Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales And Use Tax Court Decisions

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International Business Machines v. State Board of Equalization . . . (1980)

Lease Tax Law Exempts Prior Leases Only if Parties Are Unconditionally Bound

A lessor sued the Board to recover taxes paid on lease receipts from lease agreements between plaintiff and various banks and insurance companies constitutionally exempt from use tax liability during the effective period of former Revenue and Taxation Code Section 6006.3(b). The Board had construed the statute as providing for taxation of receipts of leases originally executed after the effective date, and renewals of existing leases after the effective date. The Supreme Court held that the Board's construction of the statute was proper in light of the statute's language, the purpose of the Legislature, and the legislative history of the statute and related enactments. The court adopted the Board's interpretation that a renewal after August 1, 1965 of leases executed before that date subjects these leases to sales tax. The court further held that the extension of the leases by failure to exercise a power of termination rendered these leases subject to sales tax; that leases executed before August 1, 1965 for equipment installed after that date were exempt unless the rental price was altered; that leases with miscellaneous equipment changes after August 1, 1965 were exempt up to any additional rental charge attributable to the equipment change; and that leases derived from conditional orders from equipment placed before August 1, 1965, but not executed until after that date, were taxable. International Business Machines v. State Board of Equalization (1980) 26 Cal.3d 923.