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Business Taxes Law Guide—Revision 2024
Sales and Use Tax Annotations
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335.0000 Leases of Mobile Transportation Equipment— Regulation 1661
Annotation 335.0081
335.0081 Timely Election to Pay Tax on Fair Rental Value. On February 17, 19XX, Company A purchased an aircraft from Company B. On the same day, Company A leased the aircraft back to Company B for 96 months. The sale and lease back agreement provided that the aircraft would be delivered to A and then back to B in Delaware. The aircraft would thereafter be based in California. Upon expiration of the lease, B is required to return the aircraft to A.
Company A had never held a California seller's permit and had no consumer's use tax account at the time it purchased the aircraft from Company B. Upon learning of the sale/lease, the Board sent Company A a tax return with a due date of July 31, 19XX, five months after the date of purchase. However, Company A had already filed a first and second quarter return, and paid tax on the rental payments it received from Company B, without having a permit number. Although there is a question as to when the returns were actually filed, the checks that accompanied the returns were dated July 25, 19XX.
Aircraft are "mobile transportation equipment" (MTE) and a lease of MTE is excluded from the definition of a "sale". The purchase of MTE for leasing purposes is, therefore, a retail purchase for use, not a purchase for resale. Since every person making any sale of an aircraft is a retailer, Company A's purchase of the aircraft from Company B was a retail purchase from a retailer. Under Regulation 1661(b)(2), an election to pay tax measured by the fair rental value of MTE is valid only if made timely.
Regulation 1610(c)(2)(A) provides in part, that for persons who do not hold seller's permits, shall make a return and pay the use tax measured by the sales price of the aircraft on or before the last day of the month next succeeding the month in which a return form is mailed to the purchaser, or the last day of the twelfth month following the month of purchase during which the aircraft is purchased, which ever period expires earlier. Accordingly, it was concluded that Company A made a timely election to pay tax on the fair rental value because they filed returns prior to the due date of the return that was sent to them by the Board. 6/21/91. (Am. 2005–2).