Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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410.0000 PERMITS—Regulation 1699

Annotation 410.0212


410.0212 Single Lease and Subsequent Sale of Leased Assets. A limited partnership has its main office located in Illinois. Its principal business is buying real property for long term investment purposes and then leasing the property. For the period in which the following transaction occurred, it did not have a California seller's permit or file California sales and use tax returns.

In mid 1971, the partnership purchased the assets of a hotel with a bar and restaurant in California from a finance company which had acquired it by foreclosure or repossession. Although the hotel assets included some tangible personal property in addition to the realty, the partnership did not pay sales tax reimbursement to the seller or use tax to the State with respect to the purchase. Simultaneously with the purchase or soon thereafter, the partnership leased all of the assets to the same corporation that had previously owned the hotel. The Corporation was given full authority and responsibility for operating the business and presumably held a seller's permit for such operations.

In December 1973, the partnership sold all the hotel assets to an unrelated company. Although the partnership made only two sales in any 12 month period, the lease of the hotel's fixtures and equipment and its subsequent sale, the two sales are sufficient to require the partnership to hold a seller's permit. Under section 6066, a person must hold a permit if it is "engaged in business" as a seller regardless of the number of sales. In this situation, the partnership was engaged in the business of leasing tangible personal property. The lease of the hotel assets, including the tangible personal property, was unquestionably entered into with the object of gain, benefit or advantage, and this comes precisely within the statutory definition of "business." The ongoing nature of the lease also indicates that it was a business activity rather than a casual or isolated translation. While leasing tangible personal property may not have been the partnership's principal business, it was nevertheless a business activity and required the holding of a seller's permit.

As regards to Regulation 1595 which states that persons who make three or more sales are "generally" required to hold a permit, it does not state that persons who make fewer sales are necessarily exempt from the permit holding requirement. Also, the lease is not an occasional sale under Regulation 1595 which is defined to include a "sale of property not held or used by a seller in the course of activities for which he is required to hold a seller's permit . . . "Since the partnership's lease of the hotel assets required the holding of aseller's permit, the lease was not an occasional sale under this section. For the same reasons, the partnership's sale of the hotel assets was not an occasional sale. That the partnership owned a hotel and was engaged in a leasing business in California provided sufficient nexus for taxation. 12/9/80.