Did California tax leased trucks moved into the state after more than 90 days of out-of-state use?

Plain-English summary

A Washington lessor had leased four 1995-model three-axle flatbed trucks under an agreement executed in Seattle to a company that planned to move them from its Washington location to a new California branch. The trucks reportedly had been in lease service outside California for at least four months.

California treated the trucks as mobile transportation equipment, making the lessor the consumer and the party responsible for any use-tax liability. The source concluded no California sales or use tax applied if the trucks were purchased outside California, first functionally used outside California, functionally used there for more than 90 days excluding shipment and shipment-storage time, and did not enter California within 90 days after purchase.

Under those facts, the move into California did not create tax on the trucks or their rental receipts. The letter declined to advise on Washington tax consequences.

Conditional facts, cited pamphlet, and missing proof

The requester reported that another leasing company had said California tax would not apply and cited question 5 on page 18 of Board Pamphlet 46, Tax Tips for Leasing of Tangible Personal Property in California. The letter describes the answer's essence, but the pamphlet page and other company's advice are not included.

Counsel said the supplied facts made it “appear” the trucks were not purchased for California use. The official PDF contains no purchase invoice or location, delivery record, Seattle lease, MTE specification, first-functional-use evidence, Washington service log, shipment or storage dates, California entry record, return, election, tax payment, or rental receipt. The four-month statement therefore does not by itself prove the Regulation 1620 test.

The lessee only anticipated moving the trucks. The source does not establish that the California branch opened, any truck entered California, the proposed conditions held through entry, or a final tax outcome occurred. It expressly declined Washington-law advice and directed the requester to the Washington Department of Revenue.

The live 335.0084.500 annotation says May 18 rather than the PDF's May 28 date. It presents the four months of outside use and the no-tax result without repeating all of the PDF's express conditions: outside purchase, outside first functional use, the more-than-90-day test excluding shipment and shipment-storage time, and no entry within 90 days of purchase. It expressly adds that no tax is due on rental receipts.

Common questions

Was four months of out-of-state lease service enough by itself?

The conclusion also required out-of-state purchase and first functional use, plus no California entry within 90 days after purchase.

Who bore any California use-tax liability on the MTE?

The lessor, not the lessee, under the MTE rules described in the letter.

Did the letter prove that the trucks completed the 90-day test and entered California tax-free?

No. It gave conditional advice on reported facts; the purchase, first-use, service, shipment, storage, entry, and tax records are absent, and the move was still proposed.

Citations and references

• California Revenue and Taxation Code sections 6007, 6023, 6051, 6201, and 6401
• California Revenue and Taxation Code sections 6006(g)(4)-(5), 6202, and 6203
• California Sales and Use Tax Regulations 1620(b)(3), 1660, and 1661
• Board of Equalization Pamphlet 46, Tax Tips for Leasing of Tangible Personal Property in California, page 18, question 5 — described but not included
• Requester's April 3, 1997 letter — referenced and summarized but not included
• Truck purchases, Seattle lease, out-of-state first-use and service records, shipment and storage time, California entry, returns, and tax records — not included

Verbatim support

From the official May 28, 1997 letter:

Accordingly, so long as the trucks were purchased outside of California, were first functionally used outside of California, were functionally used in excess of 90 days outside of California, and did not enter this state until 90 days after purchase, their use in California will not be subject to California’s sales or use tax.

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.

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/335-0084-500.pdf

Original ruling text

335.0084.500

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
TELEPHONE (916) 327-2291
FAX (916) 323-3387

DEAN F. ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
KATHLEEN CONNELL
Controller, Sacramento
___

May 28, 1997

JOHN CHIANG
Acting Member
Fourth District, Los Angeles
___
E. L. SORENSEN, JR.
Executive Director

Mr. B--- M---, Manager
H--- I--XXXXX - XXth --- -----, WA XXXXX
Re:

Tax Liability on Leased Equipment Brought into California
H--- I--- T--- Inc.
FS -- XX-XXXXXX

