Response June 21, 1995
Request
March 2, 1995
Commissioners
Utah State Tax Commission
210 North 1950 West
Salt Lake City, Utah 84134
Dear Commissioners:
Regarding: Exemption from sales
or use tax for repairs and maintenance of leased equipment.
We have two letters of verification from XXXXX dated XXXXX and
XXXXX. The earlier letter relates to
R865-19S-32 and verifies the fact that charges for repairs and maintenance, and
I'm assuming that includes both parts and labor, are exempt from taxation as
long as payment for those charges is the responsibility of the lessor.
The September letter is an extension of that opinion and clarifies that
a lease qualifying for the exemption for new or expanding operations would be
exempt regardless of whether or not that lease included an increased amount to
cover costs of repairs and maintenance paid for by the lessor.
Extending these two opinions, it is our assumption that any lease
qualifying for an exemption would be exempt in its entirety, even though part of
the lease payment may be to reimburse the lessor for the costs of repairs and
maintenance. In other words, a lease meeting the following criteria would be
exempt from sales or use tax:
1. The lease itself is exempt
from sales or use tax.
2. The lessor is paying for
repairs and maintenance of the leased item.
3. The lessee is paying for
repairs and maintenance only indirectly because the lease is more expensive
than it would be if the lessor were not responsible for repairs and
maintenance.
We would appreciate a letter from the commission that would verify the
accuracy of this position.
Again, thank you for your helpfulness to us.
Sincerely,
XXXXX
RE: Advisory Opinion - Sales Tax Exemption on Leases
which Provide for Repair and Maintenance at the Lessor's Expense.
Dear
XXXXX:
You
requested an advisory opinion stating that any lease qualifying for
exemption is exempt in its entirety, even if part of the lease payment may be
to reimburse the lessor for the costs of repairs and maintenance.
We
find as follows:
1. The letters over the signature of XXXXX
dated XXXXX and XXXXX (copies attached) properly represent the Commission's
position with regard to the particular facts described in your inquiries.
2. The Commission is reluctant to extend those
opinions to include facts which are not before us. We can envision circumstances that would make such a broad
application of the sales tax exemption inappropriate or misleading. For
example, a lease may begin as an exempt lease, but become taxable as
circumstances changes over the life of the lease.
3. Tax Bulletin 14-87 Rule R865-19S-32 and the
previously issued letter opinions from the Auditing Division provide guidance
with regard to the leasing transactions that you have described in your
inquiries. As other situations arise,
please provide us with the specific details so we can properly advise you.
This
opinion is based upon the facts presented in your letter. 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