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
(c) CONTINUING SALE AND PURCHASE
330.3636 Computers. A partnership, formed out of state for the purpose of leasing business computers, leased two computer systems in California.
(1) A computer system previously leased out of state was sold to a funding group, immediately leased back, and then leased by the partnership to a third party in this state. The leaseback to the partnership was a true lease and not a sale at inception because the funding group retained title in the equipment at the end of the lease term. The partnership claimed that it cannot be held liable for any tax on its lease to the third party on the grounds that the funding group and not the partnership was the owner of the equipment.
Under sections 6010.1, the lessor is the seller and is thus responsible for any tax. Nothing in the statute conditions the lessor's responsibility for tax on holding legal title to the leased property. The partnership leased a computer system in this state and was therefore the seller responsible for any applicable tax regardless of whether the partnership was the "owner" of the property. The lessor was responsible for payment of tax on its lease receipts.
(2) The partnership purchased a computer system. In order to finance the purchase, it sold the equipment to a funding group and immediately leased it back, and then leased it to a third party in this state. The invoice for the purchaser of the system stated "plus sales tax." The tax was equal to four percent of the purchase price. The partnership claimed that it paid Michigan tax or tax reimbursement and that the lease was not a "sale" or "purchase."
Although the Michigan tax or tax reimbursement was paid on the acquisition of this system, the tax was paid at the rate of 4% which was less than the applicable California tax. Since the Michigan tax or tax reimbursement was less than the applicable California tax, the partnership had two options when it placed the system into rental service in California, i.e., tax on rental receipts or tax on purchase price with a tax paid credit for Michigan sales tax. Since the partnership failed to file a timely return reporting tax on the purchase price, the partnership no longer had an option. Tax was due on the rental receipts without credit or deduction for the Michigan tax or tax reimbursement. 6/12/89.