Tax Type
Retail Sales and Use Tax
Description
Leases and rentals; Sale and leaseback
Topic
Taxability of Persons and Transactions
Date Issued
05-05-1999
May 5, 1999
Re: Ruling Request: Retail Sales and Use Tax
Dear***
In your letter of February 25, 1999, you request a ruling on the application of the retail sales and use tax to a transaction involving a simultaneous purchase and taxable leaseback. Copies of cited references are enclosed.
FACTS
* * * * * (the Purchaser) plans to acquire asset items from an equipment vendor with the intention of simultaneously reselling them to * * * * * (Third Party) for subsequent taxable leaseback to the Purchaser.
Because of its credit policy, the equipment vendor will only invoice the Purchaser notwithstanding that the Third Party will pay the vendor's bill directly. Under the circumstances, you ask for authorization for the Third Party to present its resale exemption certificate to the equipment vendor so that the initial purchase will not be taxed.
RULING
Code of Virginia § 58.1-609.10(3) provides a sales tax exemption for "[tangible personal property for future use by a person for taxable lease or rental as an established business or part of an established business, or incidental or germane to such business, including a simultaneous purchase and taxable leaseback.' Emphasis added. This exemption is shown as Item #2 on the department's resale exemption certificate, Form ST-10.
As you point out, a similar factual situation as the instant case was addressed in Public Document (P.D.) 91-231 (9/30/91). In that ruling, I would note that a third party resale exemption certificate was not authorized. Rather, the party making the initial purchase from the vendor was required to furnish a resale exemption certificate in order to purchase the equipment exempt of the tax.
As the items are invoiced to the Purchaser, the equipment vendor is prohibited from accepting a resale exemption certificate from the Third Party. Rather, the Purchaser should complete a resale exemption certificate, Form ST-10, with Item #1 marked, submit it to the equipment vendor, and provide written notification to the vendor that the Purchaser intends to involve a Third Party purchaser. Such notification must be given to the equipment vendor prior to the passage of title to the property.
In addition, the immediate resale of these items by the Purchaser to the Third Party must be properly documented. Accordingly, the Third Party should submit a completed resale exemption certificate to the Purchaser with Item #2 checked on the Form ST-10.
Of final importance is the leaseback of these items by the Third Party (i.e., the lessor) to the Purchaser (i.e., the lessee). The lease charges made by the Third Party to the Purchaser are subject to taxation. As a registered dealer, the Third Party must charge and collect the sales tax from the Purchaser on the gross proceeds received from the lease of the property.
If you have any questions about this response, please contact * * * * * with my tax policy staff at * * * * *.
Sincerely,
Danny Payne
Tax Commissioner
Rulings of the Tax Commissioner