Action Trailer Sales, Inc. v. State Bd. of Equalization

• Decision Date: 30 December 1975
• Citation: 126 Cal.Rptr. 339,54 Cal.App.3d 125
• Court: California Court of Appeals Court of Appeals
• Parties: ACTION TRAILER SALES, INC., Plaintiff and Appellant, v. CALIFORNIA STATE BOARD OF EQUALIZATION, Defendant and Respondent. Civ. 46198.

Page 339

126 Cal.Rptr. 339

54 Cal.App.3d 125

ACTION TRAILER SALES, INC., Plaintiff and Appellant, v. CALIFORNIA STATE BOARD OF EQUALIZATION, Defendant and Respondent.

Civ. 46198.

Court of Appeal, Second District, Division 3, California.

Dec. 30, 1975.

Gibson, Dunn & Crutcher and Richard Chernick, Beverly Hills, for plaintiff-appellant.

Evelle J. Younger, Atty. Gen., and Philip C. Griffin, Deputy Atty. Gen., for defendant-respondent.

FORD, Presiding Justice.

Plaintiff Action Trailer Sales, Inc., a California corporation (hereinafter referred to as 'Action'), brought suit against the California State Board of Equalization (hereinafter referred to as 'Board'), seeking a refund of use tax paid under protest and declaratory relief.

The matter was submitted at trial before a judge sitting without a jury on stipulations of fact filed by the parties. The court issued its memorandum re intended decision, finding in favor of defendant Board. Thereafter, upon proper request, findings of fact and conclusion of law were filed and judgment was rendered in favor of defendant Board. Action appeals from the judgment.

This case involves the question of whether a lessor, who (under Revenue and Taxation Code section 6006, subd. (g)(5)), leases tangible personal property in substantially the same form as acquired, may elect to either pay sales or use tax measured by the purchase price of the leased property or use tax based on rental receipts from the subsequent rental of such property.

The facts are not in dispute. Based on the facts as to which the parties stipulated, the trial court found:

1. That since approximately 1959 Action has been in the business of leasing mobile office trailers. Action acquires trailers by purchase, either from its parent corporation, roadcraft Manufacturing and Leasing Corporation, or from other vendors. At the time of trial Action had a fleet of over 1,300 such trailers. Action leases mobile office trailers to persons who have need for temporary office facilities such as on the site of construction projects. The trailers may be attached or coupled together in various ways, enabling Action of provide its lessees with a suite of offices having two, three, four or more rooms. While the trailers are on lease, they are stationary and cannot be moved until all units are uncoupled. The units can only be moved over the highway individually and are not used for the transportation of persons or property for hire.

2. 'The trailers are leased by plaintiff in substantially the same form in which plaintiff acquired them.'

3. 'From the inception of Action's business of leasing mobile office trailers in 1959 until August 1, 1965 plaintiff elected to pay sales tax reimbursement on such trailers at the time of their acquisition as measured by the purchase price of such vehicles rather than collecting use tax upon rental receipts derived from the lease of such units during their rental lifetime. After October 1966, plaintiff has paid tax on its purchase of trailers in this same manner.'

4. 'Between August 1, 1965 and September 31 (sic), 1966 plaintiff acquired and put into rental service approximately 100 office trailers. Plaintiff did not report and pay sales tax on the purchase price of any of said vehicles during this period, nor did it pay use tax measured by the purchase price of said trailers at the time the trailers were first put into rental service. The failure to report and pay sales taxes on the purchase of said trailers was not motivated by an intent to evade the sales and use tax law of the State of California.'

5. Action's failure to pay tax on the purchase of the 100 office trailers to which reference is made in the preceding paragraph was discovered during a routine audit performed by the Board. 'When the discrepancy was discovered and verified, Action offered to pay sales tax on the office trailers as to which no tax had been paid measured by the purchase price of those units, together with any interest or penalties due according to law. The Board determined that because Action had failed to pay sales tax reimbursement measured by the purchase price of the trailers at the time it acquired them and had failed to pay use tax measured by the purchase price of the trailers when they were first put into rental service, plaintiff would not be permitted to elect to do so upon the subsequent discovery of such failure, but rather was obligated to collect use tax from its lessees as measured by the rental receipts derived from the lease of those units.'

