Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 335.0053

335.0053 Motor Coaches. An out-of-state leasing company purchases two motor coaches outside of California and leases them to a charter tour company. Under the lease for each motor coach the lessee is to pay the lessor $3,575 per month for a term of eighty-four months and lessee has an option to purchase the motor coach for $67,813 at the expiration of the lease. The lessor made a timely election to pay use tax on the fair rental value and the lessor remits that tax to the Board.

Since motor coaches or buses are included in the definition of mobile transportation equipment (MTE), the rules applicable to leases of MTE apply. Therefore, when MTE is purchased outside California for use by leasing in California and the use is not exempt, use tax applies to the purchase price of the MTE unless the lessor makes a timely election to report its use tax liability measured by the fair rental value of the MTE. Here, each motor coach was used in California for intrastate purposes and not exclusively and continuously in interstate commerce during the six months following its first entry into this state. The interstate commerce exemption does not apply to the use of the motor coaches.

The election to pay tax on the fair rental value is irrevocable. Since the lessor made such an election, the lessor must continue to report use tax on fair rental value whether the MTE is inside or outside California. 6/16/95.