When a bank buys equipment-lease contracts from an affiliate that services them, who registers and files Colorado sales tax — the bank or the servicing affiliate?

Plain-English summary

A newly approved industrial bank (one office, out of state) started up by buying equipment-lease contracts from an affiliate ("Corp"); some of the leased equipment sits in Colorado. Under a master servicing arrangement, Corp handles all back-office work for the bank — invoicing, payment processing, customer service, collections. Corp believed that, because it does the invoicing, the sales/use tax returns should be filed in Corp's name. The bank intended to register for Colorado corporate/financial-institution income tax. The bank asked for guidance on (1) sales-tax compliance for the leases and (2) how an industrial bank's profits are taxed.

The Department's central correction: using a servicing agent doesn't move the tax duty. Colorado taxes the sale and lease of tangible personal property, and "although a taxpayer may engage an agent to provide invoicing, collection, and other services, the obligation to file a tax return and remit payment is the responsibility of the taxpayer." The business registration and sales/use tax license must be in the taxpayer's name — not the agent's. So the bank (the lease owner), not Corp (the servicer), is the one that registers and files for the leases it owns.

Two more points the Department made:
- A finance lease is a credit sale. Selling the lease accelerates the tax obligation (citing GIL-2008-023) — the tax isn't spread out over the lease stream the way an operating rental might be. See FYI Sales 56 for lease mechanics.
- Income-tax apportionment for financial institutions/industrial banks uses special rules: FYI Income 59 for tax years through Dec. 31, 2008, and the amended apportionment regime under § 39-22-303.5 for tax years beginning on or after January 1, 2009.

This is a "here are the rules and resources" GIL rather than a definitive factual ruling, but the registration point is a clean, practical holding.

What this means for you

Banks, leasing companies, and anyone using a third-party servicer

The company that owns the lease (or makes the sale) is the taxpayer and must hold the Colorado license, file the returns, and remit the tax in its own name — even if a separate servicing entity does all the invoicing and collecting. Don't let an affiliate or third-party servicer register and file on its own account in place of the actual taxpayer; that's the wrong registrant.

Buyers and sellers of finance leases

Treat a finance lease as a credit sale. Selling or transferring the lease can accelerate the sales tax, rather than letting it ride on each periodic payment. Factor that timing into lease-portfolio transactions.

Accountants and tax professionals

Separate roles: agent (invoicing/collections) vs. taxpayer (registration/filing/remittance). Register the taxpayer. For income tax, financial institutions and industrial banks use the special apportionment rules — FYI Income 59 (pre-2009) and § 39-22-303.5 (2009+). Note the finance-lease-as-credit-sale acceleration from GIL-2008-023.

Common questions

Q: Our servicer does all the invoicing — can it file the Colorado sales tax in its name?
A: No. The obligation to register, file, and remit stays with the taxpayer that owns the lease or makes the sale. The license and returns must be in the taxpayer's name, not the agent's.

Q: How is a finance lease taxed?
A: A finance lease is treated as a credit sale, so the sale of the lease accelerates the tax obligation rather than spreading it across the payment stream. See FYI Sales 56 and GIL-2008-023.

Q: How does an industrial bank apportion its income?
A: Under the special rules for financial institutions — FYI Income 59 for years through 2008, and § 39-22-303.5 for tax years beginning on or after January 1, 2009.

Q: Can I rely on this letter?
A: No. A General Information Letter is general guidance, not binding on the Department. For a binding determination on your facts, request a private letter ruling (which requires a fee).

