Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 215.0015


215.0015 Accommodation Loan Car Programs. Under these programs, distributors will sell vehicles to dealers under an agreement that the dealer use the vehicles exclusively for accommodation loan purposes for a certain period of time; thereafter, the dealers are free to sell the vehicles. In many cases, the transaction between the distributor and dealer involves a finance company (generally related to the distributor) in which the vehicles purchased by the dealer are immediately sold to the finance company which leases the vehicles back to the dealer. In most cases, the lease is actually a sale at inception based on the terms of the agreement. In exchange for agreeing to the restrictions on its use of the vehicle and its ability to sell the vehicle, the dealer's lease payments may be subsidized by the distributor so that the dealer effectively obtains the vehicle at a reduced price.

Regulation 1669.5 (b)(6) provides that when a dealer provides an accommodation loan to a customer who is awaiting the repair of a vehicle leased from that dealer, the dealer is regarded as leasing the accommodation loan vehicle to its customer as part of the lease of the vehicle being repaired. If the lease is a continuing sale, the accommodation loan is part of that continuing sale because it is regarded as coming under the original lease. In this context, a dealer would be entitled to purchase a vehicle for resale in the form of accommodation loans that constitute continuing sales. No further tax is due with respect to accommodation loans made to persons leasing vehicles in continuing sales leases.

Accordingly, the dealer may issue a resale certificate to a distributor for the purchase of vehicles to be used exclusively as accommodation loans to persons leasing vehicles in continuing sales. However, when the dealer loans these vehicles to customers who own vehicles (and to those whose leases are not continuing sales) which are under repair, the dealer is regarded as using the vehicles and owes use tax measured by the fair rental value of the vehicle. (Section 6094(b).)

Under these circumstances, the dealer must specifically substantiate by documentation the percentage of its accommodation loans to persons leasing vehicles in continuing sales. If the dealer does not maintain and/or provide substantial and detailed documentation, (e.g., repair invoices, lease agreements, schedules, etc.) for purposes of audit or reporting, the dealer owes tax or the fair rental value for all accommodation loans of vehicles made under these programs.

In some instances, vehicle dealers do not actually lease vehicles but rather a separate related finance company or arm of the dealership or distributor becomes the ultimate lessor. Also, the lease agreements may show the dealership as the original lessor, but the lease is later assigned to separate concern where all lease payments are remitted. Considering the unique circumstances of financing and leasing arrangements made in this industry, accommodation loans provided to customers awaiting repair of vehicles leased from a separate but related entity of the dealer or distributor should be treated as one transaction for purposes of a continuing sale when the customer's lease originates through the dealer providing the accommodation loan. On the other hand, accommodation loans of vehicles made to customers awaiting repair of vehicles leased by an unrelated dealer, distributor, or franchise would be subject to tax measured by the fair rental value.

Under these specific accommodation loan programs, if the dealer does not offer a vehicle as a daily rental, then a reasonable fair rental value of the vehicle for each month will be obtained by using 1/40th of the purchase price of the vehicle as explained in Regulation 1669.5(b)(3)(A). 6/27/97.