If a Tennessee equipment-rental company charges for cartage, assembly, and disassembly along with the lease, are those service charges taxed along with the equipment rental, even if billed separately?

Plain-English summary

A company leases modular equipment (with supporting metal structures) on a short-term basis, and also handles the cartage (hauling), assembly, and disassembly of that equipment for its customers. A significant part of its fees comes from labor for cartage, assembly, and disassembly -- but its sample invoices don't break these charges out separately from the equipment rental. The company asked whether (1) the equipment lease itself is taxable, and (2) whether the cartage/assembly/disassembly charges are separately taxable.

1. Is the lease taxable? Yes. Tennessee taxes the "sales price of all leases and rentals of tangible personal property" where the leasing is part of the lessor's regularly established business (Tenn. Code Ann. § 67-6-204). The company leases equipment in Tennessee as part of its regular business, so the lease itself is squarely taxable.

2. Are the cartage, assembly, and disassembly charges taxable too? Yes -- and for two independent reasons that each would be enough on their own:

• Delivery/cartage charges can never be deducted from the taxable "sales price," period -- Tennessee law specifically disallows subtracting delivery and installation charges from the sales price (§ 67-6-102(82)(A)(iv)-(v)), so cartage is taxable even if the company later starts itemizing it as its own line item.
• Assembly and disassembly are "services necessary to complete the sale" (the lease), which are also barred from being deducted from the sales price (§ 67-6-102(82)(A)(iii)). The Department leaned on two facts: the company doesn't offer assembly/disassembly as a stand-alone service independent of the equipment rental, and the rental genuinely can't be completed without them (you can't use unassembled modular equipment). Because these services are integral to delivering the rental itself -- not an optional add-on -- they stay part of the taxable sales price even if the company were to start separately stating them on invoices.

The bottom line: bundled or itemized, cartage/assembly/disassembly charges tied to this kind of equipment rental are taxed along with the lease.

What this means for you

Equipment rental and leasing businesses

Don't assume that itemizing a service charge on an invoice makes it non-taxable. Delivery/cartage charges are categorically non-deductible from the taxable sales price under Tennessee law, and any other service that's genuinely necessary to complete a taxable rental (not offered as a true stand-alone option) stays part of the taxable price too — itemization alone doesn't change the analysis for either kind of charge.

Accountants and tax professionals

This ruling is a clean illustration of Tenn. Code Ann. § 67-6-102(82)(A)'s layered "sales price" rules: delivery/installation charges are an absolute, no-exceptions non-deduction under (iv)-(v), while "necessary to complete the sale" charges under (iii) turn on a facts-and-circumstances test (is the service offered independently? can the sale be completed without it?) — useful for analyzing any bundled service alongside a taxable lease or sale.

Common questions

Q: If I separately itemize my delivery charge on an invoice, does it become tax-exempt?
A: No. Tennessee law specifically prohibits deducting delivery and installation charges from the taxable sales price, regardless of how they're invoiced.

Q: What about a service like assembly that isn't literally "delivery"?
A: It's still taxable if it's necessary to complete the sale and isn't genuinely offered as an independent, stand-alone service. Here, the company didn't offer assembly/disassembly separately from the rental, and the equipment couldn't be used without it.

Q: Would the answer change if the company only ever offered assembly as a completely separate, optional service (with its own pricing, sometimes bought without any rental)?
A: This ruling didn't decide that scenario — it turned on the fact that assembly/disassembly here were never offered independently and were required to complete the rental.

Q: Can another equipment-rental business rely on this ruling?
A: No. A Tennessee letter ruling binds the Department only as to the specific taxpayer and facts it was issued to, and it can be revoked or modified by the Commissioner. Confirm your own invoicing and service structure with a tax professional.

Citations and references

Tennessee statutes (Tenn. Code Ann.):

• § 67-6-204 (Supp. 2010) (sales tax on leases/rentals of tangible personal property that are part of, or incidental/germane to, the lessor's regularly established business)
• § 67-6-102(82)(A) (Supp. 2010) ("sales price" -- total consideration for a lease/rental/sale)
• § 67-6-102(82)(A)(iii) (Supp. 2010) (no deduction for charges necessary to complete the sale, other than delivery/installation)
• § 67-6-102(82)(A)(iv), (v) (Supp. 2010) (no deduction for delivery and installation charges)
• § 67-6-102(92)(A) ("tangible personal property")

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/11-33.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 11-33

WARNING
Letter rulings are binding on the Department only with respect to the individual taxpayer
being addressed in the ruling. This presentation of the ruling in a redacted form is
informational only. Rulings are made in response to particular facts presented and are not
intended necessarily as statements of Department policy.
SUBJECT
Application of the Tennessee sales and use tax to the leasing of equipment and to the sale of moving
and assembly services.
SCOPE
This letter ruling is an interpretation and application of the tax law as it relates to a specific set of
existing facts furnished to the Department by the taxpayer. The rulings herein are binding upon the
Department, and are applicable only to the individual taxpayer being addressed.
This letter ruling may be revoked or modified by the Commissioner at any time. Such revocation or
modification shall be effective retroactively unless the following conditions are met, in which case
the revocation shall be prospective only:
(A) The taxpayer must not have misstated or omitted material facts involved in the
transaction;
(B) Facts that develop later must not be materially different from the facts upon
which the ruling was based;
(C) The applicable law must not have been changed or amended;
(D) The ruling must have been issued originally with respect to a prospective or
proposed transaction; and
(E) The taxpayer directly involved must have acted in good faith in relying upon the
ruling; and a retroactive revocation of the ruling must inure to the taxpayer’s
detriment.

