Response August 27,
1993
Request
Commissioner
Utah State Tax
Commission
Heber M. Wells Office Building
160 E. 300 South
Salt Lake City, Utah
84134
RE: Sales Tax Application on Prepaid Motor
Vehicle Leases
Dear Sir:
XXXXX (XXXXX) hereby
requests a written ruling addressing the sales tax treatment for the lease
transaction described below.
It is anticipated that
XXXXX will soon introduce a new lease program, which is best defined as a
prepaid lease, a stark departure from the traditional lease arrangement. Under this newly proposed lease, the lessee
will make all the lease payments at the time of lease inception, rather than
monthly over the lease term as with a conventional lease. In the typical lease scenario, XXXXX
purchases the vehicle from a dealership (sales tax exempt), the dealership will
execute the lease document, and, if approved by XXXXX, the lease is
automatically assigned to XXXXX. The
lessee will then make his monthly lease payments to XXXXX, on which the
appropriate sales tax is calculated.
XXXXX wishes
confirmation on the sales tax application related to the one time lump sum payment
made by the lessee at the beginning of the lease. It is our understanding that this aggregated lease payment is in
total subject to sales tax, and that all the tax collected is due and payable
at the time the lease is executed.
An opinion is also requested
clarifying which party the state would hold responsible for the collecting and
remitting the sales tax. Typically, the
lessor (XXXXX) would be required to collect and remit the tax monthly; however,
with this new program, the respective dealerships would actually be collecting
the total lease payment (and if our understanding on the first issue is
correct) all applicable sales tax. Any
difference between the purchase price of the vehicle and the total lease
payments will be reconciled between the dealer and XXXXX.
Thirdly, an opinion is
requested on the issue of early terminations.
If for whatever reason the lessee terminates the lease prior to its
scheduled term date, will the state allow sales tax credits on amounts of unearned
lease income refunded to the lessee?
Lastly, an opinion is
requested regarding the state's position on reciprocity. If after satisfying the total tax liability
in the state where the lease originated, the lessee moves to your state, would
there be any sales tax obligation on either the lessee or lessor? If so, when would the tax be imposed (at
time of registration)? And how would it be determined? If not, what documentation would be required
to substantiate tax paid to another state?
Our current plan is to
implement this program by XXXXX; and in order to make the necessary system
changes, a response by XXXXX is respectfully requested.
If you have any
questions, please call.
Sincerely,
XXXXX
XXXXX
MEMORANDUM
TO: XXXXX, Director
FROM: XXXXX, Secretary
DATE: XXXXX
SUBJECT: Request for Advisory Opinion - No. 93-013DJ
Attached is a request
for an advisory opinion from XXXXX of XXXXX.
Will you please review the request of XXXXX regarding the application of
sales tax on prepaid motor vehicle leases.
Please prepare the
response for signature by the Commission as per the guidelines established by
them.
Thank you.
XXXXX
Re: Advisory Opinion - Sales Tax Applicability
to Certain Auto Lease Transaction.
Dear XXXXX:
Your request for an
advisory opinion (copy attached) as to applicability of sales tax to various
lease and lease-related transactions was referred to the Auditing Division for
their analysis.
The division's staff
recommendations are as follows:
1. When all lease payments are made at the
inception of the lease, you are correct in your understanding that the entire
aggregated lease payment is subject to the sales tax. The tax must be collected and remitted at the time the lease is
executed.
2. Utah Code Annotated Section 59-12-107 (copy
attached) makes XXXXX, as the vendor (lessor), responsible for collecting and
remitting the tax. The tax should not
be collected by the dealer. It may, of
course, be collected by the dealer on your behalf, but must be reported and
remitted by XXXXX.
3. If a lease is terminated early, sales tax
applicable to any unearned lease income may be refunded to the lessee along
with the unearned income.
4. A lease of tangible personal property by a
consumer is generally taxable while situs of the property is in Utah or if the
lease began in Utah. Any lease payment,
although prepaid, which is for periods during which the vehicle is here, would
be subject to the tax. However, credit
would be allowed for any tax (up to the Utah rate) first properly due and paid
to another state. Any tax due after such a credit would be the responsibility
of the lessor. The tax would be due at
registration, and the liability of the lessor may be cleared through receipted
payment by the lessee at that time. A
copy of the lease agreement showing, as a separate item, the tax paid to
another state will usually be sufficient documentation to substantiate such
payment.
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,
Alice Shearer
Commissioner