The DC Office of Tax and Revenue has responded to an ELFA request for guidance as to the application of sales and use tax on personal property tax collected by a lessor from a lessee. The response from Edward Blick, Assistant General Counsel for the DC Office of Tax and Revenue, appears below. Similar requests have been sent to the Departments of Revenue for Virginia and Utah.
ELFA Message to the DC Office of Tax and Revenue
The Equipment Leasing and Finance Association (ELFA), on behalf of its over 700 member companies, requests written guidance as it relates to the application of sales or use tax on the amount of personal property tax a leasing company ('lessor') collects from a lessee. We provide the below background information to assist in your determination. Please advise further to the extent our individual member companies must submit this request in their own name so as to have a determination that is binding.
In addition to the monthly rental charge, it is standard practice within our industry for a lessor to report and pay personal property tax on all leased property directly to the local taxing jurisdiction. The personal property reported, and taxed to a lessor, may include property under true leases (assets a lessor depreciates for federal tax purposes) as well as property under lease finance agreements (assets a lessee depreciates for federal tax purposes). The actual amount of personal property tax paid is allocated to the applicable leased property and is collected from the lessee pursuant to the terms of the lease agreement. The personal property tax is a separately stated amount that is collected in addition to the monthly rental amount. The leased property monthly rental charge is subject to sales tax. Is the separately stated property tax reimbursement charge as described above also subject to sales tax?
Your guidance and prompt response to this request is greatly appreciated.
Response by the DC Office of Tax and Revenue
Friday, September 05, 2008
In most lease agreements, there is a clause where the lessee will reimburse the lessor for the taxes that the lessor must pay on the lease equipment such as sales, personal property and other taxes. The question is that since a lease is considered a sale and the lease payments are subject to sales tax, are the reimbursements of taxes also subject to sales tax. The statute ¤47-2001(n)(1)(F) imposes the sales tax on the "rental paid". The question is whether the reimbursement would be considered "rental paid". There is nothing in the DC regulations explaining what "rental paid" includes.
The consensus is that the reimbursement would not be subject to District sales taxes.
If you have any other questions concerning this matter, please do not hesitate to contact me.
Edward A. Blick
Assistant General Counsel
Office of Tax and Revenue