Could California's section 6388.5 exemption cover a bank's purchase of qualifying trailer chassis that were immediately leased and subleased?

Plain-English summary

Counsel described a California bank buying qualifying trailer chassis from a California manufacturer for security purposes, immediately leasing them to a corporation, and having that corporation sublease them to an affiliate.

California treated the bank as the consumer because leases of mobile transportation equipment were excluded from taxable sales and purchases. Even so, the opinion concluded that the manufacturer's sale to the bank could qualify for the section 6388.5 exemption. The sublessee's use in interstate or foreign commerce was attributed to the lessee/sublessor and then to the bank.

The chassis could carry cargo on their first trip out of California if that payload itself moved in interstate or foreign commerce. They could later return to, remain in, or be assigned to a California depot without losing the exemption only while used exclusively to carry interstate or foreign-commerce goods. The opinion warned that even one carton moving in intrastate commerce would cause the exemption to be lost.

Statutory conditions and missing proof

The letter applies section 6388.5's then-stated conditions for a new or remanufactured trailer or semitrailer manufactured or remanufactured in California, with unladen weight of at least 6,000 pounds, bought for outside use, delivered here, and moved outside California within 75 days. It also quotes requirements for written out-of-state license and registration evidence and purchaser affidavits stating the purchase location, exclusive qualifying use, and timely exit.

The requester said the bank was prepared to comply, but the official PDF provides no chassis manufacturer, model, new or remanufactured status, weight certificate, invoice, California delivery, security agreement, lease, affiliate sublease, registration, affidavit, departure date, carrier or movement record, cargo manifest, route, depot assignment, return, assessment, payment, or tax amount. Every step was proposed, so the source does not establish that the conditions were actually met.

Counsel says the Board had previously held section 6388.5 could apply when the sale was to a lessor and MTE was delivered to and used by a lessee, and that chassis could leave with qualifying cargo. No prior ruling, annotation, opinion, date, or supporting source is cited. The sublessee-imputation step is the opinion's extension of those unstated prior holdings.

The live 335.0950 annotation materially tracks all three questions and conditional answers. It changes one phrase from the PDF's purchase “solely for security” to “solely of security,” without explanation, and omits the hypothetical framing, new-or-remanufactured statutory wording, written registration evidence, uncited prior holdings, and absent transaction records.

Common questions

Did the bank's role as lessor prevent the exemption?

No. On the stated facts, California attributed the qualifying use by the sublessee through the lease chain to the bank purchaser.

Could the chassis leave California carrying cargo?

Yes, if the outbound payload was itself in interstate or foreign commerce.

Could the chassis be based at a California depot?

Yes, but only while their use remained exclusively the carriage of interstate or foreign-commerce goods. The source said one intrastate carton would defeat the exemption.

Did the bank actually complete the purchase and supply the required affidavits?

The source does not establish that. It analyzes a hypothetical and includes no purchase, lease, registration, affidavit, exit, cargo, depot, or tax record.

Citations and references

• California Revenue and Taxation Code sections 6006(g)(4), 6010(e)(4), 6023, and 6388.5
• California Sales and Use Tax Regulation 1661(f)
• Requester's January 23, 1985 letter to Assistant Chief Counsel Gary Jugum — referenced and summarized but not included
• Unidentified prior Board holdings allowing section 6388.5 treatment through lessor and lessee use — referenced but not cited or included
• Trailer purchase and qualification evidence, security documents, lease and affiliate sublease, registration, affidavits, exit records, cargo manifests, depot records, and tax records — not included

Verbatim support

From the official April 19, 1985 letter:

We believe the same result follows with use by the sublessee. Since it is the intention of the lessor to immediately sublease the chassis to an affiliate, the use in interstate or foreign commerce, or both, by the sublessee would be imputed to the lessee/sublessor which would in turn be imputed to the bank and the exemption of 6388.5 would apply to the sale by the manufacturer.

However, if so much as one carton is for intrastate commerce, the exemption will be lost.

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/335-0950.pdf

Original ruling text

335.0950

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-3828

April 19, 1985

Mr. J--- H. K--F---, G--- & F--XXX --- Blvd., Suite XXXX
--- ---, CA XXXXX
Dear Mr. K---:
Your letter to Assistant Chief Counsel Gary Jugum of January 23, 1985, was assigned to me for reply. You ask about the application of California sales and use tax to a hypothetical transaction in which mobile transportation equipment is purchased, leased, and then subleased to be used in interstate or foreign commerce. The proposed transaction is as follows: 1.

A California bank purchases a trailer chassis from a California manufacturer. The bank is acquiring title for purposes of security.

2.

The bank will immediately lease the chassis to a corporation which will sublease it to an affiliate.

3.

