The tax environment of the 2026 world, with its complexities, is such that California business owners tend to go international when sourcing specialized machinery or technology. Although buying products from an out-of-state dealer can provide competitive prices, it initiates a massive compliance requirement of the California Use Tax.
Under the eyes of the California Department of Tax and Fee Administration (CDTFA), when you did not pay the sales tax when you were buying the equipment, you are required to pay the relative use tax as a privilege to use the same equipment in the state.
The question that looms a lot in the minds of many growing firms is whether this tax liability can be charged in the business loan that is used in the acquisition of the asset.
Does the CDTFA allow you to finance use tax within a business loan?
Technically, the CDTFA is indifferent to the manner in which you pay the tax, provided that the tax is paid. The majority of commercial lenders will accept the cost of sales or use tax to be included as part of the total loan-to-value (LTV) ratios. Experienced IRS tax experts (former IRS tax agents, former auditors, and experienced San Jose tax attorneys) who can help with business taxes.
Assuming you are financing a 100,000 CNC machine that is purchased by a vendor in Nevada, you may have the lender give you a loan of 108500 to finance the equipment plus the estimated 8.5% of use tax in California.
But there is a snag: the CDTFA will make you report and pay the use tax along with your overall sales and use tax filing (usually quarterly). In case your loan funds are released straight to the vendor, they will not collect the tax.
This is to ensure that the loan proceeds are in the form of a deposit into your operating account so that you can remit them to the CDTFA on your own.
How does the “Qualified Purchaser” rule affect your loan timing?
According to the existing standards of CDTFA, a business purchasing over 10,000 units of the use taxable product per year is considered a Qualified Purchaser. This implies that you have to open a particular use tax account and submit these purchases once a year.
When you are borrowing a business loan to finance a purchase of new equipment that is worth a lot of money, then you need to make the match to the tax payment because your filing date is usually April 15 th of the next year.
Financing the tax amount too soon, you can find yourself paying interest on a loan of money lying idle till the time the tax is actually due. On the other hand, procrastination may cause a cash-flow deficit in case the loan was not designed in a manner that included the tax.
Can “Sale and Leaseback” financing eliminate the use tax?
The Sale and Leaseback is a popular financing maneuver in 2026. CDTFA Reg. 1660 states that, when you purchase equipment and use the amount of tax on it, and then sell it to a financing company, which then leases it back to you within 90 days, then the second portion of the tax is not under tax liability. Experienced IRS tax experts (former IRS tax agents, former auditors, and experiencedIRS tax attorneys from San Francisco) who can help with the use taxes.
That enables you to imaginatively refinance the equipment and the tax that you already paid to draw equity back into the business.
But, in case you have not paid the starting use tax, the CDTFA will consider the next lease payments as taxable, which can result in a doubling of your tax liability.
Conclusion
To use tax CDTFA on financed equipment, you will have to coordinate with your lender and your tax year to follow. Although you may by no means finance your use tax liability under a business loan, the burden of paying an overdue tax to Sacramento falls on you.
