Was a lessee's lump-sum reimbursement of the lessor's property tax on leased equipment subject to Louisiana sales tax?

Plain-English summary

A lessee's reimbursement of the lessor's property tax was subject to Louisiana sales tax as part of the equipment rental price.

The owner-lessor paid the parish property-tax assessment and then billed the lessee a lump sum under the lease agreement for assets used by that lessee.

The Department treated the reimbursement as gross proceeds from the lease and part of the price contracted or agreed to be paid. Separately labeling it as property-tax reimbursement did not remove it from the taxable rental base.

Why the charge was taxable

Businesses normally consider their own property and other taxes when setting prices. Louisiana's rental-tax statutes did not exclude amounts used to compensate a lessor for taxes levied directly on the lessor's business.

A separately billed reimbursement used instead of higher periodic rent was therefore taxed like the rent itself.

Common questions

Q: Was the lessor's property-tax reimbursement taxable?

A: Yes.

Q: Did a separate lump-sum invoice change the answer?

A: No.

Q: Who legally owed the property tax to the government?

A: The owner-lessor, but the lease required the lessee to reimburse it.

Q: What was the taxable base?

A: The full amount agreed to be paid for the rental, including the reimbursement.

Citations and references

• La. R.S. 47:302(B), 47:321(B), and 47:331(B)
• LAC 61:III.101.C — Revenue Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA Revenue Ruling 04-006

Original ruling text

Revenue Ruling
No. 04-006
September 14, 2004
Sales and Use Tax
Property Taxes invoiced by Lessors to Lessees
The purpose of this Revenue Ruling is to discuss when the sales tax imposed on leases or rentals
of tangible personal property is also due on the payments that lessees of tangible personal
property are required to make to their lessors for reimbursement of lessors’ property tax
liabilities on leased assets.
Facts
The owner and lessor of an item of tangible personal property pays to the parish sheriff the
annual property tax assessment on his leased or rented tangible personal property. Thereafter, the
lessor collects from his lessee, in a lump sum, an amount to reimburse the property taxes
attributable to the assets that were in the lessee’s service. The reimbursement of the property
taxes is provided for in the lease agreement between the two parties.
Issue
Is the state sales tax due on the amount that the lessor charges to the lessee for reimbursement of
the property taxes?
The Law
La. Rev. Stat. Ann. § 47:302(B), 321(B), and 331(B) and the sales tax ordinance of the Louisiana
Tourism Promotion District levy the sales tax on “the gross proceeds derived from the lease or
rental of tangible personal property … where the lease or rental of such property is an established
business, or part of an established business, or the same is incidental or germane to the said
business” or on “the monthly lease or rental price paid by lessee or rentee, or contracted or
agreed to be paid by lessee or rentee to the owner of the tangible personal property.”
Analysis
Lease and rental assets are subject to property taxes in many jurisdictions throughout the state
and the amount of property and other taxes levied on businesses are undoubtedly considered by
vendors in setting the sales, rental, and lease prices of the goods and services that they provide.
The sales tax law does not allow an exclusion from the taxable base for any amounts that might
be included within sales, rental, and lease prices to compensate lessors for their payment of taxes
that are levied directly on their businesses. If a leasing business and its customer agree, as an
alternative to an increase in periodic lease or rental payments, to a lump-sum reimbursement to
lessors for the amount of taxes paid on assets that are on a long-term or extended lease or rental
to customers, that lump-sum payment is taxable the same as the other payments for the lease or
rental of property.

Revenue Ruling No. 04-006
Page 2 of 2

Ruling
The amount that a lessor charges for reimbursement of property taxes is subject to state sales tax
if it is determined that the amount is part of the “gross proceeds” from lease or rental or part of
the price “contracted or agreed to be paid” by the lessee of the equipment. Under the facts
provided, the “gross proceeds” from lease or rental and the price “contracted or agreed to be
paid” by the lessee to the lessor each include the total amounts invoiced by and paid to the lessor,
including any amounts for property taxes that were directly payable to the levying governmental
authorities by the owner-lessor of the property.
Summary
Lessees are liable for the payment of the state sales tax on the full amount “contracted or agreed
to be paid” to lessors for the lease or rental of tangible personal property, including the amounts
designated in the lease and rental charges as reimbursement of the property taxes that lessors
have paid on the leased tangible personal property.
Questions or comments about this matter can be directed to the department’s Policy Services
Division at (225) 219-2780.
Raymond E. Tangney
Senior Policy Consultant

A Revenue Ruling is written to provide guidance to the public and to Department of Revenue employees. It is
issued under LAC 61:III.101.C to apply principles of law to a specific set of facts. A Revenue Ruling does not
have the force and effect of law and is not binding on the public. It is a statement of the Department's
position and is binding on the department until superseded or modified by a subsequent change in statute,
regulation, declaratory ruling, or court decision.