Tax Type
Retail Sales and Use Tax
Description
Leases; Purchase options
Topic
Taxability of Persons and Transactions
Date Issued
09-11-1989
September 11, 1989
Re: Request for Ruling/Sales and Use Tax
Dear********************
This will reply to your letter of May 18, 1989 in which you request a ruling as to the sales tax application to the lease of tangible personal property.
FACTS
*********(hereinafter taxpayer), enters into true leases for Federal income tax purposes. In most cases, the customer may have the option of purchasing the leased equipment for not less than the fair market value. However, on occasions the customer may have the option to purchase the property for $1 at the time the lease has come full term.
RULING
While the transactions in question may possess some characteristics of installment sales, title does not pass to the lessee unless he elects to exercise his option to purchase the property at the conclusion of the lease term. §58.1-602 of the Code of Virginia defines "lease" as "the leasing or renting of tangible personal property and the possession or use thereof by the lessee or renter for a consideration, without the transfer of the title to such property." Therefore, these transactions are deemed to be leases for purposes of the sales and use tax.
Tangible personal property purchased for future lease or rental, may be purchased tax exempt under Form ST-10, sales and use tax resale exemption certificate.
The lease payment from your customers would be subject to the sales and use tax at the time the lease payments are made (see Virginia Regulation 630-10-57, copy enclosed). Also, any charge to the customer of the local property tax on the equipment would be subject to the sales and use tax as part of the lease payment.
Any sale of the leased equipment, either during or at the conclusion of the lease, would be considered a totally separate transaction and would be subject to the sales and use tax based on the purchase price.
If you should have any further questions, please feel free to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner