99-044

Response April 26, 2000

REQUEST LETTER

August 4, 1999

Re: Request for Private Letter Ruling

Sales and Use Tax

Dear Mr. Chapman:

On behalf of our client, unnamed herein, we respectfully request a Private Letter Ruling regarding the Utah Sales and Use Tax implications of a ALike-Kind Exchange" transaction. In order to facilitate your review of the information necessary to respond to the requested letter ruling, we have presented the request in the following manner:

I. Overview and Business Purpose

II. Form of the Transaction for Federal Income Tax Purposes

III. Transactions at Issue for Sales and Use Tax Purposes

IV. Summary of Important Sales and Use Tax Considerations

V. Pertinent Authority and Analysis

VI. Ruling Requested

I. Overview and Business Purpose

We are requesting a determination regarding the taxability and reporting requirements for Sales and Use Tax purposes, concerning a "Like‑Kind Exchange" transaction. Taxpayer is a lessor of tangible personal property (i.e., motor vehicles). The transaction at issue involves the typical purchase, lease and sale of motor vehicles as modified to qualify under Internal Revenue Code ("IRC") Section 1031. The Internal Revenue Service has ruled that exchanges of property (including rental property) by a corporation through an intermediary can qualify under IRC Section 1031 as tax-free like-kind exchanges for federal income tax purposes.

Leasing companies historically operate with Athin margins" or very limited gross profit margins. In order to be economically competitive in the marketplace, leasing companies use every opportunity to reduce operating costs. Like-kind exchanges can reduce costs by postponing the gain recognition, that otherwise would be realized for federal income tax purposes upon disposition of the leased property at lease end. The savings realized will make a leasing company more competitive, by passing along the reduced operating costs in the form of reduced lease payments. However, for sales and use tax purposes, the nature and compliance of the transaction

will remain unchanged.

II. Form of the Transaction for Federal Tax Purposes

During the course of a leasing transaction, events can be segmented into the following three segments or categories: (a) the acquisition of the property by the lessor, (b) the term of the lease and finally (c) the disposition of the property, by the lessor at the conclusion of the lease term. Simply stated, the lease is born, it lives for a period of time and it terminates. The complexities of IRC Section 1031 only impact the lease transaction(s) at issue when the motor vehicle is (a) sold at the conclusion of the lease and (b) when a new or replacement vehicle is acquired.

The proposed IRC Section 1031 transaction does not impact the relationship between the lessor and lessee during the term of the lease. The lessee will continue to remit all payments during the term of the lease to the lessor. The lease payments will continue as they currently exist, and the lessor will continue to issue invoices to the lessee. The only change in business operation for the proposed IRC Section 103l transaction is upon (1) the sale of the motor vehicle at the conclusion of the lease and (2) the purchase of a newly-leased motor vehicle by the lessor.

Sale of the Motor Vehicle - Relinquished Property

The Taxpayer leases motor vehicles. On termination of the lease, one of three events can occur:

(1) the lessee will purchase the motor vehicle from the Taxpayer by exercising the purchase option,

(2a) the dealer will purchase the motor vehicle from the Taxpayer for resale to the lessee who exercises the purchase option, or

(2b) the dealer will purchase the motor vehicle directly from the Taxpayer or at auction for purposes of resale.

Under either scenario, the Taxpayer will dispose of vehicles at lease termination (ARelinquished Property") through the intermediary. The intermediary has been assigned the Taxpayer's rights (but not its obligations) with respect to the sale of the Relinquished Property at lease termination. The property is then sold in accordance with the Taxpayer's directions and instructions either:

(1) to the lessee,

(2a) to the dealer for resale to the lessee or

(2b) to a dealer or other party.

In the first instance, the transaction would be assumed taxable for sales and use tax purposes (e.g., sale to consumer). In the second and third instances, the transaction would be assumed not taxable for sales and use tax purposes (e.g., exempt for resale). The Taxpayer controls the disposition of the relinquished property, and the title to the property is transferred directly from the Taxpayer to the purchaser. However, the proceeds from the sale are received in an Intermediary "Account" which restricts Taxpayer's right to receive or otherwise obtain the immediate benefit of the proceeds. The Intermediary merely provides a service to the Taxpayer, for which it receives a fee.

Purchase of a New Motor Vehicle - Replacement Property

The Taxpayer also acquires AReplacement Property" through the Intermediary. As with the Relinquished Property, the Intermediary has been assigned Taxpayer's rights (but not its obligations) with respect to the acquisition of newly leased vehicles ("Replacement Property"). The Intermediary pays for the Replacement Property out of the Account, at the Taxpayer's direction, with funds from the sale of Relinquished Property. If there is a shortfall (the funds in the Account are less than the purchase price of Replacement Property), the Taxpayer will pay the difference. Replacement Property relinquished in a particular exchange is identified within 45 days of the sale of the Relinquished Property. If an exchange does not occur within the shorter of (a) 180 days or (b) the due date, including extensions, of the Taxpayer's federal income tax return, the Taxpayer will recognize gain on the exchange for federal income tax purposes. Again, as in the sale of Relinquished Property, the role of the Intermediary in the purchase of Replacement Property is merely to provide a service to the Taxpayer. The title for the motor vehicle is transferred directly from the Dealer to the Taxpayer; title to the vehicle never rests with the Intermediary.

III. Transactions at Issue for Sales and Use Tax Purposes

1. Sale of Motor Vehicle to a Taxable Individual or Other Taxable Entity

As summarized in Scenario I (attached), an AIndividual" (which for the purposes of this ruling is defined as any person or other legal entity) may exercise an option to purchase the leased vehicle

at the conclusion of the lease term. By way of comparison, in a typical taxable scenario (not an

IRC Section 1031 transaction), the Taxpayer (i.e., lessor) (a) sells (e.g., purchase price tax),

(b) collects and (c) remits the appropriate sales and use tax on the transaction, in exchange for (d)

the title that is transferred to the lessee, In a qualified IRC Section 1031 transaction, the Taxpayer will continue to (a) sell and (c) remit appropriate sales and use tax in exchange for (d) the title to the motor vehicle. However, the Individual will be directed to (1) remit their payment for the vehicle to the Account, For sales and use tax purposes, the Taxpayer will continue to document, report and remit all taxes due on the transaction. The reporting of the transaction will continue to follow the flow of documentation at the Tax Commission, The attachment 'Scenario I" noted above, depicts the transaction.

It should be noted that the Taxpayer rarely sells leased vehicles directly to the lessee. With some exceptions, the Taxpayer usually sells the leased vehicle to the dealer who resells the vehicle to the lessee. This transaction is addressed in Scenario I.

2. Nontaxable Sale of Motor Vehicle to a Dealer

In Scenario II (attached), the lessor, at the conclusion of the lease sells the used motor vehicle to a dealer or another nontaxable reseller (e.g., dealer). The dealer may subsequently sell the vehicle to the lessee or to another third party. By way of comparison, in a typical nontaxable scenario (not an IRC Section 1031 transaction) the Taxpayer (ie., lessor) (a) sells (e.g., purchase price without tax), (b) receives a resale exemption, and (c) does not remit sales and use tax on the transaction, in exchange for (d) the title to the motor vehicle, In a qualified IRC Section 1031 transaction, the Taxpayer will continue to (e) receive a resale certificate and not remit sales and use tax, in exchange for (f) the title to the motor vehicle. However, as noted above, the Dealer will be directed to remit their payment for the vehicle to the Account. For sales and use tax purposes, the Taxpayer will continue to document and report the non-taxability of the transaction. The reporting of the transaction will continue to follow the flow of documentation at the Tax Commission. The attachment, "Scenario II,' noted above, graphically depicts the transaction.

3. Purchase of a Motor Vehicle for Leasing Purposes

In a situation where the Lessor purchases tangible personal property (i.e., motor vehicles) and the lessee pays tax based upon the rental costs, typically the lessor acquires the property without sales or use tax (i.e., resale). In Scenario III (attached), typically the Taxpayer (i.e., Lessor) (a) purchases the vehicle from the seller, (b) supplies a valid resale exemption certificate and (C) receives title for the motor vehicle. In an IRC Section 1031 transaction, the Taxpayer will direct the Intermediary to make payment from the Account to the Seller. The Taxpayer will continue to (b) supply a valid sale for resale exemption to the seller and (C) receive title The subsequent lease of the motor vehicle will remain unchanged, and the lessor will continue to bill, collect and remit all sales and use taxes due upon the lease payments.

IV. Summary of Important Sales and Use Tax Considerations

The proposed transaction does not seek to reduce or eliminate any sales and use tax that is currently due and payable. The Taxpayer seeks to continue its current business practices, without an administrative change for its sales and use tax compliance effort. For sales and use tax purposes, the taxable event(s) follows the transfer of the motor vehicle title, between the buyer and seller. The transfer of the cash from or to an Account for IRC Section 1031 purposes does not change current sales and use tax reporting practices.

V. Pertinent Authority and Analysis

Scenario I. Sale of Motor Vehicle to Individual

Pertinent Authority

Utah levies a sales tax on the purchase for the amount paid or charged for retail sales of tangible personal property made within a state. Utah Code Ann. '59-12-103(l)(a). A"retail sale" is any sale, within the state, of tangible personal property or any other taxable item or service other than resale of such property, item, or service by a retailer or wholesaler to a user or consumer. Utah Code Ann. '59-12-102(19)(a). A Asale" is defined as any transfer of title, exchange, or barter, conditional or otherwise, in any manner, of tangible personal property or any other taxable item or service for a consideration. Utah Code Ann, '59-12-102(21).

Motor vehicles are tangible personal property subject to sales or use tax unless specifically exempted. Utah Code Ann '59-12-103(1). Sales tax must be paid before a certificate of title to a motor vehicle is issued. Utah Code Ann. '1-la-510. Each vendor shall pay or collect and remit the sales and use taxes imposed. Utah Code Ann. '59-12-107(l)(a).

"Vendor" is broadly defined to include, et al, anyone who engages in the sale or goods in the state or engages who in any activity in connection with the leasing or servicing of property located within this state, Utah Code Ann. '59-12-107(l)(a).

Analysis

An Individual's exercise of a purchase option at the end of a lease, resulting in the lessee's acquisition of the leased vehicle, is generally a retail sale subject to sales and use tax. The vendor making the sale is required to (a) bill the tax to the purchaser and (b) remit the tax to the Tax Commission at the time of title transfer.

In an IRC Section 1031 like-kind exchange, the sale of the motor vehicle, which includes the transfer of title, will occur directly between the Taxpayer (i.e., Lessor) and the individual (i.e., Lessee). However, as depicted in scenario I, the payment of the purchase price must be submitted by the purchaser to the Account for deposit by the Intermediary. This payment procedure is required in order to qualify for the federal income tax deferred gain treatment under IRC Section 1031. In this scenario, the Intermediary is merely acting as a third party providing a necessary service to enable the Taxpayer to obtain IRC Section 1031 like-kind exchange treatment.

The actual retail sale and transfer of title, possession and control of the motor vehicle is made

by the Taxpayer to the individual. The Intermediary never has title or possession of the motor vehicle. The Intermediary's involvement is primarily limited to the receipt, management and subsequent distribution of funds obtained from the sale and purchase of motor vehicles.

