98-063
Response
September 1, 1998
REQUEST
LETTER
September 1, 1998
ATTN: Barry Conover
Dear Mr. Conover:
I am writing in regards to a question raised in our
sales department as to when selling a vehicle to a bonded lease company, who is
responsible for paying the sales tax collected on down payments paid to
COMPANY. For instance, we leased a
vehicle to a customer who contract was bought from a bonded lease company. The lease company charged our customer the
6.35 sales tax rate for Salt Lake County and deducted that figure from our
funding for them to remit to the state of Utah.
We are requesting an advisory opinion as to who and
what sales tax should be in this instance.
Thank you,
NAME
POSITION
October
27, 1998
NAME
COMPANY
RE: Advisory
Opinion Concerning Sales Tax on Automobile Lease Down Payments
Dear NAME,
We
have received your advisory opinion request concerning the collection of sales
tax on down payments received for automobile leases. First, you have specifically asked whether it is the motor
vehicle dealer (“Dealer”) or the subsequent leasing company (“Lease Company”)
which is responsible for the sales tax on the down payment. Second, you have asked what tax rate to
apply to the down payment.
Utah
Admin. Code R865-12L-12(A) provides that sales tax applies to all lease charges
where the tangible personal property leased or rented is delivered from a
lessor's place of business. The local
sales tax accrues to the county or city from which the property was delivered,
regardless of where in Utah such property is used. The lessor is required to collect and remit both local and state
sales tax.
As
you have not indicated whether you inquiring about a specific type of leasing arrangement,
we will illustrate the tax consequences of a typical lease transaction as
structured below. Typically, a Dealer
submits a credit application for a prospective lessee to Lease Company to
determine whether Lease Company will purchase a lease entered into between the
Dealer (as initial lessor) and the prospective lessee. Next, Lease Company approves the credit, a
lease (the “Lease”) is executed between the Dealer, as lessor, and the
applicant, as lessee.
In
this situation, any sales or use tax due on lease down payments and first
month’s rent are collected and remitted to State by the Dealer who is the
initial lessor and the State’s fiduciary for purposes of collecting and
remitting the tax. The tax rate applied
on this transaction would be the one applicable to the Dealer’s location.
Next,
Lease Company acquires the Lease and the related leased vehicle (the “Leased
Vehicle”) from the Dealer and the applicable sales and use taxes are paid or the
proper resale certificates are given by Lease Company in connection with the
acquisition of the Leased Vehicle and Lease.
Further, the certificate of title to and registration of the vehicle are
issued in the name of Lease Company to evidence its legal ownership of such
leased vehicle. By these steps, Lease
Company (as assignee of the Lease) becomes the
lessor of the Leased Vehicle. From this point forward, Lease Company collects
and remits the applicable sales and use tax from the lessee to the state using
the tax rate applicable to the Lease Company’s location.
Naturally,
should your particular lease situation vary from the one used as illustration
above, your tax consequences could also be different. Please contact us if you have any other questions.
For
the Commission,
Joe
B. Pacheco, CPA
Commissioner
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