie Sorensen, Jr.
Tax Counsel

ELS:rar
Enclosure