In a Nebraska motor-vehicle sublease chain, whose sales-tax election controls when the vehicle's owner has not elected to pay tax on the vehicle's cost but the intermediate lessor has?

Plain-English summary

Nebraska let a motor-vehicle lessor choose how to handle sales and use tax: either pay tax up front on the cost of the vehicle, or collect tax on the lease receipts it bills its customers. This ruling addresses a sublease chain -- an owner leases a vehicle to a lessor, who then re-leases it to the end customer (the lessee) -- and asks whose election controls when the owner and the lessor have made different choices.

The core holding: "When the owner rents or leases a motor vehicle to a lessor solely for lease to a lessee, and the owner has not made an election to pay sales and use tax on the cost of the vehicle, the election of the lessor shall govern."

How it plays out when the owner has no election but the lessor has elected to pay tax on the cost of its leased vehicles:

• The lessor's election controls the chain.
• The lessor gives the owner a resale certificate, so the owner does not collect sales or use tax on what it charges the lessor (the lease into the lessor is a sale for resale).
• Instead of collecting sales and use tax on the gross lease receipts it bills the end lessee, the lessor remits consumer's use tax to the Department of Revenue on the current market value of the lease to the lessor.

In short, the tax is paid once, on the cost/value side, consistent with the lessor's "pay tax on cost" election -- rather than being collected on the downstream lease payments.

What this means for you

Vehicle leasing companies that sublease from another owner

If you take a vehicle from an owner who has not elected to pay tax on the vehicle's cost, and you have elected the pay-tax-on-cost method, your election governs the arrangement. Provide the owner a resale certificate, and remit consumer's use tax on the current market value of the lease to you, rather than collecting tax on the lease receipts you bill your customer.

Owners who lease vehicles to leasing companies

If you have not made an election to pay tax on the cost of your vehicles, you should not assume you must collect tax on the lease to the lessor. When the lessor has a valid pay-on-cost election, you take the lessor's resale certificate and the lessor handles the tax under its election.

Accountants and tax professionals

The ruling resolves a conflict-of-elections problem in a lease-resale chain by making the intermediate lessor's election control and routing the tax to consumer's use tax on the current market value of the lease. Watch the documentation: the resale certificate from lessor to owner is what supports the untaxed lease into the lessor. Because this ruling dates to 1978 and Nebraska's motor-vehicle lease taxation has changed considerably since, confirm the current rules before relying on it.

Common questions

Q: In a vehicle sublease chain, whose sales-tax election controls?
A: The lessor's. When the owner has not elected to pay tax on the vehicle's cost, the election of the lessor governs.

Q: What does the lessor do if it elected to pay tax on cost?
A: It gives the owner a resale certificate and, instead of collecting tax on the gross lease receipts from the lessee, remits consumer's use tax on the current market value of the lease to the lessor.

Q: Why does the owner get a resale certificate?
A: Because the owner's lease to the lessor is effectively a sale for resale, so it is not taxed at that step; the tax is handled at the lessor's level under the lessor's election.

Q: Can I rely on this 1978 ruling today?
A: It states the Department's position and is "binding on the Nebraska Department of Revenue until amended," but it is decades old and the taxation of motor-vehicle leases has changed. Verify current law and consult a Nebraska tax professional.

Citations and references

• Nebraska Revenue Ruling 01-78-15, "Sales and Use Tax -- Rental or Lease of Motor Vehicles" (Nebraska Department of Revenue, issued September 1978; approved by the State Tax Commissioner).
• Nebraska sales and use tax election available to motor-vehicle lessors -- pay tax on the cost of the vehicle, or collect tax on gross lease receipts (Nebraska Revenue Act of 1967, as amended); resale certificate and consumer's use tax on the current market value of the lease, as described in the ruling.

Source

• Landing page: https://revenue.nebraska.gov/about/legal-information/revenue-rulings-issued-tax-commissioner
• Original PDF: https://revenue.nebraska.gov/sites/revenue.nebraska.gov/files/doc/legal/rulings/rr017815_motor_vehicles.pdf

Source-quality note: This ruling survives only as a low-quality scan, and the machine-extracted text below is garbled in places (headings and signature block especially). The holding -- that the lessor's election governs -- and the resale-certificate / consumer's-use-tax-on-current-market-value mechanism are legible and are the basis for this summary.

Original ruling text

Revenue Ruling I-78-15

aska

deoartment
of 'revenue

Sales and Use Tax - RentaL or Lease of Motor Vehicles.

VHEN

THE OWNER RENTS OR LEASES A MOTOR VEHICLE TO A LESSOR SOLELY
FOR LEASE TO A LESSEE AIID THE OhniIER HAS NOT MADE Al',I ELECTION rO
PAY SALES AI'ID USE TAX ON THE COST OF THE VEHICLE' THE ELECTION
OF THE LESSOR SHALL GOVERN.

Advice has been requested as to whether sales tax is to be
col-lected on the Lease payments on a motor vehicle Leased from
an owner who has not el-ected to pay tax on the cost of the
vehicle to a lessor who has received approval of an el-ection
to pay tax on the cost of the vehicl-e.
When the owner has not el-ected to pay tax on its vehicles under
Lease, but the l-essor has a valid election on its vehicl-es
under l-ease, the l-essor wil] provide the owner with a Resale
Certificate and, in l-ieu of collecting the sal-es and use tax
on the gross Lease receJ-pts from the l-essee, remit consumerrs
use tax to the Department of Revenue on the current market
val-ue of the lease to the l-essor.
APPROVED:

rs
1 Lam
State Tax Commissioner
septembe

t el-,

rsTB