Did replacing the trustee and beneficiary of a trust holding leased MTE create a new sale and FRV election?

Plain-English summary

A buyer planned to acquire a California-titled MTE lease held in trust by replacing the existing trustee/lessor and beneficiary. The trust reportedly was already collecting and remitting use tax measured by fair rental value and would continue afterward.

California said no new sale occurred if the MTE remained property of the same trust after those substitutions. Because the existing FRV election was irrevocable, the trust had to continue reporting on fair rental value.

If title to the MTE actually transferred to a lease assignee, that transfer would be a sale. The assignee would become the equipment consumer and could make its own timely FRV election. The letter could not decide whether a Massachusetts or business trust changed the result and did not provide statutory reliance protection because the parties and all relevant facts were not identified.

Ownership assumption, identity conflict, and missing documents

The March 26 request, quoted only in part, describes Company B as trustee and lessor, Company C as trust beneficiary, and Company D as lessee. When describing the beneficial-interest transfer, however, the published text says ownership would move from “Company D [Company C(?)]” to Company E. The source does not resolve whether the initial reference to D was the requester's error, counsel's correction, or a publication edit. This page therefore does not present the old beneficiary's identity as independently established.

Counsel said it “appears” from the supplied facts that the MTE would remain trust property, so no sale would occur and the irrevocable FRV election would continue. The official PDF includes no trust instrument, trust classification, title, lease, assignment, trustee appointment or resignation, beneficiary-transfer instrument, affiliate record, closing document, certificate, return, collection record, payment, or tax amount.

The footnote expressly withholds a definitive answer if the entity was a Massachusetts or business trust because the facts and pertinent documents were missing. The body separately says unidentified parties and incomplete facts made the letter only general advice outside section 6596 reliance protection.

The live 335.0084 annotation treats Company C as the old beneficiary without retaining the PDF's bracketed uncertainty. It preserves the trust-ownership assumption and both FRV paths, and adds that a new lessor's return-period election applies if the property is already leased when sold. The PDF states the return-period rule without that added condition. The live summary omits the business-trust reservation, missing documents, unidentified parties, and section 6596 warning.

Common questions

Did replacing the trustee automatically transfer MTE title?

No under the stated assumption that the trust remained the owner.

Could a true title transferee elect FRV?

Yes, by issuing the appropriate certificate and timely reporting FRV tax for the sale period.

Did the letter establish which company held the old beneficial interest?

No. Its quoted request first names Company C but later prints “Company D [Company C(?)],” and the underlying letter and trust records are absent.

Citations and references

• California Revenue and Taxation Code sections 6006(g)(4), 6010(e)(4), 6092.1, 6094(d), 6243.1, 6244(d), and 6596
• California Sales and Use Tax Regulation 1661(f)
• Requester's March 26, 1993 letter — quoted in part but not separately included
• Trust documents, MTE title, lease, assignment, trustee and beneficiary substitutions, resale certificate, returns, and tax-payment records — not included

Verbatim support

From the official May 5, 1993 letter:

It appears from the facts you give that the MTE remains the property of the trust after a new trustee and beneficiary are substituted for the old and therefore there is no sale of the MTE.

If the trust is a Massachusetts or business trust, there may be a sale, but we do not have sufficient facts or the pertinent documents to give a definitive answer.

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.pdf

Original ruling text

335.0084

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-8208

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles
GRAY DAVIS
Controller, Sacramento

May 5, 1993

────────
BURTON W. OLIVER
Executive Director

Mr. V--- H. M--A--- F--- Corporation
XXX --- Street, Xth Floor
--- ---, CA XXXXX-XXXX
Re:

SR -- XX-XXXXXX
SR -- XX-XXXXXX

Dear Mr. M---:
This is in response to your letter dated March 26, 1993 in which you state: "Leasing Company A desires to purchase a lease transaction from Leasing Company B. The subject of the lease is mobile transportation equipment titled in California. The lease is held in a trust where the current trustee and lessor is Company B, the beneficiary of the trust is Company C, and the lessee or user under the lease is Company D. The acquisition of the lease will be structured so that Company A is substituted as a new trustee and lessor in accordance with the trust document and the beneficial ownership in the trust is transferred from Company D [Company C(?)] to Company E, an affiliate of Company A. Use tax is currently being collected and remitted to the State Board of Equalization by Company B and will continue to be collected and remitted after the transfer by the new trustee/lessor Company A." As you are probably aware, the application of tax to leases of mobile transportation equipment (MTE) is different from leases of other tangible personal property. A lease of MTE is never a sale and purchase. Rev. & Tax. Code § 6006(g)(4) and 6010(e)(4). Thus, a sale of MTE which the purchaser subsequently leases is not a sale for resale. Under the Revenue and Taxation Code, however, a purchaser of MTE who limits his or her use of the MTE to leasing may issue a resale certificate when purchasing the MTE and make an election to pay use tax measured by the fair rental value of the MTE. The election is made by reporting tax measured by the fair rental value on a timely filed return for the period in which the MTE is first leased. Tax must thereafter be paid with the return for each reporting period, measured by the fair rental

Mr. V--- H. M---

-2-

May 5, 1993
335.0084

value, whether the MTE is within or without the state. The election may not be revoked with respect to the MTE as to which it is made. Rev. & Tax. Code §§ 6092.1, 6094(d), 6243.1, and 6244(d). If, in connection with an assignment of an existing lease of MTE, title to the leased property is transferred to the assignee, the transfer is a sale to the assignee, and the assignee is the consumer of the equipment. Regulation 1661(f). Just as the original lessor could, the assignee may issue a resale certificate and elect to pay tax on the fair rental value. It appears from the facts you give that the MTE remains the property of the trust after a new trustee and beneficiary are substituted for the old and therefore there is no sale of the MTE.1/ Since the election to pay tax on fair rental value is irrevocable, if there is no sale, the trust must continue to pay tax on the fair rental value. Even if there is a sale of the MTE to a new lessor, the new lessor may also elect to pay use tax on the fair rental value by issuing a resale certificate and paying tax on fair rental value. The election must be made on a timely filed return for the period in which the sale occurred. Revenue and Taxation Code section 6596 provides the only basis for relief from tax if a taxpayer relies on incorrect written advice from the board. The primary conditions to qualify are that the request for opinion must be in writing and must disclose all relevant facts, including the identity of the taxpayer. Since you have not identified the parties and all relevant facts, this opinion does not come within the provisions of section 6596 but rather is simply general advice regarding a set of hypothetical facts. If you have further questions regarding Sales and Use Tax Law, please do not hesitate to write again. Sincerely,

Elizabeth Abreu
Tax Counsel
EA:cl

1/

If the trust is a Massachusetts or business trust, there may be a sale, but we do not have sufficient facts or the pertinent documents to give a definitive answer.