Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2014
Sales and Use Tax Annotations
330.0000 LEASES OF TANGIBLE PERSONAL PROPERTY—IN GENERAL—Regulation 1660
(a) IN GENERAL
330.2527 Options Available to Lessor. A corporation which does not have a seller's permit is owned by a single shareholder. It uses heavy equipment including trucks which the corporation owns or leases from independent leasing firms. The trucks and equipment are acquired tax paid by the corporation and the independent leasing firms. The corporation now wishes to sell the equipment which it owns to the single shareholder and lease it from him. The options available to the lessor/shareholder, the tax consequences upon the sale of the equipment from the corporation to its shareholder, and the leaseback of the equipment sold are as follows:
(1) The lessor/shareholder may place the heavy equipment, including the trucks, on a tax-paid basis by paying use tax based upon the purchase price of the property. Use tax on the trucks would be paid directly to the Department of Motor Vehicles. Use tax on the other heavy equipment must be paid directly to the Board in the calendar quarter in which the equipment is first placed in leased service (see section 6094.1). If tax is paid on the cost of all the heavy equipment, tax will not apply to the rental charges made by the proprietorship to the corporation.
(2) The lessor/shareholder may apply to the Board for a seller's permit and may acquire all of the heavy equipment for resale. If this approach is taken, the lessor would be required to collect tax from the corporation based upon rental receipts paid by the corporation.
If neither of the above options are chosen, the lessor/shareholder's inventory will consist of ex-tax inventory except for the trucks. The equipment, except for the trucks, qualifies for a tax free occasional sale. The lessor will be required to pay use tax measured by the purchase price of the trucks at the time the trucks are re-registered at DMV. The lease of the heavy equipment, other than trucks, would be taxable because the lessor would not have paid tax measured by the purchase price pursuant to Regulation 1595. The lease of the trucks would be nontaxable because the lessor would have paid use tax measured by the purchase price of the vehicles.
It is immaterial that the lessor may be a corporation (rather than a proprietorship) wholly owned by the same stockholder who owns the lessee. 3/24/93.