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Business Taxes Law Guide—Revision 2024
Sales and Use Tax Annotations
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330.0000 Leases of Tangible Personal Property—In General—Regulation 1660
Annotation 330.3128
(a) In General
330.3128 Lessee—Credit for Tax Paid to Texas. A lessee entered into a multi-year lease of a vehicle in Texas and thereafter brought the vehicle into California where subsequent payments due under the lease became subject to California use tax. The lease contract showed an amount of $3,147.38 in "rental tax" paid to the lessor.
Texas imposes tax on the sale of a vehicle to or the purchase of a vehicle by a person who will lease the vehicle for periods of more than 180 days and tax does not apply to the lease receipts from the subsequent lease. Therefore, in Texas, the tax is imposed on the lessor's purchase of a vehicle for leasing purposes, although the lessee may end up bearing the ultimate economic burden. In California, the use tax is imposed on the lessee and is measured by the rental or lease payments due for the periods the vehicle is in California. Since the Texas tax is imposed on a different transaction (the lessor's purchase), the section 6406 credit is not available to the lessee for using the leased vehicle in California.
The section 6406 credit may not be used to offset the Texas tax imposed on the lessor's purchase of the vehicle against the California use tax the lessee owes on the lease payments because the Texas tax was not imposed on the lease payments that are subject to California tax. Accordingly, the lease of the vehicle is subject to California use tax for periods in which the vehicle is in this state. 3/16/95.