Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2013
Sales and Use Tax Annotations
330.0000 LEASES OF TANGIBLE PERSONAL PROPERTY—IN GENERAL—Regulation 1660
(a) IN GENERAL
330.2305 Lease and Lease Back. A company owns tax paid equipment that it will lease to a financing organization for a period of 15 to 20 years. The financing organization will pay the company a lump sum which will equal the lease payment stream otherwise payable over the term of the lease, discounted at an appropriate rate. The company will retain title to the equipment throughout the lease period. The financing organization will sublease all equipment to the company for a period of 7 to 12 years. At the end of the sublease and at two other times during the sublease, the company will have the option to "buyout" the financing organizations remaining interest in the lease.
Since the company never passes title to the equipment to the financing organization and the company will retain title to the equipment at the end of the contract term, the transaction is a lease from the company to the financing organization. Based on the statement that the equipment is leased in substantially the same form as acquired and that California sales tax or use tax was paid with respect to the company's purchase of the equipment to be leased, the lease of the equipment by the company is not a continuing sale and is not subject to use tax. Assuming the company timely paid tax on the purchase price, the sublease as well as the prime lease are regarded as tax paid. Thus, the sublease also is not a continuing sale and is not subject to use tax. 7/9/92.