Dear Mr. M---:
This is in response to your letter of April 3, 1997 in which you inquired about the application of California’s Sales and Use Tax Law to leased vehicles acquired under a lease agreement executed in Seattle Washington. In your letter you explain that your company, H--- I--- (H---), is a leasing company operating in the state of Washington. Your inquiry focuses on one of your lessee’s, D--- T--D--- S---, Inc. (D--- T--- D---), which is opening a branch in [city], California. (D--- T--- D---) is anticipating transferring 4 vehicles which it leases from you to the [city] facility. You describe the vehicles leased to (D--- T--- D---) as 1995 [model name] 3 axle flatbed trucks. You further explain that all of these trucks have been in lease service in [city, WA] for at least a four month period. (D--- T--- D---) has been informed by another leasing company that if these trucks are brought into California, they will not be subject to California’s sales or use tax. As authority for this statement you cite the response to question 5 on page 18 of the Board of Equalization’s Pamphlet 46, entitled “Tax Tips for Leasing of Tangible Personal Property in California.” In essence, this response states that lease payments attributable to leases of mobile transportation equipment (MTE), acquired outside of California, will not be subject to either sales or use tax if the MTE was in lease service outside of California for more than 90 days, and if the MTE was not originally purchased for use in California. These vehicles are considered to be MTE under Section 6023 of the Revenue and Taxation Code which includes trucks in the definition of MTE.

Mr. B--- M---

-2-

May 28, 1997
335.0084.500

Retail sales of tangible personal property in California are subject to sales tax, measured by gross receipts, unless specifically exempt by statute. (Rev. & Tax. Code § 6051.) A retail sale is a sale for any purpose other than resale in the regular course of business. (Rev. & Tax. Code § 6007.) When sales tax does not apply, use tax applies to the use of tangible personal property purchased from a retailer for use in California, unless the use is specifically exempt from tax. (Rev. & Tax. Code §§ 6201, 6401.) A lease of non-MTE tangible personal property is considered to be a continuing sale unless the property is leased in substantially the same form as acquired and the lessor has paid sales tax reimbursement or has paid use tax measured by the purchase price. (Rev. & Tax. Code
§ 6006(g)(5), Reg. 1660(b).) When a lease is a sale under this definition, the lessee owes use tax measured by rentals payable, which the lessor must collect and pay to this Board. (Rev. & Tax. Code §§ 6201, 6202, 6203, Reg. 1660(c).) The application of tax to sales and leases of MTE acquired in California for use in this state is different from leases of other tangible personal property. Unlike the lease of non-MTE tangible personal property, the lease of MTE is not considered to be a continuing sale. (Rev. & Tax. Code § 6006(g)(4), Reg. 1661.) Rather, the lessor of MTE is regarded as the consumer of that MTE. This means that either the sale of the MTE to the lessor is subject to sales tax or the lessor's use of the MTE is subject to use tax. If the lessor does not pay sales tax reimbursement to its vendor, then it owes use tax on its use of the MTE (by leasing) measured by the purchase price unless the lessor makes a timely election to pay use tax liability measured by fair rental value. Since these leased trucks qualify as MTE, the use tax liability, if any, attributable to the trucks’ presence in California would be borne by you as the lessor. From the facts, as stated by you, it does not appear that these trucks were purchased for use in California. To determine if these trucks are subject to California’s use tax we must look to Regulation 1620. Subdivision (b)(3) of this regulation provides, in pertinent part: “[P]roperty purchased outside of California which is brought into California is regarded as having been purchased for use in this state if the first functional use of the property is in California. When the property is first functionally used outside of California, the property will nevertheless be presumed to have been purchased for use in this state if it is brought into California within 90 days after its purchase....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.”

Mr. B--- M---

-3-

May 28, 1997
335.0084.500

Accordingly, so long as the trucks were purchased outside of California, were first functionally used outside of California, were functionally used in excess of 90 days outside of California, and did not enter this state until 90 days after purchase, their use in California will not be subject to California’s sales or use tax. While you have not specifically inquired, it appears that you may have questions regarding Washington state’s tax consequences, if any, attributable to the transfer of these trucks to California. Since we are not qualified to advise you on the application of another state’s sales and use tax laws, we suggest that you contact your local branch of the Washington Department of Revenue for advice regarding additional tax consequences, if any, attributable to this proposed transfer. Sincerely,

Patricia Hart Jorgensen
Senior Tax Counsel
PHJ:cl

cc:

Out-of-State District Administrator (OH)
--- --- District Administrator (--)