Tax Type
Retail Sales and Use Tax
Description
Sale and leaseback transactions
Topic
Exemptions
Date Issued
12-16-1982
December 16, 1982
Re: Ruling Request/Sales and Use Tax:
"Sale Harbor Lease"
Dear *********************
This is in response to your letter of March 2, 1982, requesting a ruling concerning the taxability of a sale and leaseback transaction, which you described, under the Virginia Sales and Use Tax. It is our opinion that the transaction is not taxable under the Sales and Use Tax Act since it does not involve a "sale" under that Act and since an exemption applies to the leaseback.
You have described the transaction as follows: ********** , *********** ( **********), a Virginia corporation, leases oil bypass filtration systems to various businesses and collects sales tax on the rental income. On January 29, 1982, ************** entered into a simultaneous sale and leaseback agreement with ( *********), a Virginia corporation. ************** is not in the equipment leasing business. The agreement covered 500 of the oil bypass filtration systems. The sale and leaseback agreement is a "safe harbor lease" as permitted by Internal Revenue Code § 168(f)(8), added by the Economic Recovery Act of 1981.
The Virginia Sales and Use Tax Act, at § 58-441.2, defines a "sale" as the following:
-
- "'Sale' means any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property and any rendition of a taxable service for a consideration..."
According to the terms of the agreement, dated as of January 29, 1982, which you sent us by letter of March 4, 1982, the lessor ( ********** ) will be deemed for federal income tax purposes (and only such purposes) to have purchased the property from the lessee ( ********* ). Furthermore, the agreement provides that for federal income tax purposes (and only such purposes), the lessor is deemed to lease the property to the lessee, and the lessee is deemed to have agreed for federal income tax purposes (and only such purposes) to make rental payments to the lessor. Finally, § 6(a) of the agreement provides that ownership of the property passes to the lessor for federal income tax purposes only.
Since no transfer or title or possession has taken place from ********* to******************, except for purposes of I. R. C. § 165(f)(8), no "sale" has taken place for purposes of Virginia sales and use taxation. Accordingly, we rule that the sale of the 500 units from ****************** to is not taxable under the sales tax provisions of the Code of Virginia.
As to the leaseback from ***** to ***** the potential of asserting the use tax under § 58-441.5 to the use of the equipment by *******the true owner and possessor, is negated by the fact that *********** leases the equipment itself and collects sales tax on the leases. Therefore, leaseback would be exempt from the use tax by § 58-441.6(n) which exempts "[tangible personal property for future use by a person for taxable lease or rental as an established business...including a simultaneous purchase and taxable leaseback." Accordingly, we rule that the lease of the 500 units from ***** to ****** is not taxable under the use tax provisions.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner