ELFA has received guidance from the Idaho Tax Commission on the application of the sales tax exemption for personal property tax charges collected by a lessor (Idaho Code § 63-3622UU). The response from Jim Husted, Tax Policy Specialist for the Idaho State Tax Commission, appears below.
ELFA Message to the Idaho State Tax Commission
December 4, 2009
Attention: Legal Division Idaho State Tax Commission PO Box 36 Boise, ID 83722-0410
I am writing on behalf of the members of the Equipment Leasing and Finance Association to request guidance on a 2008 amendment to Sales Tax Chapter 36, Sec. 63-3622UU exempting the amount of personal property tax added to the rent paid for leases of tangible personal property.
ELFA is the trade association representing financial services companies and manufacturers in the $600 billion U.S. equipment finance sector. ELFA members are the driving force behind the growth in the commercial equipment finance market and contribute to capital formation in the U.S. and abroad. ELFA has more than 600 members including brokers and packagers, investment banks, service providers, independent leasing and finance companies, captive finance companies, commercial banks as well as diversified financial services companies. These comprise many of the nation's largest financial services companies and manufacturers as well as regional and community banks and independent medium and small finance companies throughout the country. ELFA membership also includes a number of multinational financial and manufacturing companies operating in the U.S.
Sec. 63-3622UU. Personal Property Tax on Rentals, states:
The taxes imposed by this chapter do not apply to charges for personal property tax added to the rent paid for leases of tangible personal property. This exemption applies if:
- (1) The lessor separately states the charge for property tax to the lessee; and
- (2) The amount charged to the lessee is not more than the property tax actually paid by the lessor; and
- (3) The lease agreement is for an initial period of one (1) year or longer
Guidance is sought by ELFA concerning two matters on lease agreements that are longer than one year:
- Whether a separately stated property tax administration fee that a Lessor may charge in addition to a separately stated actual amount of property tax paid by the Lessor affects the exemption under Sec. 63-3622UU?
- Whether a Lessor's estimate and advance billing of personal property tax at the termination of a lease affects the exemption under Sec. 63-3622UU?
It is the practice of many ELFA members to charge a fee to cover costs incurred in filing and paying personal property. Often the charge is a small percentage of the tax, i.e. less than 5%, of the total bill, or a flat charge as customarily charged by tax service firms to administer a jurisdiction's property tax. The question ELFA members raise is whether the practice of adding a separately stated administration fee to property tax charge to lessees renders an otherwise exempt charge as taxable?
It is also common industry practice to estimate and advance bill the last year's personal property tax bill at the termination of a lease because the actual tax bill many not be received for several months after the lease is terminated. The estimate is usually a percentage of the prior year's tax bill (i.e. 90% of prior bill to reflect an additional year reduction in the equipments value) and may be less or greater than the actual tax bill. The question ELFA raise is whether the advance billing of an estimated property tax results in an otherwise exempt charge as taxable? And if yes, is a sales tax refund allowed estimated property tax charges that are less than the actual tax bill?
The goal of our Members is to accurately charge sales tax relating to lease and rental contracts as the legislature intended. As a result, we respectfully request your prompt attention to this inquiry.
Thank you for your consideration,
Dennis Brown
Vice President of State Government Relations
Equipment Leasing and Finance Association
1825 K Street NW, Suite 900
Washington, DC 20006
Phone: (202) 238-3411
Fax: (202) 238-3401
dbrown@elfaonline.org
www.elfaonline.org
Response by the Idaho State Tax Commission
February 25, 2010
Dennis Brown
Equipment Leasing and Finance Association 1825 K Street NW
Suite 900
Washington, DC 20006
RE: Personal Property Tax and Leased Equipment
Dear Mr. Brown:
I am writing in response to your letter inquiring about the Idaho sales and use tax laws. You have asked two questions about Idaho Code ¤ 63-3622UU, which states:
63-3622UU. Personal property tax on rentals. The taxes imposed by this chapter do not apply to charges for personal property tax added to the rent paid for leases of tangible personal property. This exemption applies if:
- (1) The lessor separately states the charge for property tax to the lessee; and
- (2) The amount charged to the lessee is not more than the property tax actually paid by the lessor; and
- (3) The lease agreement is for an initial period of one (1) year or longer.
Your first question was whether a separately stated property tax administration fee that a lessor may charge in addition to a separately stated actual amount of property tax paid by the lessor affects the exemption allowed by I.C. § 63-3622UU.
Such a charge would not affect the taxability of separately stated charges for the personal property tax, itself. The administrative fee would be part of the price subject to tax, however. Mandatory fees associated with the sale or rental of tangible personal property are taxable under Idaho Sales Tax Rule 043 (IDAPA 35.01.02.043). The statute explicitly states that, for the exemption to apply, the charge cannot be greater than the property tax actually paid by the lessor. Since the administrative fee is in addition to the amount of the property tax, it is subject to Idaho sales tax. If the administrative was not separately stated, but merely included in the charge for property tax, then the entire charge would be taxable.
Second, you asked whether a lessor's estimate and advance billing of personal property tax at the termination of a lease affects the exemption provided by I.C. § 63-3622UU. No one has raised this issue before with the Tax Commission. In my opinion, though, if all the requirements were otherwise met, then the exemption would apply to the proportional charge for property tax. That would mean that the estimated amount could not be larger than the actual proportional amount of tax.
Sincerely
Jim Husted
Tax Policy Specialist
Idaho State Tax Commission