Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2017
Sales and Use Tax Annotations
330.0000 LEASES OF TANGIBLE PERSONAL PROPERTY—IN GENERAL—Regulation 1660
(d) "SUBSTANTIAL CHANGE IN FORM"
330.3900 General Rule—Substantial Change in Form. If equipment is not leased in substantially the same form as acquired, a lease of that equipment is a continuing sale and the use tax measured by the rentals payable must be collected and remitted. It is irrelevant that tax was paid on the purchase price, "cost," or "value" of the equipment. If tax has been paid on the purchase price of equipment which, prior to any use, is leased in California, but not in substantially the same form as acquired, a tax-paid purchases resold deduction may be taken for those taxes.
In situations where there has been a substantial increase in the value of the leased property, the general rule is that the substantial increase in value alone is enough to show that the property is not leased in the same form as acquired. However, other situations exist where there is a change in form, but little increase in value. In such instances, the fact that there is no substantial increase in value is irrelevant if there is a change in form between what the lessor acquired and what the lessor leased such that the property is not leased in substantially the same form as acquired. 2/17/67; 5/2/94.