6. Thereafter the Board issued a notice of determination against Action for the tax claimed. Action pursued its administrative remedies and paid the amount claimed to be due by the Board. in full. Thereafter Action filed a claim for refund with the Board, which claim was denied. On April 20, 1973, the complaint herein was filed.

The trial court stated conclusions of law (numbers having been changed herein) which are in part as follows:

1. 'Revenue and Taxation Code section 6006(g)(5) permits a lessor of tangible personal property who leases that property in the same form in which the property is acquired to pay sales tax reimbursement to its seller upon the purchase of the property, or, to report such lease as a taxable use by plaintiff upon the tax return for the period in which the first lease occurred and to pay a use tax at that time based upon the purchase price of the property. The Revenue and Taxation Code requires the person electing to pay use tax upon the purchase price of the property to report and pay the use tax at the end of the calendar quarter in which the tangible personal property is first leased by the lessor. This is inherent in the language of section 6006(g)(5) and in those sections requiring the filing of returns and the payment of tax. The Legislature has used the pastense in limiting the election requirement in section 6006(g)(5). By using the words 'has paid' the Legislature demonstrated its purpose to require an election by the lessor at the earliest tax-paying opportunity, within the time limit of those sections requiring reporting and paying of the tax.'

2. 'Defendant has incorporated this interpretation of section 6006(g)(5) in Regulation 1660(c)(2), that is, in order for a lease of tangible personal property not to be considered a sale requiring collection of the use tax, the lessor must pay sales tax reimbursement at the time it purchases the property, or use tax at the end of the quarter in which plaintiff has placed the tangible personal property into rental service. This regulation was promulgated within the scope of the Board's rule-making power. It does not more than incorporate the effect of section 6006(g)(5) and the clear legislative intent which can be discerned from that section and those sections governing when report and payment of sales tax reimbursement or use tax is to be made, specifically Revenue and Taxation Code sections 6052, 6451--6454. Hence, the regulation is reasonable and proper and must be sustained. . . .'

3. 'When plaintiff failed to pay sales tax reimbursement or use tax based upon the purchase price of the units at the times specified in the Revenue and Taxation Code and Regulation 1660(c)(2) it waived its right to claim that the lease of these 100 units was not a sale. The lease of these 100 units constituted a sale and the defendant acted property in requiring plaintiff to pay an amount equal to the amount of use tax it should have collected from its lessees.'

Appellant contends that '(t)he trial court erred in concluding that appellant was not entitled to pay use tax measured by the purchase price of the mobile office trailers.'

Pertinent sections of the Revenue and Taxation Code will be noted. Section 6051 imposes a tax upon retailers '(f)or the privilege of selling tangible personal property at retail.' Section 6052 provides that the sales tax 'shall be collected by the retailer from the consumer in so far as it can be done.' Section 6201 imposes an excise tax 'on the storage, use, or other consumption in this state of tangible personal property . . .' at the rate of a certain percentage of the sales price of the property. Section 6202 provides that the consumer of tangible personal property purchased in this state is liable for use tax except where the retailer collects the tax from the consumer and the consumer has a receipt so indicating. Section 6006, subdivision (g), defines a sale in part as '(a)ny lease of tangible personal property in any manner or by any means whatsoever, for a consideration, Except a lease of: . . . (5) Tangible personal property leased in substantially the same form as acquired by the lessor or leased in substantially the same form as acquired by a transferor, as to which the lessor or transferor has paid sales tax reimbursement pursuant to Section 6052 or has paid use tax measured by the purchase price of the property. . . .'

Regulation No. 1660 promulgated by the Board provides in pertinent part as follows (18 Cal.admin.Code, § 1660(c)(2), p. 502.7): 'No sales or use tax is due with respect to the rentals charged for tangible personal property leased in substantially the same form as acquired by the lessor, or by his transferor, as to which the lessor or transferor has paid tax or tax reimbursement measured by the purchase price. It such tax or tax reimbursement has not been so paid, and the lessor desires to pay tax measured by the purchase price, it must be reported and paid timely with the return of the lessor for the period during which the property is first placed in rental service. A timely return is a return filed within the time prescribed by sections 6452 or 6455, whichever is applicable.'

Revenue and Taxation Code section 6006, subdivision (g)(5), allows a lessor of tangible personal property leased in substantially the same form as acquired to pay sales tax reimbursement pursuant to section 6052 or use tax measured by the...