Tax Type
Retail Sales and Use Tax
Description
Leaseback of aircraft or motor vehicle
Topic
Taxability of Persons and Transactions
Date Issued
05-29-1996
May 29, 1996
Re: Request for Ruling: Retail Sales and Use Tax
Dear***************
This will reply to your letter of April 24, 1995 in which you request a ruling on behalf of *****(the "Taxpayer"), regarding the application of the retail sales and use tax to leaseback transactions.
FACTS
The Taxpayer is a leasing company registered for Virginia retail sales and use tax. The Taxpayer intends to enter into a lease agreement with a customer to refinance the debt associated with certain tangible personal property owned by its customer and located in Virginia. The Taxpayer inquires whether the transaction structured as a sale and subsequent leaseback constitutes a financial agreement exempt from the retail sales and use tax.
The Taxpayer also questions whether the same type transaction relating to motor vehicles and aircraft would also qualify for exemption from the retail sales and use tax.
RULING
Retail sales and use tax
Code of Virginia § 58.1-603 imposes the sales tax on every person who sells or leases or rents tangible personal property in the Commonwealth. Code of Virginia § 58.1-602 defines sale to mean "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..."
A review of the Master Lease Agreement and the Bill of Sale indicates that the intent of the leaseback transaction is to provide the Taxpayer a security interest in the tangible personal property. Legal title and possession of the property remain with the customer. As such, the questioned transaction does not constitute a sale for retail sales and use tax purposes. Enclosed is a copy of an excerpt from the Virginia Sales and Use Tax Expenditure, Vol. 1, No. 5, which discusses leaseback transactions in more detail.
Motor vehicles
Code of Virginia § 58.1-609.1 (2), copy enclosed, provides an exemption from the retail sales and use tax for motor vehicles, trailers, semitrailers, mobile homes and travel trailers, provided they are subject to the motor vehicle sales and use tax under Code of Virginia § 58.1-2402, copy enclosed. The tax is administered by the Virginia Department of Motor Vehicles. The motor vehicle sales and use tax is computed on the gross sales price at a rate of 3% or 4% of the gross proceeds from rentals of motor vehicles.
Code of Virginia § 58.1-2401 also applies the transfer of possession or ownership test in determining whether a sale of a motor vehicle occurs. The statute goes on to define rental as the transfer of possession or use of a motor vehicle. In the transaction at issue, neither transfer of legal title or transfer of possession takes place and as such, the transaction would not be subject to the motor vehicle sales and use tax. Even if a sale were to take place and a motor vehicle was transferred to the Taxpayer, the statute exempts the sale/rental of a motor vehicle to the Taxpayer for re--rental by the Taxpayer as an established leasing company.
Aircraft
Code of Virginia § 58.1-609.1 (5), copy enclosed, provides an exemption from the retail sales and use tax for aircraft subject to the aircraft sales and use tax (§ 58.1-1500 et seq., copy enclosed). Code of Virginia § 58.1-1502 imposes the tax upon the sale of aircraft in Virginia at a rate of 2%. Virginia Regulation (VR) 630-11-1501 defines a sale for purposes of imposing the aircraft sales and use tax. Again, the transaction, as it relates to aircraft, does not qualify as a sale because a transfer of possession or ownership does not occur. I am enclosing P.D. 95-120 (5/16/95) which addresses the transfer of an aircraft and the subsequent leaseback of the aircraft between two parties for the purpose of securing payment of a financial obligation. The department determined the transaction to qualify for exemption from the aircraft sales and use tax.
The policy set forth in this ruling is limited to the leaseback transaction discussed. The ruling does not apply to the disposition of the property via other transactions. I hope this has responded to your inquiry and should you have additional questions, please do not hesitate to contact *** in the Office of Tax Policy at *****
Sincerely,
Danny M. Payne
Tax Commissioner
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner