Response
April 28, 1993
Request
February
25, 1993
Commissioner
Joe Pacheco
Utah
State Tax Commission
Heber
M. Wells
160
East 300 South
Salt
Lake City, UT 84134
Re:
Legal Ruling
The
taxpayer requests assistance in determining proper sales/use tax treatment for
the following transactions:
1. Taxpayer is lessor of tangible personal
property. A copy of the lease document
used in conjunction with this transaction is attached as Exhibit A.
2. The transaction is virtually identical to #1
above. However, a purchase requirement
is added to the lease document. A copy
of the lease document with the purchase requirement added is attached as
Exhibit B. The amount specified in the
purchase requirement will vary and can be anywhere from $1.00 to 20% of the
original equipment cost set forth in the lease document.
3. The transaction is virtually identical to #1
above. However, a purchase option is
added to the lease document. A copy of
the lease document with the purchase option added is attached as Exhibit
C. The amount specified in the purchase
option will vary and can be anywhere from $1.00 to 20% of the original
equipment cost set forth in the lease document.
4. The taxpayer sometimes will acquire payment
streams from equipment vendors that may enter into any of the above three types
of transactions. This is commonly done
by using a “Master Assignment of Equipment Rental Agreements”, a copy of which
is set forth in Exhibit D. The taxpayer
requests to know not only the tax implications to him as the assignor (buyer)
in this transaction but also any tax implications attributable to the assignee
(seller).
5. The taxpayer enters into transactions
whereby customers have the right to use tangible personal property in exchange
for the purchase of a stipulated number of units of product. These type of arrangements are commonly
referred to as upcharge agreements. A
copy of the upcharge agreement is attached as Exhibit E.
6. The transaction is virtually identical to #5
above. However, an addendum is used in
conjunction with the upcharge agreement that stipulates that title to the
equipment will revert to the customer after a specified number of units of
product are acquired.
For
each of the foregoing transactions, please indicate if sales/use tax is due on
the rental/usage payments when received, or at inception of the transaction
either on the original equipment cost or on the gross payments due. Please send your reply to me at the
following address.
XXXXX
If
you have any questions or need some clarification concerning the above
information, please feel free to call me at XXXXX.
Your
attention to this matter will be greatly appreciated.
Yours
truly,
XXXXX
TO:
XXXXX, Director
FROM:
XXXXX, Secretary
DATE:
XXXXX
SUBJECT: Request for Advisory Opinion - No. 93-007DJ
Attached
is a request for an advisory opinion from XXXXX. Will you please review the request of XXXXX for assistance in
determining proper sales/use tax treatment of equipment leases.
Please
prepare the response for signature by the Commission as per the guidelines
established by them.
Thank
you.
XXXXX
Re:
Advisory Opinion -- Sales or Use Tax Applicability to Certain Lease
Transactions or “Upcharge Agreements”
Your
request (copy attached) for an advisory opinion as to how sales or use tax applies
to certain lease transactions and “upcharge agreements” was referred to the
Auditing Division for their analysis.
The
division's staff recommendations are as follows:
1. Under provisions of Utah Code Annotated
Section 59-12-103 and Administrative Rule R865-19-32S (copy attached), leases
of tangible personal property to final consumers are generally subject to the
tax on the gross amount of each periodic lease payment. The responsibility for
collecting, reporting, and remitting the tax is placed on the lessor and is not
transferable to the lessee by provisions of the lease agreement. See attached copy of Tax Bulletin 2-91 and
U.C.A. Section 59-12-107.
2. Adding a purchase requirement to the lease
agreement, depending on the terms of the agreement, may allow treatment of the
lease to be handled as a “conditional sale lease.” This treatment is at the option of the lessee. See Rule R865-19-32S, paragraphs F, G, and
H.
3. When the agreement contains a purchase
option rather than a purchase requirement, the treatment as a conditional sale
lease is still available under the above referenced rule if the criteria of the
rule are met.
4. When your client acquires payment streams
from equipment vendors who have already entered into the above types of
transactions, we would prefer administratively that the assignor (Buyer) would
take over the tax collection and reporting responsibilities. However, unless title to the equipment
transfers to the assignor, we would still hold the vendor responsible for tax
should the assignor default. If title
to the equipment does transfer to the assignor, the assignor is liable for any
taxes due.
5. When the taxpayer enters into transactions
under which customers have use of tangible personal property “in exchange for
purchase of a stipulated number of units of product,” tax treatment will vary
depending on the disposition of
“product.” If the product is
resale merchandise (for resale by the customer), the taxpayer (provider of the
tangible personal property) is considered the consumer of the tangible personal
property, and tax is due on the provider's material costs of such items. See Rule R865-19-68S. If the product is for taxable consumption by
the customer, then the tangible personal property provided under the agreement
considered part of the sale of the product, and no additional tax is due beyond
that due on the sale of “the product.”
See R865-19-68S(B).
Treatment
is no different from the above if title transfers to customer after specified
product volume is acquired.
Based
upon the facts presented in your letter, we are in agreement with Auditing
Division's recommendations. Obviously,
if there are deviations from the 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.
In
contacting the Tax Commission, if special accommodations are needed in
accordance with the Americans with Disabilities Act, please call (801)
530-6920, (801) 530-6077 or TDD (801) 530-6269 allowing three working days
notice.
For
the Commission,
Joe
B. Pacheco
Commissioner