FACTS
[TAXPAYER] leases [EQUIPMENT] for [REDACTED INFORMATION]. In addition, the
Taxpayer sets up [TYPE OF EQUIPMENT]. The equipment to be leased primarily consists of
modular [TYPE OF EQUIPMENT] and supporting metal structures. A significant portion of the fees
charged are based on the labor for cartage, assembly, and disassembly of the [EQUIPMENT]. The
equipment is leased on an [REDACTED] basis and is typically leased for a short time period,
depending on the needs of the customer.

The Taxpayer has provided sample invoices given to customers. These invoices do not show a
separate charge for cartage, assembly, and disassembly of the [REDACTED] equipment.
QUESTIONS
1.

Is the leasing of [REDACTED] equipment subject to the Tennessee sales and use tax?

2.
Are the charges for cartage, assembly, and disassembly services subject to the Tennessee
sales and use tax?
RULINGS
1.

Yes. The leasing of [REDACTED] equipment is subject to the Tennessee sales and use tax.

2.
Yes. Charges for cartage, assembly, and disassembly services constitute part of the sales
price of the lease of the [REDACTED] equipment and as such are subject to the Tennessee sales and
use tax.
ANALYSIS

1. Leasing of [REDACTED] Equipment
   The Taxpayer’s leasing of [REDACTED] equipment in Tennessee is subject to the Tennessee sales
   and use tax pursuant to TENN. CODE ANN. § 67-6-204 (Supp. 2010).
   TENN. CODE ANN. § 67-6-204 imposes the sales tax on the “sales price of all leases and rentals of
   tangible personal property1 in this state where the lease or rental is a part of the regularly established
   business, or the lease or rental is incidental or germane thereto.” Under TENN. CODE ANN. § 67-6102(82)(A) (Supp. 2010), “sales price” is defined in pertinent part as the “total amount of
   consideration, including cash, credit, property, and services, for which personal property or services
   are sold, leased, or rented, valued in money.”
   Accordingly, the Taxpayer’s leasing of [REDACTED] equipment will be subject to the Tennessee
   sales and use tax if the lease occurs within the state and is part of the Taxpayer’s regularly
   established business.
   In this case, the Taxpayer leases [REDACTED] equipment in Tennessee, which satisfies the first
   requirement. In addition, the Taxpayer leases the equipment as a part of its regularly established
   business. Thus, the Taxpayer’s leasing of [REDACTED] equipment constitutes the lease or rental of
   tangible personal property, and is subject to the Tennessee sales and use tax.
2. Charges for Cartage, Assembly, and Disassembly Services
   Charges for the Taxpayer’s cartage, assembly, and disassembly services are included in the sales
   price of the lease of the [REDACTED] equipment and as such are subject to the Tennessee sales and
   use tax.

1

“Tangible personal property” is defined as “property that can be seen, weighed, measured, felt, or touched, or that
is in any other manner perceptible to the senses.” TENN. CODE ANN. § 67-6-102(92)(A).

2

As discussed above, TENN. CODE ANN. § 67-6-102(82)(A) defines “sales price” in pertinent part as
“the total amount of consideration, including cash, credit, property, and services, for which personal
property or services are sold, leased or rented.” TENN. CODE ANN. § 67-6-102(82)(A)(iv),(v)
specifically disallows any deduction from the sales price for delivery and installation charges.
Similarly, TENN. CODE ANN. § 67-6-102(82)(A)(iii) disallows any deduction from the sales price for
“[c]harges by the seller for any services necessary to complete the sale, other than delivery and
installation charges.”
In this case, charges attributable to the cartage, assembly, and disassembly services are not separately
stated on the Taxpayer’s invoices. As a result, the sales price of the lease of the [REDACTED]
equipment includes any charges attributable to such services.
Additionally, TENN. CODE ANN. § 67-6-102(82)(A)(iv), specifically prohibits the deduction of
charges for delivery from the sales price of the lease. Accordingly, any charges for cartage will be
included in the sales price of the lease even if the Taxpayer invoices them on a separate basis.
Similarly, even if the Taxpayer were to separately state the charges for its assembly and disassembly
services, such charges are nevertheless included in the sales price of the lease because such services
are necessary to complete the sale (i.e., the lease of the [REDACTED] equipment). First, the
Taxpayer does not offer the assembly and disassembly service independent of the rental of the
[REDACTED] equipment. In addition, the Taxpayer would be unable to complete the rental of the
[REDACTED] equipment without assembling and disassembling the equipment. These services are
clearly necessary to the Taxpayer’s rental of the equipment, and as a result is also included in the
sales price of the lease under TENN. CODE ANN. § 67-6-102(82)(A)(iii).
Accordingly, charges for the Taxpayer’s cartage, assembly, and disassembly services are included in
the sales price of the lease of the [REDACTED] equipment and as such are subject to the Tennessee
sales and use tax.

Abigail Sparks
Tax Counsel

APPROVED:

Richard H. Roberts
Commissioner of Revenue

DATE:

7/21/11

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