How did Nebraska sales tax apply to an initial equipment purchase followed by a sale and immediate leaseback?

Plain-English summary

The tax result depended on contemporaneous documents proving that the original equipment purchase was part of a financing arrangement.

If dated documents existed when the user received the equipment and specifically identified the property and lease amount, the user could pay sales tax on the initial vendor purchase. The later sale to the leasing company and immediate leaseback were then not taxable.

When the documents were incomplete

The master lease described in the GIL did not identify the equipment or lease amount; its schedules were incomplete templates. Without additional documentation, the Department would not presume that the purchased products were covered by the financing agreement.

Under that alternative treatment, the user's later sale to the leasing company could qualify as a sale for resale. But if the leaseback included a nominal purchase option, Nebraska Sales and Use Tax Regulation 1-018 treated it as something other than a lease and imposed tax at inception on the full contract amount.

The time between purchase and sale-leaseback mattered less than documents showing financing intent from the date of receipt.

Common questions

Q: Was a general master lease enough?

A: Not when it failed to identify the specific property and lease amount.

Q: Could the initial purchaser simply pay tax to the vendor?

A: Yes, when contemporaneous specific documents established the intended financing arrangement; the later sale and leaseback were then not taxed.

Q: What happened without sufficient financing documents?

A: The sale to the leasing company could be for resale, while the leaseback could be taxable.

Q: How was a nominal purchase option treated?

A: Regulation 1-018 imposed tax at the lease's inception on the entire contract amount.

Citations and references

• Nebraska Sales and Use Tax Regulation 1-018 — nominal-option leasing transactions
• Nebraska GIL 1-14-3 — contemporaneous documentation and sale-leaseback treatment

Source

• Landing page: https://revenue.nebraska.gov/about/legal-information/general-information-letters-gils
• Original PDF: https://revenue.nebraska.gov/sites/revenue.nebraska.gov/files/doc/legal/gil/GIL01-14-03_Sale-leaseback.pdf

Original ruling text

GIL 1-14-3 Sales and Use Tax: Sale-leaseback Transactions
This guidance document is advisory in nature but is binding on the Nebraska Department of Revenue
(Department) until amended. A guidance document does not include internal procedural documents that
only affect the internal operations of the Department and does not impose additional requirements or
penalties on regulated parties or include confidential information or rules and regulations made in
accordance with the Administrative Procedure Act. If you believe that this guidance document imposes
additional requirements or penalties on regulated parties, you may request a review of the document.
This guidance document may change with updated information or added examples. The Department
recommends you do not print this document. Instead, sign up for the subscription service at
revenue.nebraska.gov to get updates on your topics of interest.
September 9, 2014
Dear: XXXX
This correspondence is in response to your August 6, 2014 email inquiry regarding the sales and use tax
implications of certain transactions involving the purchase, sale, and subsequent leaseback of property.
Based upon the nature of your request, we are providing this General Information Letter (GIL). This GIL
will be published on the Nebraska Department of Revenue’s (Department) website with all identifying
taxpayer information redacted.
GILs address general questions; provide analysis of issues, and direct taxpayers to the Nebraska statutes,
Department regulations, revenue rulings, or other sources of information to help answer a question. A
GIL is a statement of current Department policy, and taxpayers may rely on the Department to follow the
principles or procedures described in a GIL until it is rescinded or superseded. You may also find current
regulations, revenue rulings, information guides, taxpayer rulings, and other GILs at
revenue.nebraska.gov that may be helpful to you.
You have presented a sequence of transactions involving three parties. Party X is a Nebraska-based
company; Party Y is a vendor of information technology products (“products”) and is licensed to collect
Nebraska sales tax; and Taxpayer is a company providing leasing services in Nebraska.
Party X intends to purchase various products from Party Y, and then sell the property to Taxpayer. Party
X will immediately lease the property back from Taxpayer. Party X and Taxpayer signed a Master Lease
Agreement (Agreement) on DATE1. This Agreement did not contain a listing of the specific products
being leased from the Taxpayer. The Agreement did contain two schedules, A and B, which are undated
and incomplete financing templates. On DATE2, one of the template documents was completed to
include specific products being purchased by Party X.
You have asked for an explanation of the sales and use tax treatment for: (1) the original purchase of the
products by Party X; (2) the tax treatment for the sale of the products from Party X to Taxpayer; and (3)
the tax treatment for the lease of the products from Taxpayer to Party X.
If dated documents exist at the time the products are initially purchased by Party X, indicating Party X’s
intent to finance the purchase of the property as of the date of receipt, Party X can pay sales tax to Party

Y on the initial purchase price. The subsequent sale of the products to Taxpayer, as well as the
subsequent leaseback of the products from Taxpayer, would not be subject to tax. The length of
time between the initial purchase and the subsequent sale and leaseback is not as important as

having the documentation indicating the intent of Party X to finance the purchase of the
products. The Agreement must, however, contain specific enough information to identify the
property being purchased as well as the amount for which the property will be leased. Because
the Agreement, dated XXXX, does not identify the property being leased by the Taxpayer nor
the amount of the lease, Party X has properly paid tax on the products when they were purchased
in XXXX.
Without further documentation, it cannot be presumed the products purchased by Party X were
intended to be covered by the Agreement. In this event, the subsequent sale of the products by
Party X to Taxpayer can be made exempt as a sale for resale. The leasing of the products back to
Party X, however, would be subject to tax at the inception of the lease based on the entire
contract amount assuming the contract contains a nominal purchase option. Nebraska Sales and
Use Tax Regulation 1-018 provides that leasing transactions with a nominal option price are not
considered leases and tax is due on the full contract amount at the inception of the lease.
FOR THE TAX COMMISSIONER
Sincerely,

Ellen Thompson
Tax Specialist
Policy Section