California – Terravant Wine Decision True Object Test (Lease v. Service)

Salt Report 3559 – At the first BOE hearing on January 21, 2015 this year, the board considered the appeal of Terravant Wine Company LLC.  In a taxpayer victory, the unresolved issues being decided were as follows:

  1. Whether petitioner was required to report and pay use tax on the lease stream of winemaking equipment used under Alternating Proprietor Agreements.  They were not.
  2. Whether petitioner was negligent.  They were not.

Terravant was determined to be a service provider and consequently was using the equipment in the conduct of their service as opposed to leasing the equipment.  The amounts assessed on the lease revenue were dismissed.  In a 3-2 decision, with Vice Chair Runner,  Ms. Harkey and Ms. Ma voting in favor, the board granted the Appeal of Terravant Wine Company LLC, involving use tax on winemaking equipment. An outcome that appears to overturn the previously set precedent of Entremont v Whitsell (1939).

“Because of our ruling, this is going to encourage the growth of this industry because this is an emerging trend. We’re the No. 1 wine-producing state in the country so we should keep up with the times.” – Fiona Ma, Member, Board of Equalization, District 2

Further Information:

Appeals Division Board Hearing Summary

Wine Firm Wins Crushing Victory in Tax Case

Case Highlight Terravant Wine