In addition, the Taxpayer receives consideration, through its vested interest and ownership rights in the Account, equal to the purchase price paid by the individual. The Taxpayer=s receipt of consideration in exchange for the transfer of title or possession provides further evidence that the retail sale is between the Taxpayer and the individual. Although the purchaser remits the consideration to the Intermediary, the funds are deposited into the Account held in interest for the Taxpayer Ownership rights of the Account are evidenced by the Taxpayer's receipt of the interest income earned on the funds in the Account, as well as its receipt of the Form 1099 issued for income tax purposes on an annual basis.

The title of the motor vehicle passes directly from the Taxpayer to the purchaser upon the sale of the vehicle. The sales tax imposition and reporting requirements should also follow the legal passage of title. In other words, the Taxpayer making the retail sale and transfer of title is required to bill sales tax to the purchaser and remit such tax to the Tax Commission.

Finally, the transaction between the Taxpayer and the purchaser is considered a retail sale subject to tax. In addition, the Taxpayer should be considered the vendor, or person who effects the transfer of title and/or possession of the tangible personal property for a consideration. Accordingly, the Taxpayer (i.e., vendor) is responsible to bill and remit the tax on the sale price of leased property acquired by the purchaser's exercise of a purchase option.

Conclusion

The Taxpayer should continue to bill the tax to the purchaser and remit the tax to the Tax Commission. The tax will be based upon the appropriate sales price as defined by statute and paid by the purchaser. The Intermediary's services, as defined under IRC Section 1031, will have no impact on the sales and use tax imposition or compliance on the sale of the motor vehicle by the Taxpayer to the individual purchaser. The tax imposition will be the same whether the purchaser submits payment directly to the Taxpayer, as in the past, or to the proposed Taxpayer's Account, managed by the Intermediary.

Scenario II: Sale of Motor Vehicle to Nontaxable Dealer

Pertinent Authority

In general, "retail sales" of tangible personal property are subject to sales tax, unless otherwise exempt. Utah Code Ann. 59-2-l02(l9)(a). As discussed in Scenario I above, the term "sale" is defined as any transfer of title, exchange, or barter, conditional or otherwise, in any manner, of tangible personal property or any other taxable item or service for a consideration. Utah Code Ann 159-12-102(21). However, property stored or purchased in the state for resale is exempt from sales and use taxes Utah Code Ann. 59-12-104(24). Further, property stored in the state for resale or property purchased for resale in this state, in the regular course of business, either in its original form as an ingredient or component part of a manufactured or compounded product is also exempt from sales and use taxes. Utah Code Ann. 59-12-104(26)

It is presumed that tangible personal property or any other taxable item or service is sold for storage, use, or other consumption unless a Utah Exemption Certificate or Blanket Exemption Certificate is properly completed by the purchaser that states the transaction is exempt. Utah Code Ann. '59-12-106(2).

Analysis

When an individual declines to exercise the purchase option at the end of a lease, the motor vehicle is typically sold by the Taxpayer to a third party, such as a dealer. The sale to the dealer is a nontaxable sale for resale, which is specifically excluded from the definition of Aretail sale." As a result, the Taxpayer making the sale must (a) obtain an Exemption Certificate from the dealer, (b) bill the dealer for the purchase price without sales tax, and (c) transfer the title to the dealer.

In an IRC Section 1031 like-kind exchange, the sale of the motor vehicle, which includes the transfer of title, will occur directly between the Taxpayer and the dealer. Similar to Scenario 1, the payment of the purchase price must be submitted by the dealer to the Intermediary for deposit into the Account. This payment procedure is required in order to qualify for the federal income tax deferred gain treatment under IRC Section 1031. In this scenario, the Intermediary is merely acting as a third party providing a necessary service to enable the Taxpayer to obtain IRC Section 1031 like-kind exchange treatment.

The actual sale for resale and transfer of title, possession and control of the motor vehicle is made by the Taxpayer to the dealer. The Intermediary never has title or possession of the motor vehicle. The Intermediary's involvement is primarily limited to the receipt, management and subsequent distribution of funds obtained from the sale and purchase of motor vehicles.

