Did a dealer's 500-mile break-in of English-built cars create taxable use before resale?

Plain-English summary

Driving the English-built automobiles for their first 500 miles solely to break them in was preparation for delivery to customers, not a taxable use by the dealer before resale.

The limitation mattered. If the dealer drove the cars for another purpose, historical law required tax on property purchased for resale when the retailer used it beyond demonstration or display while holding it for sale.

Citations and references

• California resale-inventory use rule (described without a section number in the source)

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/580-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/580-0020.pdf

Original ruling text

580.0020

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

September 5, 1950

Dear Mr.
We have considered the question presented in your recent inquiry received August 14 which concerns whether or not you are liable for the California use tax with respect to Englishbuilt automobiles broken in by you for the first five hundred miles before being sold to your customers. It is our opinion that such breaking in of the cars is in itself nothing more than preparation of the cars for delivery to customers and is not in itself sufficient to subject you to payment of use tax on the theory that you used the cars prior to reselling them. It must be understood, however, that you do not drive the cars for purposes other than the proper breaking in since, as you know, the statute provides that where a retailer makes any use of property purchased for resale other than demonstration or display while being held for sale in the regular course of business, tax must be paid with respect to the sale of the property to the retailer.

Very truly yours,

E. H. Stetson
Tax Counsel