Equipment Leasing and Finance Association - Equiping Business for Success

Why is SSTP Important for Leasing?

ELFA meets regularly with state government agencies in support of equipment lessors. These government agencies often band together to form national organizations that demand ELFA attention, especially when they draft legislation and regulations for introduction in the fifty states. ELFA was at the negotiating table when revenue departments from forty-four (44) states, the District of Columbia and Puerto Rico formed the Streamlined Sales Tax Project (SSTP) and began drafting a lease definition and sourcing rules for the Streamlined Sales & Use Tax Agreement (Agreement) that has been enacted by twenty-three (23) states.

ELFA has worked closely with the SSTP to ensure the leasing and finance industry was correctly defined and properly sourced as the project has evolved. The SSTP promised a simplified future for leasing by imposing a uniform structure on the thousands of separate sales tax districts currently in place. Over a two year period definitions were adopted for "Lease or Rental" and "Retail Sale". When a state adopts the Agreement to become a full member of the Streamlined Project, it must adopt these definitions. This greatly simplifies the task of determining what is and is not considered a lease for tax purposes in member states.

ELFA also worked with the SSTP to enact leasing-specific sourcing regulations. Under the Agreement, sales tax on leases in participating states is currently assessed at the equipment location, known as destination sourcing. This is currently the case even in states that elect to utilize the retail locations as the place to apply sales tax, which is known as origin sourcing. An amendment was proposed in 2010 to source certain short-term rental payments according to the origin sourcing rules, but the amendment did not receive support.

A wide range of SSTP issues have concerned ELFA including discussions on bundled transactions, software leasing, sales tax credits and accelerated payments. The process has brought benefits by lessening administrative burdens such as registration, exemption certificates, electronic filings as well as uniformity of definitions and rules. ELFA will continue to participate in SSTP to ensure that leasing has a voice as membership of state governments in the Project grows. Currently, of the forty-four (44) states participating in the project, twenty-three (23) have adopted the agreement, with several more moving towards full compliance. In July 2010, a congressional version of the Agreement was submitted as House Resolution 5660, the Main Street Fairness Act. A number of states have hinged their passage of conforming legislation to the passage of a federal act, as passage would give member states authorization to require internet retailers to collect and remit sales tax from their customers.

Copied below are the definitions of "Lease or Rental" and "Retail Sale", and the lease sourcing rules from the SSUTA as amended on April 30th, 2010.

Definition of Leasing: Appendix C, Part 1

"Lease or rental" means any transfer of possession or control of tangible personal property for a fixed or indeterminate term for consideration. A lease or rental may include future options to purchase or extend.

  1. Lease or rental does not include:
    1. A transfer of possession or control of property under a security agreement or deferred payment plan that requires the transfer of title upon completion of the required payments;
    2. A transfer or possession or control of property under an agreement that requires the transfer of title upon completion of required payments and payment of an option price does not exceed the greater of one hundred dollars or one percent of the total required payments; or
    3. Providing tangible personal property along with an operator for a fixed or indeterminate period of time. A condition of this exclusion is that the operator is necessary for the equipment to perform as designed. For the purpose of this subsection, an operator must do more than maintain, inspect, or set-up the tangible personal property.
  2. Lease or rental does include agreements covering motor vehicles and trailers where the amount of consideration may be increased or decreased by reference to the amount realized upon sale or disposition of the property as defined in 26 USC 7701(h)(1).
  3. This definition shall be used for sales and use tax purposes regardless if a transaction is characterized as a lease or rental under generally accepted accounting principles, the Internal Revenue Code, the [state commercial code], or other provisions of federal, state or local law.
  4. This definition will be applied only prospectively from the date of adoption and will have no retroactive impact on existing leases or rentals. This definition shall neither impact any existing sale-leaseback exemption or exclusions that a state may have, nor preclude a state from adopting a sale-leaseback exemption or exclusion after the effective date of the Agreement.

Definition of Retail Sale: Appendix C, Part 1

"Retail sale or Sale at retail" means any sale, lease, or rental for any purpose other than for resale, sublease, or subrent.

Lease Sourcing: Section 310 (B), General Sourcing Rules

  1. The lease or rental of tangible personal property, other than property identified in subsection (C) or subsection (D), shall be sourced as follows:
    1. For a lease or rental that requires recurring periodic payments, the first periodic payment is sourced the same as a retail sale in accordance with the provisions of subsection (A). Periodic payments made subsequent to the first payment are sourced to the primary property location for each period covered by the payment. The primary property location shall be as indicated by an address for the property provided by the lessee that is available to the lessor from its records maintained in the ordinary course of business, when use of this address does not constitute bad faith. The property location shall not be altered by intermittent use at different locations, such as use of business property that accompanies employees on business trips and service calls.
    2. For a lease or rental that does not require recurring periodic payments, the payment is sourced the same as a retail sale in accordance with the provisions of subsection (A).
    3. This subsection does not affect the imposition or computation of sales or use tax on leases or rentals based on a lump sum or accelerated basis, or on the acquisition of property for lease.
  2. The lease or rental of motor vehicles, trailers, semi-trailers, or aircraft that do not qualify as transportation equipment, as defined in subsection (D), shall be sourced as follows:
    1. For a lease or rental that requires recurring periodic payments, each periodic payment is sourced to the primary property location. The primary property location shall be as indicated by an address for the property provided by the lessee that is available to the lessor from its records maintained in the ordinary course of business, when use of this address does not constitute bad faith. This location shall not be altered by intermittent use at different locations.
    2. For a lease or rental that does not require recurring periodic payments, the payment is sourced the same as a retail sale in accordance with the provisions of subsection (A).
    3. This subsection does not affect the imposition or computation of sales or use tax on leases or rentals based on a lump sum or accelerated basis, or on the acquisition of property for lease.
  3. The retail sale, including lease or rental, of transportation equipment shall be sourced the same as a retail sale in accordance with the provisions of subsection (A), notwithstanding the exclusion of lease or rental in subsection (A). "Transportation equipment" means any of the following:
    1. Locomotives and railcars that are utilized for the carriage of persons or property in interstate commerce.
    2. Trucks and truck-tractors with a Gross Vehicle Weight Rating (GVWR) of 10,001 pounds or greater, trailers, semi-trailers, or passenger buses that are:
      1. Registered through the International Registration Plan; and
      2. Operated under authority of a carrier authorized and certificated by the U.S. Department of Transportation or another federal authority to engage in the carriage of persons or property in interstate commerce.
    3. Aircraft that are operated by air carriers authorized and certificated by the U.S. Department of Transportation or another federal or a foreign authority to engage in the carriage of persons or property in interstate or foreign commerce.
    4. Containers designed for use on and component parts attached or secured on the items set forth in subsections (D)(1) through (D)(3).