Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2013
Sales and Use Tax Annotations
210.0000 DEMONSTRATION, DISPLAY AND USE OF PROPERTY HELD FOR RESALE—General—Regulation 1669
210.0593 Use of Equipment Prior to Lease. An out-of-state taxpayer sold a laser photoplotter to Corporation A who also is located out of state. The taxpayer was instructed to ship the equipment to Corporation B located in California. The equipment was shipped from an out-of-state point to Corporation B in February 1989.
Corporation A and Corporation B signed an agreement on May 15, 1989 in which Corporation B could use the equipment at no charge until October 1, 1989. Corporation B had an absolute right to terminate the agreement until September 30, 1989. The lease and the monthly rental payments, in the amount of $4,840, were to commence October 1, 1989 with final payment due on September 30, 1999. There was no provision or option for Corporation B to purchase the equipment after the lease had terminated.
Corporation A had an arrangement with Corporation B whereby Corporation B was to be allowed to use the photoplotter on an experimental basis for the first seven or eight months (equipment delivered in February 1989) to determine if Corporation B was able to find enough customers in California to lease the equipment. Also, Corporation A was hopeful of obtaining customers for its circuit board business from Corporation B's activities. Corporation A and Corporation B depended on each other for support in case either of its machines broke down.
The issue of this case is whether the sale was a sale for resale or was a retail sale. During the period from February 1989 through September 30, 1989, Corporation A was using the equipment in California by loaning it to Corporation B. Corporation A's intent at the time of purchase was to give Corporation B an opportunity to use the equipment on a trial basis for about eight months with an option of leasing it after September 30, 1989. The purpose was to get customers through Corporation B and to have a back up when Corporation A's own photoplotter broke down. Therefore, the use of the photoplotter in the form of a loan to Corporation B was a taxable use, not demonstration or a display. Thus, sales or use tax applies to the sale of the equipment to Corporation A because there was a retail sale. The taxpayer was correct in charging and collecting tax from Corporation A. 2/13/91.