Publication 46 (explains Regulation 1660).pdf

This publication provides information on the application of the California Sales and Use Tax Law to lessors of tangible personal property. A lease is defined as a contract where a person receives temporary possession and control of tangible personal property for consideration, with the owner being the lessor and the user being the lessee. Certain transactions are excluded from the definition of a lease, such as contracts requiring the owner to provide an operator or sales under a security agreement. Sales or use tax may apply to retail sales of tangible personal property in California, with the use tax complementing the sales tax and imposed on consumers for the storage, use, or consumption of tangible personal property. The tax imposed in lease transactions is typically a use tax on the lessee measured by rentals payable, but may be a sales tax in certain cases, such as leases to insurance companies. The lessor is responsible for collecting the use tax from the lessee and reporting and paying the tax to the California Department of Tax and Fee Administration (CDTFA). The tax can be based on the cost of the property, rental receipts, or fair rental values, with the lessor having the option to choose the tax basis in certain cases.