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Cedars-Sinai Medical Center v. State Board of Equalization … (1984)

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Financing Transactions Did Not Result in Taxable Sales and Leasebacks of Equipment

Taxpayer purchased medical equipment from vendors in taxable sales and placed the equipment in use. Before the equipment was fully paid for, taxpayer obtained alternative financing for the equipment by transferring title to the equipment and leasing it back from leasing companies in return for monthly payments. The leasing companies reimbursed taxpayer for the amounts it had already paid to the vendors and paid the balance of the purchase prices to the vendors. The Board imposed use tax on the lease payments, and taxpayer filed suit for refund.

The Court of Appeal held that only one sale of the equipment (from the vendors to taxpayer) had occurred, and that the object of the transactions between taxpayer and the leasing companies was to obtain financing for the purchase of the equipment, not to make taxable sales and leasebacks. Despite taxpayer's transfer of title, it remained the owner of the equipment, and no taxable sale or lease occurred under the Uniform Commercial Code and the Sales and Use Tax Law. Cedars-Sinai Medical Center v. State Board of Equalization (1984) 162 Cal.App.3d 1182.