Citations and references

Statutes, rules, and guidance:
- § 39-26-104, C.R.S. (imposition of sales tax); § 39-26-102(23) (definitions); § 39-26-713(1)(a) (use tax)
- § 39-22-303.5, C.R.S. (apportionment, including financial institutions, for 2009+)
- Colorado GIL-2008-023 (finance lease is a credit sale that accelerates the tax)
- FYI Sales 56 (Sales Tax on Leases); FYI Income 59 (apportionment for financial institutions/industrial banks)

Related rulings:
- [[plr-09-002-xxxxxxxxxxx]] — what qualifies as a "financial institution" and how its income is market-sourced

Source

• Landing page: Colorado All Letter Rulings
• Original PDF: GIL-09-026.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

GIL-09-026
May 13, 2009
XXXXXXXXXXXXXXXX
Attn: XXXXXXXXXXXX
XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX
Re: XXXXXXXXXX Bank leases
Dear XXXXXXXXX,
This letter is in response to your request for guidance on leases sold to XXXXXXX XXXXX
(“Bank”) by an affiliate, XXXXXXXXXXXXX (“Corp”). I apologize for the delay in responding to
your request. The Department has promulgated a regulation governing the issuance of general
information letters and private letter rulings. A general information letter provides a general
overview of the applicable tax law and is not binding on the department. A private letter ruling is
a determination of the applicability of tax to a specific set of circumstances and is binding in the
department. A party requesting a private letter ruling must provide certain information and remit
a fee. For more information about general information letters and private letter rulings, please
refer to the Department’s regulation 24-35-103.5, C.R.S., which is available on our web site at:
www.colorado.gov/revenue/tax.
We will initially treat your request as one for a general information letter. You may resubmit this
request for a private letter ruling.
Issues
1. What are the guidelines for tax compliance for finance leases sold by Corp to Bank?
2. Are there different methods for taxing profits of an industrial bank?
Background
You provide the following information. The Federal Deposit Insurance Corporation (“FDIC”) and
the [a state] XXXXXXXX State Banking Commission approved an industrial bank application for
Bank. Bank has only one office location, which is in XXXX [state].
Bank will provide lease financing and business capital loans to small business throughout the
United States. As part of the startup, Bank purchased lease contracts from its affiliate, Corp.
Some of the leases have equipment locations in Colorado.

Under a master servicing arrangement, Corp will provide all back office support for the Bank,
including invoicing, payment processing, customer service, collections and other services for the
Bank. Bank intends to register with the Colorado Department of Revenue for
corporation/financial institution income taxes. Corp believes that filing sales/use tax returns and
remittances should be made under its name because it is responsible for invoicing of
customers.
Discussion
Colorado imposes sales and use tax on sale and lease of tangible personal property. See,
§§39-26-104, 102(23) and 713(1)(a), C.R.S. The department has a number of resources
available to taxpayers regarding the sales and use tax obligations for equipment leases. See,
e.g., Department FYI Sales 56 (Sales Tax on Leases of Motor Vehicles and Other Tangible
Personal Property). Please note that a finance lease is a credit sale and the sale of the lease
accelerates the tax obligation. See, Colorado GIL-2008-023.
Although a taxpayer may engage an agent to provide invoicing, collection, and other services,
the obligation to file a tax return and remit payment is the responsibility of the taxpayer. The
business registration with the Department must be under the name of the taxpayer, not its
agent. For more information about how to register and obtain a sales and use tax license, see
Department FYI Sales (Sales Tax Licenses and Filing Requirements).
The department also has a number of resources available to taxpayers on issues related to
income tax. For example, see FYI Income 59 regarding apportionment of income for financial
institutions, including industrial banks, for income tax years beginning on or before December
31, 2008. Colorado recently amended its laws regarding income apportionment and these
changes will apply to tax years beginning on or after January 1, 2009. 39-22-303.5, C.R.S. You
can view proposed new regulations on these changes by visiting our web site at
www.colorado.gov/revenue/tax and go to “Taxation” > “FYI / Publications” > “Rules and
Regulations” > “Proposed Tax Regulations.”
Miscellaneous
Pursuant to state law and department regulation 24-35-103.5, the Department will make public a
redacted version of this letter. Your letter requesting this general information letter is not made
public. I enclose a proposed redacted version of this letter. Please contact me within 60 days
from the date of this letter if you have any questions, comments, or objection concerning the
redacted letter.
We hope this is helpful. As noted earlier, you may request a private letter ruling which will
provide a determination regarding your specific circumstances.
Sincerely,

Office of Tax Policy
Colorado Department of Revenue

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