Who owed tax on pickup trucks subleased to the U.S. Forest Service?

Plain-English summary

A petitioner subleased pickup trucks to the U.S. Forest Service and initially faced tax on the rental activity. After a Board hearing, it submitted evidence reportedly showing that a redacted third party owned and leased the trucks to it. The PDF does not identify that party as a manufacturer or the petitioner as a dealer; the live annotation supplies those labels.

California treated pickup trucks as MTE. The taxable use was the prime lessor's lease, not the federal government's use, so a lease to the Forest Service did not remove the lessor's tax obligation.

The live annotation says neither lessor nor lessee/sublessor paid tax and no timely rental-receipt election was made, so purchase-price use tax applied to the prime lessor. The memorandum says the petitioner was only the lessee-sublessor and had no MTE tax liability, so staff recommended granting its petition.

Hearing posture, missing evidence, and source split

The petition was heard by the Board in San Francisco on May 7, 1985. The Board took it under consideration and gave the petitioner 30 days to submit further evidence. The June memorandum says evidence later supported the prime-lease contention, but it includes no hearing transcript, exhibit, ownership document, prime lease, truck list, manufacturer record, Forest Service sublease, or evidence-submission date.

Before that evidence, staff had rejected three contentions: federal leasing removed tax, pickups were not MTE, and rental-receipt reporting should be allowed. The memorandum relies on Regulation 1661 and an unspecified Vehicle Code truck definition. It says tax on cost followed from the petitioner's lack of a timely election, but after reassigning lessor status it supplies no return or election record for the redacted prime lessor.

The document recommends granting the petition and provides a suggested Statement of Board Action only “If the Board accepts our recommendation.” No signed or adopted Board action, meeting minutes, order, revised audit, collection against the prime lessor, refund, or later disposition is included. The prior page's statement that the petition “was granted” has therefore been corrected to the procedural status the source actually provides.

The live 335.1005 annotation identifies the prime lessor as the manufacturer and the sublessor as a dealer, and states neither paid tax and no timely election occurred. Those facts are not visible in the redacted PDF memorandum. The live page preserves the tax-incidence conclusion but omits the Board hearing, 30-day evidence period, preliminary analysis, missing evidence, recommendation-only posture, and conditional proposed Board action.

Common questions

Did the U.S. Forest Service's involvement eliminate tax?

No. The tax was imposed on the prime lessor's use, not on the federal lessee.

Why did staff recommend granting the petitioner's claim?

Staff recommended granting it because the submitted evidence reportedly showed the petitioner was not the MTE lessor responsible for the tax. No final Board acceptance is included.

Did the PDF identify the prime lessor as the manufacturer?

No. That identity appears in the live annotation; the PDF redacts the name and omits the supporting evidence.

Citations and references

• California Sales and Use Tax Regulation 1661
• California Vehicle Code definition of trucks — cited without a section number
• Evidence submitted after the May 7, 1985 Board hearing — referenced but not included
• Prime lease, Forest Service sublease, truck ownership and manufacturer records, tax payments, cost, rental receipts, election, and audit records — not included
• Suggested Statement of Board Action — expressly conditional on Board acceptance; no adopted action included

Verbatim support

From the official June 13, 1985 memorandum:

We are now of the opinion that --- was the lessor of the mobile transportation equipment and is therefore liable for the tax. Petitioner as sublessor has no tax liability. We now recommend that the petition be granted.

If the Board accepts our recommendation, the following Statement of Board Action is suggested:

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/335-1005.pdf

Original ruling text

State of California

Board of Equalization

Note: Lessor, not sublessor
of MTE owes tax on cost.

Memorandum

To:

Petitions (CWP)

From:

Tax Counsel (HLC)

335.1005

Date:

June 13, 1985

Subject:

Subject taxpayer's petition for redetermination was heard by the Board in San Francisco on May 7, 1985. The Board took the matter under consideration and allowed petitioner 30 days in which to submit further evidence. Petitioner leased pickup trucks to the United States Forest Service and contended at the preliminary hearing that no tax was due on the rental activity. The basis for petitioner's contention was that leases to the United States are not subject to tax, and that even if leases of mobile transportation equipment to the United States are taxable, these pickup trucks did not constitute mobile transportation equipment. Finally petitioner contended that if tax is due, petitioner should be allowed to pay tax based on rental receipts. We rejected these contentions. Leases of mobile trnasportation equipment are uses by the lessor under the Sales and Use Tax Law, therefore we are not taxing the use of the equipment by the United States. Pickup trucks meet the Vehicle Code definition of trucks and are specifically included in the definition of mobile transportation equipment in Regulation 1661. Finally tax is due on cost because petitioner did not make a timely election to pay tax measured by rental receipts. At the hearing before the Board, petitioner stated that the trucks in question had been leased by petitioner from ---., therefore, any tax due was due from - Subsequent to the hearing petitioner submitted evidence to support this contention. We are now of the opinion that --- was the lessor of the mobile transportation equipment and is therefore liable for the tax. Petitioner as sublessor has no tax liability. We now recommend that the petition be granted. If the Board accepts our recommendation, the following Statement of Board Action is suggested:

Statement of Board Action
The Board found that petitioner was the lessee and sublessor of the mobile transportation equipment in question. The incidence of tax is on the lessor of mobile transportation, therefore petitioner has no liability for any tax due with respect to the transactions. The Board ordered that the petition be granted.

HLC:ba