Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2014
 

Sales and Use Tax Annotations


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330.0000 LEASES OF TANGIBLE PERSONAL PROPERTY—IN GENERAL—Regulation 1660

Annotation 330.2297

(a) IN GENERAL

330.2297 Lease Agreement Statement—"Rental Not Taxable." A lease agreement between the lessor and the lessee includes this statement:

". . . if ‘Rental Not Taxable' has been checked on the face of this agreement, lessor warrants that lessor has paid sales tax pursuant to section 6052 of the California Revenue Taxation Code or has paid use tax measured by the purchase price of the equipment and that the equipment is in substantially the same form as acquired. Lessor will indemnify contractor against any sales or use taxes that may be claimed to be due in connection with this lease or the rentals or other payments hereunder."

In this example, the lessor is merely complying with the requirements imposed by Regulation 1686(b) that the lessor notify the lessee when lease or rental transactions are not subject to use tax and the facts supporting the lessor's rationale for not collecting the use tax from the lessee. The language employed in the lease agreement in fulfillment of this requirement is only a statement by the lessor that tax was paid on cost and a promise to indemnify the lessee if this statement is false. The statement does not act as an exemption certificate. In the event that use tax was not paid on cost, the lessee is liable for payment of the use tax, however the lessee may have recourse against the lessor. 7/16/81; 12/4/01. (Am. 2002–3).