Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales And Use Tax Court Decisions

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Transmission Lines Are Improvements to Real Property. Taxpayer Is Liable for Tax, but Not for Interest, Even if Given Erroneous Advice by Board

Taxpayer, a contractor, entered into a contract with the United States Government for the construction of a transmission line. The taxpayer did not pay tax on the above-ground materials under the erroneous belief that the materials were personal property and were tax exempt sales to the United States, as provided in Revenue and Taxation Code section 6381. Following a series of court cases which found that for sales and use tax purposes, transmission lines in their entirety were improvements to real property, the Board redetermined the amount of tax and interest the taxpayers owed. The taxpayers paid the full amount and filed an action for refund.

The court of appeal held that transmission lines and supporting installations are properly classified as improvements to real property and that taxpayers, as the users of the materials consumed in the performance of the contract to improve real property, were required to pay the use tax. The court further held that where a Board employee had previously given the taxpayer erroneous advice, the Board was not estopped from collecting the tax which was due and owing, but the collection of interest under such circumstances was inequitable and unjustifiable. Thus, taxpayers were able to recover the amount paid as interest. Fischbach & Moore, Inc. v. State Board of Equalization (1981) 117 Cal.App.3d 627.

Sales Price of Leased Equipment Includes Balance of Unpaid Rental Receipts

The seller purchased equipment tax-paid and leased it to the buyer for a term of 84 months, with an agreement allowing the buyer to purchase the equipment for $9,000 after the completion of the rental payments. The buyer decided to buy the equipment after 52 months. The seller sold it for the originally agreed-upon price of $9,000, plus the unpaid rental receipts balance of $56,110, less unearned finance charges of $7,578.

The Board assessed tax on the entire amount paid, including the unpaid rental receipts. The seller contended the sale was a modification of the lease, which increased the final rental payment, and that only the originally agreed-upon sales price was subject to tax.

The court of appeal held in favor of the Board. The contract for sale necessarily terminated the original lease agreement and brought about a redetermination of the value of the equipment. The amount paid for the transfer of title did not constitute lease payments but was the sales price. Framingham Acceptance Corp. v. State Board of Equalization (1987) 191 Cal.App.3d 461.