Response
July 27, 1992
July
27, 1992
XXXXX,
Tax Manager
Re:
Rule R865-19-32S
Dear
XXXXX:
This
letter is in response to your recent request for a Tax Commission ruling on
whether the changes made to rule R865-19-32S can be applied retroactively and
whether it is required that a conditional sale lease be taxed up front. Also,
you wanted to know who should collect the tax.
The
Tax Commission policy is to refer such requests to the division most qualified
to analyze the request and make recommendations concerning it. As such, your
request was referred to the Tax Commission's Auditing Division for their
analysis and recommendations. Your questions are answered in the same sequence
as your letter. The division's recommendations are as follows:
A.
The changes made to Sales Tax Rule R865-19-32S, effective January 28, 1991,
were changes in the position of the Tax Commission, not changes in the
interpretation of the statute. The changes are treated prospectively. Even if
the changes were allowed on a retroactive basis, the payment of your audit
assessment made in XXXXX is past the statutory period to make a refund.
B.
A lease is not a conditional sale and the lessor is not required to pay tax at
the inception of the lease. The rule says that if the lease agreement is a
conditional sale "lease," (a capital or financing type lease as
distinguished from an operating lease), the lessee, at its option, may treat
the lease as either a lease, taxable on the total amount of the lease payments,
or a sale. The sale amount would not include an interest factor. The lessor, in
this case, should collect tax from the lessee at the inception of the lease.
The lessor does not make this election; the lessee does.
C.
This question is answered in B, above.
D.
Again, the election of the lessee does not change the nature of the contract.
It allows the lessee to "treat" the lease as a sale. The lessor would
be the retailer, and in the case of a vehicle, would collect tax only if the
lessor was also a bonded vehicle dealer. Otherwise, tax should be paid to the
Motor Vehicle Division at the time of registration.
E.
If the lease is an operating lease, the lessor should purchase the equipment
tax-free, for resale, and collect tax on the total amount of the lease
payments.
Based
upon the facts presented in your letter, we are in agreement with the Auditing
Division's recommendations. Obviously, if there are deviations from these
facts, this opinion may be negated.
If
you do not agree with this determination, you may appeal to the Tax Commission for
a formal hearing. The results of that hearing would constitute a declaratory
judgment and be appealable to the Utah State Supreme Court. A Notice of Appeal
Rights and a copy of the Utah Taxpayer Bill of Rights are attached.
For
the Commission,
Joe
B. Pacheco
Commissioner
Utah
State Tax Commission
1600
East Third South
Salt
Lake City, Utah 84134
ATTN:
Sales Tax Division
RE:
Request for Advisory Opinion
Tax
Commission:
In
March of XXXXX, XXXXX paid an audit assessment of $$$$$ of tax and interest as
the result of a sales and use audit by Tax Commission Auditors. The issue of
the audit was XXXXX's sales tax treatment of our finance lease portfolio. We
had treated the "leases' as a sale between the Utah dealer and our finance
"lessee" with the dealer paying Utah sales tax to the State. The Tax
Commission ruled that if the transaction was on a lease document, it was a
lease and tax was due on each rental payment from XXXXX. We have since changed
our sales tax treatment of these "leases" in order to comply with the
audit findings.
It
has now come to our attention that the Tax Commission has revised Rule
R865-19-32S "Leases and Rentals Pursuant to Utah Code Ann.
§59-12-103". The revised rule now includes language to the effect that
leases which are in fact conditional sales may, at lessees option, have the
sales tax collected by the lessor on the full purchase price of the property at
the time of the purchase, rather than on each rental. There has apparently been
no change in the statutes rather just a change in interpretation by the
Commission. This revision appears to support our previous practices regarding
the tax treatment of our finance lease portfolio and leads us to question our
current practices. XXXXX requests
assistance from the Tax Commission in order to make certain that our sales tax
treatment of both operating and finance leases is proper.
We
request a written response from the Commission to the following questions:
A.
Is the rule change retroactive or prospective? If retroactive, will we be
allowed a refund or credit for the audit assessment paid?
If
the lease is in fact a conditional sale and the lessor is required to pay tax
at the inception of the lease, does the "full purchase price" include
finance charges, or are separately stated finance charges exempt from the tax.
If
the lease is in fact a conditional sales contract with XXXXX providing third
party financing using a lease document, can the tax be paid by the originating
dealer (seller) or must the finance company (lessor) pay the tax?
D.
If the lease is in fact a conditional sales contract and the tangible property
subject to the lease is a motor vehicle and the titled in the
"lessees" name, should tax be paid upon titling or should tax be
collected from the lessee on each rental?
If
the lease is in fact a true or operating lease, please confirm that the lessor
should continue to purchase for resale and collect Utah sales tax on each
rental.
I
have attached copies of several lease documents which we use. Please call me if
you have any questions or need additional information. Thank you for your
assistance in this matter.
Sincerely,
XXXXX
Tax
Manager