98-055

Response August 5, 1998

Request Letter

Dear Sir or Madam:

It is our understanding that under a lease of tangible personal property to a lessee located in your State, the rentals are subject to the Sales Tax.

We would like to know:

a) If the lessor is reimbursed by the lessee for personal property taxes, pursuant to the terms of the lease, would such reimbursement of personal property taxes be subject to sales tax?

b) If our lessee pays the property tax on our behalf, directly to the taxing jurisdictions - is said payment subject to sales tax?

Thank you in advance for your written reply. For this purpose we enclose a postage pre-paid envelope.

Very truly yours,

NAME

COMPANY

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RESPONSE LETTER

September 29, 1998

NAME

COMPANY

RE: Sales Tax Consequences for Property Tax Payments on Leased Personal Property

Dear NAME,

We have received your letter asking if Utah sales tax is due on payments made by a personal property lessee for personal property taxes. You have also asked if the tax consequences differ depending upon whether the lessee pays the property tax directly or submits the tax to the lessor for payment.

Payment of taxes by lessee to lessor. If the lessee submits the property tax to the lessor, the payment is considered part of the rental charge and is subject to sales tax. However, an exception exists if the rental contract obligates the lessee to pay the exact amount of the property tax and the lessor thens holds this payment in trust (such as in a tax reserve account) for later payment to the assessor. Only in these circumstances would the property tax payment not be considered part of the rental price so that the payment would not be subject to sales tax.

Payment of taxes by lessee to assessor. If the lessee is obligated under the contract to pay the property tax directly to the assessor, then the property tax payment is not considered part of the rental price for the personal property. Consequently, the payment is not subject to sales tax.

Please contact us if you have any other questions.

For the Commission,

Joe B. Pacheco, CPA

Commissioner

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