The leases are of mobile transportation equipment within the scope of Revenue and Taxation Code sections (hereinafter all references to sections are to that code) 6006(g)(4) and 6010(e)(4).

4.

The chassis will have an unladened weight of 6,000 pounds or more, will be registered out of state, and “will be used exclusively outside California or exclusively in interstate or foreign commerce or both and will be moved, loaded with cargo, from California to a point outside the state within 75 days after delivery by the manufacturer.” The bank will provide affidavits pursuant to section 6388.5 to the manufacturer.

5.

In addition, we will assume that the delivery of the chassis will take place in California.

Mr. J--- H. K---

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April 19, 1985
335.0950

The following sets out your three questions and our answers to them: 1.

Since the bank is making the purchase solely for security, will the exemption available under Revenue and Taxation Code section 6388.5 apply to the purchase and immediate lease of the chassis by the bank?

California sales and use tax law imposes tax on the sale or sue of tangible personal property in this state, unless such sale or use is otherwise exempt from taxation. Section 6023 defines “mobile transportation equipment” as: “…equipment such as railroad cars and locomotive, buses, trucks (except ‘oneway rental trucks’), truck tractors, truck trailers, dollies, bogies, chassis, reuseable cargo shipping containers, aircraft and ships, and tangible personal property which is or becomes a component part of such equipment.” Section 6006 states that a sale means and includes: “(g) Any lease of tangible personal property in any manner or by any means whatsoever, for a consideration, except a lease of: (4) Mobile transportation equipment for use in transportation of persons or property as defined in Section 6023.” Section 6010 mirrors that definition by defining a “purchase as: “(e) Any lease of tangible personal property in any manner or by any means whatsoever, for consideration, except a lease of:…(4) Mobile transportation equipment for use in transportation of persons or property as defined in Section 6023.” Since the lease of mobile transportation equipment (MTE) is not a sale, Regulation 1661(f) states: “With respect to leases which fall within the scope of Sections 6006(g)(4) and 6010(e)(4) … the sale to the lessor is the retail sale and the lessor is the consumer of the equipment. Accordingly, either the sale of the equipment to the lessor or its use in this state may be subject to tax.” Thus, tax, if applicable, would apply to the sale by the manufacturer of the chassis to the bank. However, Section 6388.5 provides: “… whenever a new or remanufactured trailer or semitrailer with an unladen weight of 6,000 pounds or more which has been manufactured or remanufactured

Mr. J--- H. K---

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April 19, 1985
335.0950

in this state is purchased for use without this state and is delivered by the manufacturer, remanufacturer, or dealer to the purchaser within this state, and the purchaser drives or moves the vehicle to any point outside this state within 75 days from and after the date of delivery, there are exempted from the taxes imposed … the gross receipts from the sale of and the storage, use or other consumption of the vehicle within the state, if the purchaser furnishes the following to the manufacturer, remanufacturer, or dealer: (a) Written evidence of an out-of-state license and registration for the vehicle. (b) The purchaser’s affidavit attesting that he or she purchased the vehicle from a dealer at a specified location for use exclusively outside this state, or exclusively in interstate or foreign commerce, or both. (c) The purchaser’s affidavit that the vehicle has been moved or driven to a point outside this state within the appropriate period of … 75 days of the date of the delivery of the vehicle to him or her.” You state that the chassis are being purchased to be used in interstate or foreign commerce, or both, and that the bank is prepared to comply with sections 6388.5, subsections (a), (b) and (c). We have held in the past that section 6388.5 applies even though the sale is to a lessor and the MTE is delivered to and is thereafter used by the lessee. We believe the same result follows with use by the sublessee. Since it is the intention of the lessor to immediately sublease the chassis to an affiliate, the use in interstate or foreign commerce, or both, by the sublessee would be imputed to the lessee/sublessor which would in turn be imputed to the bank and the exemption of 6388.5 would apply to the sale by the manufacturer.

2. Assuming an affirmative answer to number 1, will the exemption of 6388.5 be
   applicable if the chassis carry a load on their initial movement out of California? We have also held in the past that the chassis may carry a payload out of the state without loss of the exemption provided it is a payload in interstate or foreign commerce, or both.
3. Can the chassis if purchased within the exemption of 6388.5 and used
   exclusively in interstate or foreign commerce be assigned to a California depot? The chassis may return to California and may be assigned to a California depot, without loss of exemption, provided, however, that the use of the chassis is exclusively the carriage of interstate or foreign commerce goods, or both. After leaving the state, the chassis my return to California, and even remain in California, as long as they are exclusively carrying interstate and foreign commerce goods, or both. However, if so much as one carton is for intrastate commerce, the exemption will be lost.

Mr. J--- H. K---

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If you have any further questions, please feel free to contact us. Very truly yours,

Vickie B. Owen
Tax Counsel

VBO:sr

April 19, 1985
335.0950