Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 330.5160


330.5160 Sale and Leaseback. Vendor sold equipment to consumer in October. Sales tax was paid on the transaction. In December, after having made functional use of the property, consumer contracted to sell the equipment to lessor and lease it back. At that time, consumer gave vendor a resale certificate, and vendor credited consumer for the amount of "sales tax" included in the original purchase price. Lessor then paid the balance of the invoice to vendor, without payment of any tax or tax reimbursement, and then made a timely election to report tax on rentals payable. The vendor thereafter filed a claim for refund for the sales tax it had paid the Board on its sale to consumer.

Even if there were a valid issue as to whether consumer's sale to lessor qualified under section 6010.65 or Regulation 1660(a)(3), this issue is irrelevant in determining whether the original sale is subject to tax. Vendor did not take a timely resale certificate. Since consumer functionally used the property prior to selling the property to lessor, vendor's sale to consumer cannot be regarded as a sale for resale. The vendor cannot claim a returned merchandise deduction under these facts. There must be an unconditional return of the property to the vendor and a full refund of the purchase price. Here, the vendor simply accommodated the consumer, acting as a conduit, by billing the amount remaining due to lessor. Regardless of the documentation the parties might create in order to make the transaction appear to be a return of property followed by a sale to someone else, in fact, there has been no return at all. Even if this type of transaction could be viewed as a return, the vendor accepted that "return" only on the condition that the purchaser furnish a replacement buyer at an equal or greater price than the original purchase price. This cannot qualify for the returned merchandise deduction, and the claim for refund must be denied. 9/28/93. (Am. M99–1).