In addition, the Taxpayer receives consideration, through its vested interest and ownership rights in the Account, equal to the purchase price paid by the dealer. The Taxpayer's receipt of consideration in exchange for the transfer of title and possession provides further evidence that the sale for resale is between the Taxpayer and the dealer. Although the dealer remits the consideration to the Intermediary, the funds are deposited into the Account held in interest for the Taxpayer. Ownership rights of the Account are evidenced by the Taxpayer's receipt of the interest income earned on the funds in the Account, as well as its receipt of the Form 1099 issued for income tax purposes on an annual basis.

Finally, the title of the motor vehicle passes directly from the Taxpayer to the dealer upon the sale of the vehicle. The sales tax reporting requirements should also follow the legal passage of title. In other words, the Taxpayer, making the nontaxable sale for resale to the dealer and executing the transfer of title, is required to obtain an exemption certificate from the dealer. The Taxpayer would also be responsible for reporting the nontaxable sale for resale on the periodic sales and use tax return filed with the state.

Conclusion

The Taxpayer should continue to obtain an exemption certificate from the dealer Sales tax is not due on a nontaxable sale for resale and no remittance of tax is due to the state. The Intermediary's services, as defined under IRC Section 1031, will have no impact on the sales and use tax imposition or reporting requirements for the sale of the motor vehicle by the Taxpayer to the dealer. The tax implications, including the collection of an exemption certificate, will be the same whether the dealer submits payment directly to the Taxpayer, as in the past, or to the proposed Taxpayer's Account, managed by the Intermediary.

Scenario III: Purchase of a Motor Vehicle for Leasing Purposes

Pertinent Authority

In general, if the transfer of tangible personal property is subject to sales tax, the rental or lease of the same property is also a taxable sale if the situs of the property is in Utah, the lessee takes possession in Utah, or the property is stored, used, or otherwise consumed in Utah. Utah Code Ann. '59-12-102(21)(e); Utah Code Ann, '59-12-l03(l)(k). As discussed in Scenario II above, sales in which the purpose of the purchaser is to resell the property are specifically excluded from the definition of "retail sale." Utah Code Ann. '59-12-104(26). In addition, the term "sale" is defined as any transfer of title, exchange, or barter, conditional or otherwise, In any manner, of tangible personal property or any other taxable item or service for consideration. Utah Code Ann. '59-12-102(21). Thus, lessors of tangible personal property may purchase the motor vehicle under an exemption certificate but the rental or lease charges are subject to sales or use tax. Utah Admin. Code. R865-195-32. In order to qualify for the resale exemption, the purchaser must complete a Utah Exemption Certificate or Blanket Exemption Certificate stating that the transaction is exempt. Utah Code Ann. '59-12-106(2).

It should be noted that the tax implications of the subsequent lease by the Taxpayer to the lessee are not at issue. However, in general, the lessor must compute sales or use tax on amounts received or charged pursuant to the rental or lease agreement made in lieu of an outright sale. Utah Admin. Code R865-19S-32.

Analysis

In Scenario III, the Taxpayer purchases motor vehicles from the seller for purposes of leasing to individuals. Upon payment of consideration to the seller, the Taxpayer will receive title to the motor vehicles. Such purchases are considered exempt sales not subject to sales tax In order to obtain the exemption, the Taxpayer must provide a Utah Exemption Certificate or Blanket Exemption Certificate to the seller. The Taxpayer is eligible to issue a valid exemption certificate, as the subsequent lease of the motor vehicles clearly constitutes "engaging in business." Upon the Taxpayer's lease of the property, the lessee must be billed tax on the gross lease charges. The taxpayer is required to remit such tax to the state. It should be noted that the exact tax calculation on the gross lease charges is beyond the scope of the issue, which pertains to the Taxpayer's eligibility for the exemption for purchases of leased property, as opposed to the Intermediary.

