When a county raises its local sales tax rate, do equipment lease payments made AFTER the rate increase get taxed at the new higher rate, even though the lease agreement itself was signed before the increase took effect?

Subject

, is whether future rental payments on the lease of equipment are subject to the higher sales tax rate where a lease agreement was entered into prior to the effective date of a county's increase in the local sales tax.

What this means for you

Woodhill Capital Corp. leased equipment to customers in Albany and Monroe counties under agreements signed before September 1, 1992. On that date, both counties raised their local sales tax rates (Albany from 3% to 4%, Monroe from 3% to 3.5%), while the state rate stayed the same. Woodhill's leases continued running past that date, so rental payments kept coming in both before and after the rate change.

New York's tax law has a general rule (and a parallel rule specifically for local rate changes) that sales and rental taxes apply to transactions occurring on or after a given effective date "although made ... under a prior contract" -- meaning the date the underlying agreement was signed doesn't control. Citing a prior court decision, the Department confirmed a lease is taxed transaction-by-transaction: each individual rental payment represents a separate taxable event (payment for the use and possession of the property during that specific rental period), taxed at whatever rate applies when that payment is actually made -- not the rate in effect back when the lease was originally signed. So Woodhill's rental payments made on or after September 1, 1992 had to be taxed at the new, higher local rates, even though the underlying lease agreements predated the rate increase.

Q&A

Q: We signed an equipment lease before a local sales tax rate increase took effect -- do our payments made after the increase still get the old, lower rate?
A: No -- per this opinion, each rental payment is its own taxable transaction, taxed at the rate in effect on the date that specific payment is made, regardless of when the lease agreement itself was signed.

Q: Does this rule apply only to local rate increases, or state rate changes too?
A: This opinion addressed a local rate increase specifically (citing Tax Law § 1217(a)'s transitional provisions for local taxes), but the underlying principle -- that a lease is taxed on each payment as it accrues, not by the contract date -- traces back to the general transitional-provisions rule in Tax Law § 1106(a) and applies to state-level effective-date changes the same way.

Q: If we prepay several months of rent in a lump sum before a rate increase, does that lock in the old rate for those future periods?
A: This opinion doesn't address prepayment -- it addresses ordinary periodic rental payments made after the increase for the use of property during that period. A prepayment structure raises a different question that isn't resolved by this ruling.

Citations

• Tax Law § 1106(a) -- general transitional-provisions rule taxing sales/services rendered on or after a given effective date even if made under a prior contract.
• Tax Law § 1217(a) -- extends the same transitional-date principle to local sales tax rate impositions or increases.
• Petrolane Northeast Gas Service, Inc. v. State Tax Commission, 79 A.D.2d 1043 (3d Dep't 1981) -- held a lease transaction is taxed on each rental payment at the time it's paid, regardless of the lease agreement's date.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1994.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a94_37s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-94 (37)S
Sales Tax
September 6, 1994

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S940517A

On May 17, 1994, a Petition for Advisory Opinion was received from Woodhill Capital
Corp., P.O. Box 1490, Williamsville, New York 14231.
The issue raised by Petitioner, Woodhill Capital Corp., is whether future rental payments on
the lease of equipment are subject to the higher sales tax rate where a lease agreement was entered
into prior to the effective date of a county's increase in the local sales tax.
Petitioner, as lessor, entered to lease agreements for the rental of tangible personal property
prior to September 1, 1992 in Albany and Monroe counties. The lease agreements were in effect for
periods subsequent to September 1, 1992. Effective September 1, 1992, Albany County increased
the local sales tax rate from 3% to 4%. Also, effective September 1, 1992, Monroe County increased
its local sales tax rate from 3% to 3 ½%. The State sales tax rate remained at 4%.
Section 1106(a) of the Tax Law provides as follows:
Sec. 1106. Transitional provisions.--(a) The taxes imposed under
subdivision (a), (c) and (d) of section eleven hundred five shall be paid upon all sales
made and services rendered on or after August first, nineteen hundred sixty-five
although made on or rendered under a prior contract, except as provided in section
eleven hundred nineteen, and except that a delivery or transfer of possession of
tangible personal property made after said date pursuant to an agreement for the sale
of said property made before April first, nineteen hundred sixty-five shall not be
subject to tax if: (1) such agreement for the sale of said property was made in
writing, (2) the particular item or items of property so sold or agreed to be sold were
segregated, before April first, nineteen hundred sixty-five, from any other similar
property in the possession of the vendor and identified as having been appropriated
to such sale or agreement of sale, and (3) the purchaser, before August first, nineteen
hundred sixty-five shall have paid to the vendor not less than ten percent of the sale
price of said property.
Section 1217(a) of the Tax Law provides as follows:
Sec. 1217. General transitional provisions.--(a) For the purposes of any local
law, ordinance or resolution imposing a local tax pursuant to the authority of section
twelve hundred ten, twelve hundred eleven, twelve hundred twelve or twelve hundred
twelve-A or increasing the rate of such tax, all references in section eleven hundred
six to August first, nineteen hundred sixty-five shall be read as referring to a date
four months prior to the effective date of such local law, ordinance or resolution and
the reference in subdivision (b) of section eleven hundred six to July thirty-first,
nineteen hundred sixty-five shall be read as referring to the day immediately before

-2­
TSB-A-94 (37)S
Sales Tax
September 6, 1994
the effective date of such local law, ordinance or resolution.
In Petrolane Northeast Gas Service, Inc. v. State Tax Commission, 79 AD2d 1043 (3d Dept
1981) the Court held that a lease transaction is taxed on each rental payment at the time paid,
regardless of the date of the agreement and that the tax is on use and possession of the lease property
for each rental period as it individually accrues. Thus, although the lease agreement was entered into
prior to the effective date of the sales and use tax statute, it was performed thereafter, when each
rental payment was made and was within the bounds of the statute and therefore such rental
payments were subject to sales tax.
In the instant case, Petitioner entered into lease agreements prior to September 1, 1992, the
effective date for increasing the local sales and use tax rate in Albany and Monroe counties.
However, rental payments under the terms of such lease agreements for the use of tangible personal
property were made to Petitioner subsequent to September 1, 1992. Pursuant to Sections 1106(a)
and 1217(a) of the Tax Law and Petrolane Northeast Gas Service, Inc., et al., supra, although the
lease agreements were entered into prior to the effective date of the local sales tax increase, a lease
transaction is taxed on each rental payment at the time it is paid, regardless of the date of the
agreement. Accordingly, since the taxable use of tangible personal property occurred thereafter
when the rental payments for the use of the tangible personal property were made, the tax on rental
payments made subsequent to September 1, 1992 are computed at the rates which became effective
September 1, 1992.

DATED: September 6, 1994

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.