Did a lessee's later installation of rear seats change the tax treatment of a van leased with only a front seat?

Plain-English summary

A dealer sold a 1977 window van to a lessor with only a front seat, and sales tax was paid. The lessor nevertheless treated its lease as a taxable sale and separately charged tax on lease receipts. After the lease began, the lessee installed rear seats and planned to register the van as a noncommercial vehicle.

California said the van was mobile transportation equipment when leased because, with only front seating, it was designed to haul property rather than as a passenger vehicle.

That made the dealer's sale to the lessor a taxable retail sale rather than a purchase for resale. The lessee's later addition of rear seats did not change the character of the earlier sale to the lessor.

The source instructed the lessor to revise the lease contract so tax on lease receipts was not separately stated.

Transaction scope and missing records

The letter responds to a May 18 request that is not reproduced. It reports that a dealer sold the 1977 Ford E150 window van with front seating only and “paid sales tax,” and that the lessor treated the lease as a sale with tax due on receipts. No invoice, payment record, vehicle specification, seating photograph, title, lease, rent schedule, separately stated tax amount, return, or assessment is included.

The lessee reportedly added rear seats after the lease began and intended to register the van as a noncommercial vehicle. The source prints the registration agency as “DMN”; this page does not silently expand or correct it. No installation, inspection, seating capacity, registration, timing, or later-use record is present.

The conclusion decides the character of the dealer's earlier sale to the lessor based on the van's condition when leased. It does not decide every consequence of the modified vehicle, a later lease or sale, or whether the intended registration occurred. Although it directs a contract revision, it does not say whether one was made or how tax previously stated or collected on lease receipts was handled.

Regulations 1660 and 1661 are listed as enclosed for future guidance but are not reproduced in the official PDF. The live 335.0090 annotation preserves the front-seat condition, MTE classification, taxable dealer sale, and later-seat result. It omits the 1977 Ford E150 model, reported prior tax, noncommercial-registration plan, passenger-vehicle rule, contract-revision direction, missing enclosure, and absent records.

Common questions

When was the van's classification determined?

The opinion classified it in the condition in which the lessor leased it: with a front seat only.

Did later rear seats change the lessor's original purchase?

No. The source said the later modification by the lessee did not affect the character of the dealer's sale to the lessor.

Should the lessor separately state tax on the lease receipts?

No. The letter directed the lessor to revise the contract so tax was not separately stated on those receipts.

Did the letter decide what happened to tax already stated on rent?

No. It directed a contract revision but supplied no amounts, returns, refund instruction, revised agreement, or later outcome.

Citations and references

• California Sales and Use Tax Regulations 1660 and 1661
• Requester's May 18, 1977 letter — referenced but not included
• Regulations 1660 and 1661 enclosure — listed but not included
• Van sale, tax payment, lease contract, rear-seat installation, registration, rental-receipt, contract-revision, and tax records — not included

Verbatim support

From the official May 26, 1977 letter:

Since you leased the van here involved with front seating only, the sale to you was taxable as a retail sale and not exempt as a sale for resale. The later addition of rear seats by the lessee did not affect the character of the sale to you.

Your contract with the lessee should be revised so that tax on the lease receipts is not separately stated.

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/335-0090.pdf

Original ruling text

335.0090

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

May 26, 1977

Dear Mr.
This is in response to your letter of May 18, regarding the sale and lease of a 1977 Ford E150 window van. I understand that a dealer, --- --- --- sold the van to you with a front seat only and paid sales tax. You leased the van to a lessee on the basis that the lease was a "sale", with tax due on the lease receipts. At some time after the lease began, the lessee added rear seats and intends to register the van with DMN as a non-commercial vehicle. Under the Sales and Use Tax Law, in general, the lease of a passenger vehicle designed to carry no more than 10 persons is a "sale", while the lease of a vehicle designed to haul property is not. A vehicle designed to haul property falls in the classification of "mobile transportation equipment" the lease of which is excluded from the definition of' "sale". We regard a van equipped with a seat only in the front as "mobile transportation equipment". Since you leased the van here involved with front seating only, the sale to you was taxable as a retail sale and not exempt as a sale for resale. The later addition of rear seats by the lessee did not affect the character of the sale to you. Your contract with the lessee should be revised so that tax on the lease receipts is not separately stated. For your future guidance, I am enclosing a copy of Regulations 1660 and 1661 on the subject of leasing.

Very truly yours,

Thomas P. Putnam
Assistant Chief Counsel
TPP:po
Enclosure
bc:
Robert Nunes , Donald Brady , Glenn L. Rigby , San Jose - Dist. Admin.