In an IRC Section 1031 like-kind exchange, the purchase of the motor vehicle, which includes the transfer of title, will occur directly between the Taxpayer and the seller. However, as depicted in the exhibit "Scenario 111," the Taxpayer's payment to the seller will be withdrawn from the Account and submitted to the seller by the Intermediary. This payment procedure is required in order to qualify for the federal income tax deferred gain treatment under IRC Section 1031. In this scenario, the Intermediary is merely acting as a third party providing a necessary service to enable the Taxpayer to obtain IRC Section 1031 like-kind exchange treatment. The actual purchase of the motor vehicle and transfer of title and/or possession is made by the seller to the Taxpayer. The Intermediary never has title or possession of the motor vehicle. The Intermediary's involvement is primarily limited to the receipt, management and subsequent distribution of funds obtained from the sale and purchase of motor vehicles.

In addition, the seller receives consideration, through its vested interest and ownership rights in the Account, equal to the purchase price paid by the Taxpayer. The Taxpayer=s payment of consideration in exchange for the title to the motor vehicle provides further evidence that the retail sale is between the Taxpayer and the seller. Although the Intermediary remits the consideration to the seller, the funds are disbursed from the Account, which is held in interest for the Taxpayer. Ownership rights of the Account are evidenced by the Taxpayer=s receipt of the interest income earned on the funds in the Account, as well as its receipt of the Form 1099 issued for income tax purposes on an annual basis.

Finally, the title of the motor vehicle passes directly from the seller to the Taxpayer upon the purchase of the vehicle. The sales tax imposition and reporting requirements should also follow the legal passage of title. In other words, the Taxpayer making the purchase and receiving the title is required to submit an exemption certificate to the seller. However, the lease of the motor vehicle is subject to tax, and the Taxpayer must bill tax to the lessee based on the gross lease charges and remit the tax to the state.

Conclusion

The Taxpayer should continue to submit an exemption certificate to the seller upon the purchase of the motor vehicles. The Taxpayer's (i.e., lessor's) purchase of the motor vehicles exclusively for purposes of leasing is not subject to tax upon the execution of the lease, the Taxpayer must continue to bill tax to the lessee in accordance with the statutory requirements. Such tax will be remitted to the state as required. The Intermediary's services, as defined under IRC Section 1031, will have no impact on the sales and use tax imposition on the Taxpayer's purchase of the motor vehicle. The tax imposition will be the same whether the Taxpayer submits payment directly to the seller, as in the past, or the Taxpayer directs the Intermediary to remit payment from the proposed Taxpayer's Account.

VI. Ruling Requested

Based upon the above statements, please confirm our understanding of the following:

1. The sale of a motor vehicle at the conclusion of the lease (e.g., sale to the lessee) is a taxable transaction for sales and use tax purposes between the Taxpayer and the customer. The Taxpayer would be the party responsible for remittance of the appropriate sales or use tax to the Tax Commission. The required IRC Section 1031 payment to the Account, managed by an Intermediary, does not change the billing and payment process of the Taxpayer.

2. The sale of a motor vehicle at the conclusion of the lease (e.g., sale to a Dealer, auction agent, etc.) is a nontaxable transaction for sales and use tax purposes between the Taxpayer and the "Dealer. " The required IRC Section 1031 payment to the Account, managed by an Intermediary, does not change the exchange of the motor vehicle title for a valid Sale for Resale Exemption documentation, between the Buyer (i.e., Dealer) and the Seller (i.e., Lessor or Taxpayer).

3. The purchase of a new motor vehicle (i.e., Replacement Property) for leasing operations is a nontaxable transaction, for sale and use tax purposes, between the Taxpayer and the "Dealer." The required IRC Section 1031 payment from the Account, managed by an Intermediary, does not change the exchange of the motor vehicle title for a valid Sale for Resale Exemption documentation, between the Buyer (i.e., Taxpayer) and the Seller (i.e., Dealer or Vendor).

