Tax Type
Retail Sales and Use Tax
Description
Leases and rentals; Purchase options were taxable leases.
Topic
Taxability of Persons and Transactions
Date Issued
05-19-1998
May 19, 1998
Dear*************:
In your letter of April 7, 1998, you request a ruling concerning the application of the retail sales and use tax to the equipment lease agreement dated April 6, 1998 which designates ***** (the Taxpayer) as the lessor.
We have reviewed this lease document and find that it constitutes a lease with a purchase option. Pursuant to Title 23 of the Virginia Administrative Code (VAC) 10210-840 (copy enclosed), the retail sales and use tax will apply to the monthly gross proceeds received from the lease or rental of the equipment. Gross proceeds include any finance or interest charges, insurance charges, charges for property tax on the property being leased, and other similar charges. If the purchase option is exercised, the retail sales and use tax will also apply to the sales or purchase price charged for the equipment. The preceding policy is longstanding as demonstrated by the enclosed Public Documents (P.D.) 94-65 (3/16/94) and 89-152 (4/28/89).
Up front payment of the sales tax in connection with a lease transaction is discussed by P.D. 91-182 (8/26/91). As set forth in such ruling, there are no provisions in Virginia law or the regulations that would prohibit the payment of the sales tax up-front on the total lease amount. If an election is made to pay the tax up-front, the tax must be based upon the total lease amount, i.e., the sum of the periodic lease payments over the term of the lease. The lessor acting as the dealer must remit such tax to the department for the period in which the tax is collected. This up-front tax payment method would not preclude the lessee from additional tax liability in the event the tax rate changed during the term of the lease.
Under Virginia law, any person who engages in the business of leasing or renting tangible personal property to Virginia customers is required to register with the department as a dealer and collect the retail sales and use tax on the gross proceeds. If not already registered to collect the sales tax, the Taxpayer should complete and return the enclosed registration application (Form R-1) to the department.
If you have any further questions about this matter, please contact ***** of my tax policy staff at *****.
Dear*************:
In your letter of April 7, 1998, you request a ruling concerning the application of the retail sales and use tax to the equipment lease agreement dated April 6, 1998 which designates ***** (the Taxpayer) as the lessor.
We have reviewed this lease document and find that it constitutes a lease with a purchase option. Pursuant to Title 23 of the Virginia Administrative Code (VAC) 10210-840 (copy enclosed), the retail sales and use tax will apply to the monthly gross proceeds received from the lease or rental of the equipment. Gross proceeds include any finance or interest charges, insurance charges, charges for property tax on the property being leased, and other similar charges. If the purchase option is exercised, the retail sales and use tax will also apply to the sales or purchase price charged for the equipment. The preceding policy is longstanding as demonstrated by the enclosed Public Documents (P.D.) 94-65 (3/16/94) and 89-152 (4/28/89).
Up front payment of the sales tax in connection with a lease transaction is discussed by P.D. 91-182 (8/26/91). As set forth in such ruling, there are no provisions in Virginia law or the regulations that would prohibit the payment of the sales tax up-front on the total lease amount. If an election is made to pay the tax up-front, the tax must be based upon the total lease amount, i.e., the sum of the periodic lease payments over the term of the lease. The lessor acting as the dealer must remit such tax to the department for the period in which the tax is collected. This up-front tax payment method would not preclude the lessee from additional tax liability in the event the tax rate changed during the term of the lease.
Under Virginia law, any person who engages in the business of leasing or renting tangible personal property to Virginia customers is required to register with the department as a dealer and collect the retail sales and use tax on the gross proceeds. If not already registered to collect the sales tax, the Taxpayer should complete and return the enclosed registration application (Form R-1) to the department.
If you have any further questions about this matter, please contact ***** of my tax policy staff at *****.
Rulings of the Tax Commissioner