The Utah Tax Commission 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 Auditing Division response appears below. Similar requests have been sent to the Departments of Revenue for Virginia and the District of Columbia.
ELFA Message to the Utah Tax Commission
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 Utah Tax Commission
Thursday, August 28, 2008
The following is the Auditing Division's analysis of your question which is not necessarily binding on the Commission. The Commission issues Private Letter Rulings which are binding, but they must be for a specific set of facts for a taxpayer not a general ruling for a trade association.
Utah Code section 59-12-102(72) defines purchase price/sales price. 59-12-102(72)(b)(ii)(G) includes in sales price a tax imposed on the seller (lessor). 59-12-102(72)(c)(ii)(C) allows a tax legally imposed on the consumer to be excluded from sales price.
In Utah property tax is legally imposed on the owner of the property which in this case would be the lessor. Property tax passed through to the lessee, whether separately stated or not, would be included in the sales price and subject to sales tax.
If the lease was a financing agreement and the actual owner of the property was the lessee the property tax would be legally imposed on the lessee and would not be included in the tax base.
Auditing Division Director
Utah Tax Commission
210 North 1950 West
Salt Lake City, UT 84134