Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2013
Sales and Use Tax Annotations
215.0000 DEMONSTRATION, DISPLAY AND USE OF PROPERTY HELD FOR RESALE—VEHICLES—Regulation 1669.5
(b) LOANS TO SCHOOLS, COLLEGES, AND VETERANS' INSTITUTIONS FOR EDUCATIONAL OR TRAINING PROGRAMS
215.0610 Cars Loaned to Drivers Training School. A distributor buys new cars from the manufacturer for resale to dealers. The distributor registers a number of these cars in its own name and loans them to a private advanced driving school. The school offers specialized instruction on high-performance driving that bridges that gap between high-school drivers' education classes and the real world emergencies. Students are admitted to the school free, but by invitation only. Most invitations are issued by the dealers of the cars in question who sponsor the classes.
Since the taxpayer in this case is a distributor, the controlling authority is subdivision (c)(2) of Regulation 1669.5. Under that provision, the tax may be measured by fair rental value when vehicles are loaned to employees or other persons for periods not exceeding 12 months for frequent demonstration and display. The term "other persons" means "persons other than employees" and is further described in the regulation to include "TV studios, visiting dignitaries, etc." The driving school is an "other person" for purposes of the regulation.
Subdivision (c)(2) of Regulation 1669.5 expressly presumes that vehicles registered in the name of the distributor, as these vehicles are, are frequently demonstrated and displayed. Also, the evidence shows that the distributor's purpose in loaning vehicles to the school is to promote the sales of these makes of vehicles. Therefore, the tax on these vehicles may be measured by the 1/40th formula if the loan is measured for a period not exceeding 12 months. If the loan is for a period of 12 months or more, the measure of tax is the purchase price of the vehicle to the distributor. 1/3/96.