Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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545.0000 "TAX-PAID PURCHASES RESOLD"—Regulation 1701

Annotation 545.0018

545.0018 Equipment Resold Prior to Use. A manufacturer who holds a seller's permit purchases equipment to be used in its manufacturing operations. Sales tax reimbursement was paid to the vendor with respect to the equipment. The manufacturer intends, prior to any functional use, to resell the equipment to a California lessor who holds a seller's permit. The lessor will lease the equipment back to the manufacturer.

The equipment has been installed and is currently undergoing characterization (defining each machine's processing capabilities) and final acceptance testing. This shakedown/testing process is necessary to assure proper installation and operability to the manufacturer's specifications. The equipment cannot be used for production purposes until characterization and acceptance are completed.

The manufacturer plans to report tax on the transaction and collect sales tax reimbursement from the lessor.

Since no functional use of the equipment has yet occurred, the manufacturer may claim a tax-paid purchases resold deduction on its return filed for the period in which the equipment is resold. (Regulation 1701.) 10/29/90.