(Renumbered: 01/2021)

(Revised and renumbered from 8736)


Agencies/departments are exempt from property taxation under California Constitution Article XIII, Section 3(a). Any obligation for property tax on state leased equipment would exist, if at all, only as a result of an express provision of the lease agreement.  Payments would not be made directly to taxing authorities, if the lease obligation existed but would be limited to reimbursing the lessor for actual tax payments which the lessor could prove had been made.

Agencies/department must review each lease agreement under which reimbursement of property taxes is claimed to determine whether reimbursement should be made. Provisions in a lease adding "applicable state and local taxes" to the monthly rental relate to sales and use taxes and do not include personal property taxes.

Any lease clause, which requires the agency/department to reimburse the lessor for personal property taxes is not valid. For a lease to be legally binding, the lease order form or document must be included in the lease when approved or is executed by the state and approved in the same way as the original lease.

If a copy of a personal property tax bill is received, the bill must be forwarded to the lessor named in the bill for payment. No payment should be made by the State. If, after payment of the taxes, the lessor submits a properly documented claim for reimbursement and the lease so provides, the lessor can be reimbursed for the taxes applicable to the lease term.

In some instances, personal property tax bills will be received on equipment which was on lease but which was purchased by the state prior to the tax lien date of March 1st. In such a case, the property would be tax-exempt, and the bill should be returned to the taxing authority with a letter notifying it of the change in ownership. Such notice should include the date on which the state's purchase was made.


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