Could an MTE lessor issue a resale certificate to avoid sales tax and claim the section 6009.1 exclusion?

Plain-English summary

Board legal staff reviewed earlier annotations suggesting that an MTE lessor could use a resale certificate to avoid sales tax and then claim the section 6009.1 exclusion.

The memorandum said an MTE sale to a person acquiring it for lease was a retail sale. A California dealer's delivery to the lessor was taxable unless the dealer accepted a timely resale certificate, and the lessor could issue that certificate only for the limited purpose of making a timely fair-rental-value election.

The certificate could not be used to manufacture eligibility for section 6009.1. A lessor using it to avoid sales tax owed tax on cost unless it timely elected FRV reporting, which then applied without regard to the MTE's location during the lease. Section 6009.1 questions arose only when the lessor legitimately acquired the MTE ex tax by another route, such as converting resale inventory to lease, buying from a private party, or purchasing outside California.

Correction scope, missing backup, and incomplete authorities

The memorandum calls Annotations 335.0016 and 570.1130 “incorrect” and directs the annotations and backup to be deleted. It also says the top of the backup referenced Annotation 325.0065, which the author could not find, and directs deletion of any other annotation based on the same backup. The official PDF does not reproduce the backup, the two deleted entries, any 325.0065 text, the reason each earlier annotation was created, or records confirming the deletions and replacements.

The correction is general. It identifies no dealer, lessor, MTE item, sale, delivery, certificate, price, tax reimbursement, inventory withdrawal, private-party purchase, outside purchase, lease, election, return, assessment, or tax amount. The three legitimate-ex-tax examples illustrate when a section 6009.1 issue might be reached; they are not documented taxpayer findings.

The source cites Yamaha v. State Bd. of Equalization only by February 21, 1997, California Court of Appeal, Second Appellate District, with no reporter. The exact string could not be parsed by the citation verifier. A later 1998 California Supreme Court case with the same litigant names is not silently substituted for the source's reporterless 1997 appellate reference. The memo also cites BTLG Annotation 570.0435 and names the “Stockton Kenworth issue” without including either supporting source.

The live 335.0800 annotation materially tracks the limited resale-certificate purpose, purchase-cost consequence, FRV election, and location-independent FRV reporting. It omits the annotation-deletion purpose, backup problem, 325.0065 cross-reference, incomplete Yamaha and Stockton Kenworth references, BTLG 570.0435, three legitimate-ex-tax examples, and absence of any taxpayer transaction.

Common questions

Did a resale certificate turn the MTE transaction into an actual sale for resale?

No. The memorandum treated it as a limited mechanism for the FRV election.

When could the section 6009.1 issue still arise?

When the lessor legitimately held the MTE ex tax through a route other than a certificate used to avoid California sales tax.

Did this memorandum decide a taxpayer's transaction?

No. It corrected the annotation collection and supplied examples without a taxpayer, equipment, transaction, return, or amount.

Citations and references

• California Revenue and Taxation Code sections 6006(g)(4), 6009.1, 6010(e)(4), and 6092.1
• Yamaha v. State Bd. of Equalization — cited only as February 21, 1997, California Court of Appeal, Second Appellate District, without a reporter; exact citation did not parse
• Business Taxes Law Guide Annotation 570.0435
• Named Stockton Kenworth issue — not reached and not fully cited
• Annotations 335.0016 and 570.1130 and their backup — ordered deleted but not reproduced
• Reference to Annotation 325.0065 on the missing backup — the author could not find it
• Annotation backup and deletion or replacement records — not included

Verbatim support

From the official May 7, 1997 memorandum:

That lessor cannot issue such a resale certificate in order to try to qualify for the section 6009.1 exclusion as the backup to this annotation has implicitly allowed.

That is, the applicable tax must be use tax owed by the lessor, and cannot be a situation where the applicable sales tax owed by the retailer was converted to a use tax situation by the issuance of a resale certificate.

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/335-0800.pdf

Original ruling text

State of California

Board of Equalization
Legal Division-MIC: 82

335.0800

Memorandum

Mr. Robert Nunes
Chief, Annotations Project

To :

David H. Levine
Supervising Tax Counsel

From :

Subject:

Date:

May 7, 1997

Telephone: (916) 445-5550

CalNet 485-5550

Annotations 335.0016 and 570.1130

These annotations and the backup are incorrect. The sale of MTE to a person for the purpose of leasing is always a retail sale. (Rev. & Tax. Code §§ 6006(g)(4), 6010(e)(4).) A California MTE dealer who makes a sale to such a lessor is always making a retail sale, and that sale is always taxable when delivered in California unless the retailer takes a timely resale certificate. Such a lessor of MTC can only issue such a resale certificate for the limited purpose of reporting [its] use tax liability based on fair rental value ....” (Rev. & Tax. Code § 6092.1). That lessor cannot issue such a resale certificate in order to try to qualify for the section 6009.1 exclusion as the backup to this annotation has implicitly allowed. (Cf. Yamaha v. State Bd. of Equalization (2/21/97) Cal. Court of Appeal, 2d App.Dist; BTLG Annot. 570.0435 (5/19/95).) If a lessor issues such a certificate to avoid the payment of sales tax reimbursement, it owes tax on cost unless it makes a timely election to pay tax on fair rental value, which would have to be paid without regard to the location of the MTE during the lease. Under such circumstances, we never reach the Stockton Kenworth issue because section 6009.1 cannot apply. The Stockton Kenworth issue is reached only if the lessor legitimately holds the MTE extax in California by means other than the issuance of resale certificates to avoid the application of sales tax (owed by the seller and collected from the lessor as reimbursement). That is, the applicable tax must be use tax owed by the lessor, and cannot be a situation where the applicable sales tax owed by the retailer was converted to a use tax situation by the issuance of a resale certificate. For example: a seller of MTE who purchases MTE for outright resale, and thereafter decides remove MTE from its legitimate resale inventory for lease; a lessor purchases MTE in California, but from a private party and not a dealer of MTE; or the lessor purchases the MTE outside California. Please delete both these annotations. In addition, the backup also includes a reference on top to annotation 325.0065. I cannot find that in the book, but if there is any other annotation based on this backup, please delete it.

Mr. Robert Nunes

DHL/cmm
cc:

Mr. John G. Abbott (MIC:85)
Ms. Rachel Aragon (MIC:85)
Ms. Leila Khabbaz (MIC:40)
Annotation Backup

-2-

May 7, 1997
335.0800