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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 330.4187
(d) "Substantial Change in Form"
330.4187 Venture Lease. A start-up corporation (lessee) will lease equipment in exchange for the granting of a warrant (grants the right to purchase stock in lessee's corporation at a strike price). Lease payments are based on the fair rental value of the equipment. The lessor did not elect to pay California sales tax reimbursement or use tax measured by the purchase price of the equipment. Therefore, the use tax is due on the rentals payable for the leased equipment. The use tax due in this situation is measured by the value of the warrant (at the commencement of the lease agreement) plus the periodic lease payments for the remainder of the lease period.
When a dollar value is determinable for the warrant at the commencement of the lease, such value must be included in the measure of tax for the lease of the equipment. However, if the value of the warrant at the time the lease commences is sufficiently speculative, the warrant is not included as part of the lessee's rentals payable for the lease of the equipment. 4/17/95.