91-284 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Lease transactions vs. conditional sales contract

Topic

Exemptions

Property Subject to Tax

Date Issued

10-31-1991

October 31, 1991

Re: §58.1-1821 Application: Sales and Use Tax

Dear*****************

This will reply to your letter of October 24, 1990, in which you submit an application for correction of an assessment issued to*****************.

FACTS

A recent audit of the taxpayer produced an assessment for its failure to collect the sales and use tax on payments received from the leasing of tangible personal property. The leases in question typically contain a purchase option, e.g., a $1 payment at the end of the lease term.

The taxpayer contends that the transactions are actually conditional sale contracts not subject to the tax.

DETERMINATION

After a review of the facts surrounding this case, it is clear that your client's transactions are directly analogous to those of the taxpayer in Public Document 89-152 (4/28/89). As such, the tax should have been collected on the monthly lease payments made to the taxpayer as the lessor of the tangible personal property .

I am unconvinced by the taxpayer's argument that the transactions should be considered conditional sale contracts as Va. Code §58.1-602 contains a specific definition of the term "lease" as it is used for purposes of the sales and use tax:

- "Lease or rental" means the leasing or renting of tangible personal property and the possession or use thereof by the lessee or renter for a consideration, without transfer of the title to such property. Emphasis added

The taxpayer's lease contracts in this case clearly state that "[t]itle to the Equipment shall at all times remain in the Lessor "

Furthermore, even assuming that the transactions were conditional sale contracts, this does not serve to exempt the transactions from the tax. In fact, the only difference between leases and conditional sales contracts for purposes of the sales and use tax is that tax payments on a lease are spread over the term of the lease. By contrast, a conditional sales contract is treated the same as any other sale of tangible personal property. This distinction is clearly pointed out in 1979 Retail Sales and Use Tax Regulation §1-28:

- Any person making conditional, charge or installment sales must report the total selling price and pay the applicable tax for the taxable period in which the contracts are entered into. Emphasis added

Based upon the foregoing, I do not find basis for removing all of the lease transactions from the audit. However, our Technical Services Section will review the exemption certificates and other information presented by the taxpayer to determine if some of the transactions can be removed from the audit. If adjustments are made, a revised notice of assessment will be issued to the taxpayer.

Sincerely,

W. H. Forst
Tax Commissioner

Rulings of the Tax Commissioner