REQUEST LETTER
02-016
NAME
ADDRESS
Re: Request for Written Guidance Regarding Utah Sales Tax on Truck Rental Charges
My truck rental company is requesting written guidance regarding charges it bills to customers renting trucks from its locations in Utah.
Background:
My company is engaged in the business of renting trucks weighing as little as 10,000 pounds gross volume weight and as heavy as 60,000 pounds gross volume weight to customers for periods that are generally less than 7 consecutive days. The trucks are rented to both household and commercial customers. (Household customers generally rent trucks to transport personal items, while commercial customers rent trucks to deliver inventory.) Customers renting trucks can purchase, at their option, personal accident insurance (“PAI”) and a loss damage waiver ("LDW"). PAI protects the customer should they damage a truck while it is being rented. Customers can also rent along with the truck furniture pads and utility dollies. In addition, a customer may be charged for fuel if the truck is returned with less than a full tank of gasoline. All charges are separately stated on the customer's rental invoice.
Issues:
1. Is my company required to collect Utah sales tax on charges for PAI, LDW, furniture pads, utility dollies and fuel if the charges are separately stated on the invoice from other charges? Please elaborate on your answer.
2. If a customer should rent only furniture pads and hand trucks without renting a truck, are the charges taxable for Utah sales tax? Please elaborate on your answer.
3. On occasion, a customer renting a hand truck may misplace it and be unable to return it to the company. My company will bill the customer for the cost of the hand truck. Is the replacement charge billed to the customer taxable for Utah sales tax if it is separately stated on the rental invoice? Please elaborate on your answer.
4. Customers can purchase PAI and LDW at their option. PAI is provided through a third party insurance company that pays a death benefit and certain medical related expenses for incidents occurring while the truck is being rented. LDW is a private agreement between the customer and my company whereby my company will not bill the customer for the damages to a truck while it is being rented. Are the charges billed to customers for PAI and LDW taxable for Utah sales tax if they are separately stated on the rental invoice? Provide the reasoning behind your answers.
5. From time to time, while being rented to them, a customer may damage a vehicle that is not covered by a loss damage waiver and be responsible for damages. If my company were to bill its customer for the damages, are the charges taxable for Utah sales tax if they are separately stated on the rental invoice? Please elaborate on your answers.
6. From time to time, a citation may be issued on a vehicle that is owned by my company but under rental to the customer. As the registered owner of the truck, my company is responsible for paying all citations issued for violation of highway vehicle weight requirements. If my company were to bill the customer for reimbursement of the fine, is the charge taxable for Utah sales tax if it is separately stated on the rental invoice? Please elaborate on your answers.
7. From time to time, a customer will return a truck in such condition that it is in need of a thorough cleaning. My company will bill its rental customer the charge for cleaning the vehicle and returning it to suitable condition. Are truck cleaning charges billed to rental customers taxable Utah sales tax if they are separately stated on the customer's rental invoice? Please elaborate on your answer.
8. Under the International Fuel Tax Agreement ("IFTA"), my company files returns that indicate the locations and miles traveled by its rental vehicles. Through IFTA, my company may pay a fuel use tax to one state and receive a refund from another. From time to time, a fuel use tax may be billed to commercial customers and appear as a separate line item on the rental invoice. Are charges for reimbursement of the fuel use tax by company pays taxable for Utah sales tax? Please elaborate on your answer.
Please mail your written response to NAME, ADDRESS. If you have any questions, please call me at PHONE.
RESPONSE LETTER
NAME
ADDRESS
Re: Sales and use tax on various ancillary charges associated with the renting of trucks
Dear Mr. NAME,
You have requested information regarding the taxability of various items involved in and relating to the rental of trucks. According to your letter, your company rents trucks ranging in size from 10,000 pounds up to 60,000 pounds. The trucks are generally rented for less than 7 consecutive days and are used for both household and commercial purposes. Individuals generally rent the trucks to move personal items and the commercial customers rent the trucks to deliver inventory.
The customers may purchase personal accident insurance (PAI) and a loss damage waiver (LDW) as protection in case the truck is damaged while it is being rented. Customers may also rent other items, such as furniture pads and utility dollies. According to your letter various other charges may be incurred by the customer, such as failure to return equipment or failure to return the truck with a full tank of gasoline. Each of these items is separately itemized on the invoice. Your letter asks us to address eight separate issues.
Issue 1. You inquired as to whether or not your company is required to collect Utah sales tax on charges for PAI, LDW, furniture pads, utility dollies and fuel if the charges are separately stated on the invoice. The first part of your question concerns collection of sales tax on PAI and LDW purchases. The Utah Tax Commission addressed the taxability of these items in a tax bulletin issued in 1987 (Tax Bulletin 14-87) (copy attached). “ ‘Insurance charges’ added to the rental normally would be subject to sales tax. . . unless the lessee is responsible for obtaining the insurance and pays the premium directly to the insurance company.” The Bulletin also states “damage waiver charges that protect the lessee against the cost of repair to damaged equipment are taxable.” The Tax Commission has ruled on this fact situation in the past. In Petitioner v. Auditing Division, Utah State Tax Comm’n., Appeal No. 93-0238, the Commission found that the rental company did not have a license to sell insurance to the customers that were renting vehicles from them. The PAI and LDW were provided to the lessee at an additional cost to cover damage to the truck and other costs resulting from an accident. The rental company was not providing insurance coverage as an insurance agent, but rather providing an additional product that was taxable as a part of the rental charge as a whole. Accordingly, your company must collect sales tax on charges for PAI and LDW coverages.
