Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 330.5140


330.5140 Sale and Leaseback. Company A purchased a computer from Company B on April 30, 1991. It also executed a Licensed End User Agreement for a software program to be used with the computer. On May 29, 1991, Company A purchased an additional piece of hardware from Company B.

Company A had intended to finance the full amount of the purchases, but was unable to do so at the time. It paid Company B approximately $47,000 of the almost $75,000 purchase price. On September 20, 1991 Company A entered into a contract with Company C designated "Term Lease Master Agreement." Company C remitted to Company B $70,000. In turn, Company B refunded the original purchase price to Company A less the amount of sales tax reimbursement.

Company B's sale to Company A is a retail sale notwithstanding the subsequent transaction with Company C. Also, the contract between Company A and Company C did not qualify for the exclusion under section 6010.65.

The transaction took place more than ninety days after the original purchase. An attempt to have an effective date of the lease with Company C of May 15, 1991 is not possible. The property was functionally used by Company A during the period and the "Term Lease Master Agreement" contract was not entered into until September 20, 1991 well over 90 days after the first functional use.

Also, the "Term Lease Master Agreement" does not qualify as a financing transaction pursuant to Regulation 1660 (a) (3). Under terms of the contract, Company C is entitled to take the maximum Accumulated Cost Recovery System deduction for income tax purposes. Thus, the "Term Lease Master Agreement" is a sale by Company A to Company C. 5/12/92.