Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 330.2550


330.2550 Out-of-State Prior Lease. In March 1994, the lessee took delivery of a vehicle in Illinois. The vehicle did not enter California until January of 1995, when the lessee relocated to California. At the time of delivery of the vehicle to the lessee in Illinois, the lessee paid an amount as "sales tax" on the base cost of the vehicle.

Since the vehicle was used outside of California for over 90 days prior to its entry into this state, the lessor is not regarded as having purchased the vehicle for its use in California. [See note below.] This means that the lessor would owe no

California use tax on its own use of the vehicle in this state, and thus the option of paying tax on the purchase price of the vehicle is not available to it. The lease constitutes a continuing sale and purchase, for which the lessor must collect use tax on the lease receipts from the lessee.

The lessee's payment of "sales tax" appears to be either reimbursement to the lessor for tax or tax reimbursement it paid or it was a payment made to Illinois on behalf of the lessor for tax liability imposed upon and owed by the lessor on its purchase price of the vehicle. The lessee may not take credit against its use tax liability for any taxes paid by or paid on behalf of the lessor on its purchase price of the vehicle. 8/25/95. (Am. 2006–1; Am. 2008–1).

(Note: For the period October 2, 2004 through June 30, 2007, under certain conditions any vehicle, vessel, or aircraft purchased outside of California and brought into the state within 12 months from the date of its purchase is presumed to be acquired for storage, use, or other consumption in California and subject to use tax.) (Regulation 1620(b)(5).)