As you review the request, I will be happy to answer any questions you may have or provide clarification of any of the facts, if necessary to enable the rendering of an opinion. If a favorable ruling is expected, anything that can be done to expedite the process would be most appreciated.

As we discussed, in order to expedite this non-binding ruling process, please acknowledge your

agreement with the conclusions set forth above by signing the document where indicated below. If you have any questions or require additional information, please do not hesitate to contact me at (215) 963-8016 or Dom Zambrano at (215)963-8029.

Yours very truly.

NAME

Enclosures

RESPONSE LETTER

April 26, 2000

NAME

ADDRESS

Re: Advisory Opinion 99-044. Sales/Use tax on transactions structured under I.R.C. '1031

Dear NAME,

The Tax Commission has received your request for sales tax information pertaining to certain transactions of your client that are structured to conform to the provisions of section 1031 of the Internal Revenue Code. You have asked for sales tax information in conjunction with those transactions. We offer the following guidance:

As we understand the facts presented, the transactions at issue involve the purchase, lease and resale of vehicles. The vehicle lessor acquires a vehicle, leases the vehicle to the lessee for the term of the lease, then disposes of the vehicle, either in a direct sale to the lessee under the lessee=s purchase option, or in a sale to a dealer who resells the vehicle in a retail transaction.

The lessor has structured its business arrangement to take advantage of the provisions of section 1031 of the Internal Revenue Code, which provides an exception from the general rule requiring the recognition of gain or loss on the sale or exchange of property. Under section 1031(a)(1), no gain or loss is recognized if property held for productive use in a trade or business

is exchanged for property held for investment. Similarly, property held for investment may be

exchanged for property held for productive use in a trade or business.

In structuring its purchase and sale transactions, the lessor entered into an arrangement with a third party, who is referred to here as an Aintermediary.@ The intermediary holds the proceeds of all of lessor=s vehicle sales in an account, and makes payment from that account for the lessor=s purchases or acquisitions of new vehicles for use in the lease operation.

Under this arrangement, the intermediary has certain rights with regard to the acquisition and disposition of vehicles. The intermediary has authority to sell the vehicles as per the lessor=s instructions at the end of the lease term. The intermediary also has authority to acquire new vehicles in accordance with the lessor=s instructions. In either case, the money flows through the account held by the intermediary for the lessor=s benefit. Titles to the vehicles do not pass through the intermediary, but pass directly from the seller to the lessor on acquisition, and from the lessor to the lessee or dealer on sale.

You have asked us to confirm the lessor=s responsibilities with regard to sales tax on (1) the lessor=s acquisition of new vehicles, (2) the sale of a vehicle by lessor to lessee, and (3) the sale of a vehicle by the lessor to a dealer for resale.

1. When the lessor acquires a new vehicle that will, in turn, be leased as part of the lessor=s business operations, the transaction is exempt under the resale exemption. To take advantage of the exemption, the lessor must give the seller an exemption certificate. The lessor is also responsible for collecting and remitting sales tax on the lease payments once the vehicle is leased.

2. If, at the end of the lease term, the lessee purchases the vehicle from the lessor under the purchase option, the transaction is taxable in Utah if the lessee is a resident of Utah and the vehicle is or will be registered and used in Utah. The lessor is required to collect and remit sales tax on the transaction if the lessor is recognized as a Adealer@ under Utah law. Otherwise, the lessee is required to pay the sales tax directly to the Motor Vehicle Division at the time of registration.

3. If, at the end of the lease term, the lessor sells the vehicle to a dealer who intends to resell the vehicle, the dealer may purchase the vehicle tax free under the resale exemption upon giving the lessor a resale exemption certificate. The dealer is then responsible for collecting and remitting sales tax when the vehicle is sold in a retail transaction.