The second part this issue addresses concerns whether sales tax must be collected on the rental of tangible personal property, such as furniture pads and dollies. Under Utah Code Ann. §59-12-103 (1) “A tax is imposed on the purchaser as provided in this part for amounts paid or charged for the following transactions: (k) amounts paid or charged for leases or rentals of tangible personal property if: (i) the tangible personal property’s situs is in this state; (ii) the lessee took possession of the tangible personal property in this state; or (iii) within this state the tangible personal property is: (A) stored; (B) used; or (C) otherwise consumed. Since the furniture pads and dollies rented by your company constitute personal property and are located within the state of Utah, all of the rentals of these items are subject to sales tax.
Finally, additional charges for fuel are taxable unless the fuel charge is based on the actual amount of fuel used (See Tax Bulleting 14-87, copy attached). As long as the charge reflects the actual cost of the fuel, you will not be required to collect sales tax on the fuel. However, if you charge a flat fee for failure to return the truck with a full tank of gasoline or charge a fuel surcharge, you will be required to collect and remit sales tax on this transaction. Based upon the guidelines outlined above, you must collect sales tax on PAI and LDW coverages, rental of tangible personal property and for fuel charges, unless it is based on the actual cost of the fuel used.
Issue 2. If a customer rents furniture pads and dollies without renting a truck, must the company charge Utah sales tax? Under these circumstances, sales tax must be charged. Utah sales tax must be collected on the rental of all tangible personal property as detailed in Issue 1 (Utah Code Ann. §59-12-103).
Issue 3. Should sales tax be assessed when a customer fails to return a hand truck due to misplacing it or other circumstances? A customer that fails to return a rented hand truck or other rented items and is charged the replacement cost of the item must pay the corresponding sales tax on the item. If a customer purchases merchandise in a retail outlet, Utah sales tax is assessed. A customer must pay sales tax for the reimbursement for lost, misplaced, or unreturned property.
Issue 4. .If your company separately states on the invoice the charges for PAI and LDW that the customer purchases from your company, are you required to collect sales tax on the purchase of these coverages? This issue was addressed in Issue 1.
Issue 5. This issue addresses whether damage done to a vehicle by a customer that is not covered by the LDW is taxable. Tax Bulletin 14-87 gives the following guideline that “if repair expenses for leased or rented equipment are charged to the lessee or to the lessee’s insurance carrier, sales tax must be added.” If your company, as the lessor, or your insurance carrier paid for repairs or maintenance of the trucks, sales tax would not be charged. In this case, however, the customer is responsible, as the lessee, for the cost of the repairs on the vehicle. Accordingly, your company should be charging its customers sales tax on repair costs that are the responsibility of the customer.
Issue 6. This question addresses whether or not your company should charge sales tax on a motor vehicle citation that occurs while the customer is renting and is in control of the truck. Under Utah law the rental company as the owner of the vehicle would be responsible to pay any citations not resolved or paid by the individual receiving the citation. However, the company could recover the cost from the customer. Sales tax is not charged on traffic citations. Accordingly, your company would not be responsible to collect and remit sales tax when the customer reimburses the cost of the citation.
Issue 7. This issue concerns whether sales tax should be collected for cleaning charges resulting from customers returning rental trucks that need to be thoroughly cleaned. Tax Bulletin 14-87 addresses cleaning charges on rental vehicles. “If repair expenses for leased or rented equipment are charged to the lessee or to the lessee’s insurance carrier, sales tax must be added. When expenses of repairs, cleaning, maintenance, tire and part replacements, etc. for rental inventory are paid by the lessor or the lessor’s insurance carrier, sales tax is not charged.” The bulletin does not require the lessor, rental company, to pay sales tax for cleaning of the truck, but it does specifically state that the customer or lessee must pay sales tax on any charges incurred for repair. This extends to cleaning charges. Accordingly, your company must collect sales tax on any cleaning charges assessed to the customer.
Issue 8. This issue addresses whether or not itemized charges to a commercial customer to reimburse your company for the fuel use tax under the International Fuel Tax Agreement (“IFTA”) paid by your company should include Utah sales tax? Under Utah Code Ann. §59-12-104, “the following sales and uses are exempt from the taxes imposed by this chapter: (1) sales of aviation fuel, motor fuel, and special fuel subject to a Utah state excise tax under Chapter 13, Motor and Special Fuel Tax Act.” Reimbursement by the commercial customer of Utah motor and special fuel tax is not subject to sales tax. Since the customer is already paying the Utah motor fuel tax as calculated under IFTA, he or she is not charged sales tax in addition to the fuel tax. Accordingly, your company should not collect or charge sales tax to your commercial customers for the motor fuel tax reimbursement.
Please contact us if you need further assistance.
For the Commission,
Marc B. Johnson
Commissioner
MBJ/PL
02-016