If a Tennessee lessor delivers leased trucks in Tennessee but they are used only out of state, must it charge Tennessee sales tax on every monthly lease payment?

Plain-English summary

A company leases trucks from its Tennessee locations to out-of-state customers. The customers pick the trucks up in Tennessee, drive them out, and use them entirely in another state; the trucks are titled and registered in Tennessee and weigh over 10,000 lbs. Does the lessor have to charge Tennessee sales tax on every monthly lease payment? Only the first one.

Tennessee's leasing rules (updated July 1, 2024 to match the multistate Streamlined Sales and Use Tax Agreement) say a lease delivered to the customer in Tennessee is normally sourced to the lessor's Tennessee location. But there is an exception for recurring lease payments: after the first payment, the lessor is not liable for Tennessee tax on payments that cover periods when the leased property's primary location is no longer in Tennessee. So here the first payment is taxable, and the later monthly payments are not — once the customer tells the lessor the vehicle's primary location is out of state. The lessor reports those later payments as exempt interstate sales on its Tennessee return.

There is one important carve-out: this relief does not apply to "transportation equipment," for which every lease payment stays sourced to Tennessee. "Transportation equipment" is a narrow, two-part definition — heavy trucks/tractors (10,001 lbs+), trailers, semi-trailers, or passenger buses that are both (1) registered through the International Registration Plan (IRP) and (2) operated under federal (USDOT) interstate-carrier authority. These trucks were heavy enough but were neither IRP-registered nor run under federal interstate authority, so they were not transportation equipment — and the after-the-first-payment exemption applied.

What this means for you

Vehicle and equipment leasing companies

If you lease from a Tennessee location and the customer takes delivery in Tennessee but uses the property out of state, you generally owe Tennessee tax only on the first periodic payment; later payments are exempt for the periods the property's primary location is outside Tennessee. Two practical conditions: get the customer's primary-location address into your records (that is what fixes where the property is), and have the lessee notify you of the date the vehicle's primary location moved out of state — the exemption for later payments runs from that notice. Report the exempt payments as exempt interstate sales.

Trucking / heavy-equipment lessors — check the transportation-equipment test

Don't assume size alone controls. A 10,001-lb+ truck is "transportation equipment" only if it is both IRP-registered and operated under federal interstate-carrier authority. If both are true, all lease payments are taxable in Tennessee even when the truck leaves the state. If either is missing, the ordinary after-first-payment relief is available.

Accountants and advisors

This is a sourcing question under the post-July-2024 SSUTA rules (§ 67-6-903). The default for a TN-delivered lease is origin-based, to the lessor's Tennessee place of business (§ 67-6-903(a)); § 67-6-903(d) carves out later periodic payments once the primary property location leaves Tennessee — except for transportation equipment (§ 67-6-902(b)(1)(B)). "Primary property location" is the lessee-provided address in the lessor's ordinary business records (§ 67-6-902(b)(2)(B)(ii)).

Common questions

Q: The truck is titled and registered in Tennessee. Doesn't that make all the payments taxable here?
A: No. Sourcing turns on where the property's primary location is for each payment period, not where it is titled. After the first payment, payments covering periods when the primary location is outside Tennessee are not taxable (unless the vehicle is "transportation equipment").

Q: Why is the first payment still taxable?
A: Because the lease is delivered to the lessee in Tennessee, it is initially sourced to the lessor's Tennessee place of business. The relief in § 67-6-903(d) only removes tax on the subsequent periodic payments for out-of-state periods.

Q: What counts as "transportation equipment"?
A: A narrow category: trucks/truck-tractors of 10,001 lbs+ (and trailers, semi-trailers, passenger buses) that are both registered through the International Registration Plan and operated under federal interstate-carrier authority. For that equipment, all lease payments are sourced to Tennessee.

Q: What do I need from the customer to stop charging tax on later payments?
A: The vehicle's out-of-state primary-location address in your records, and notice of the date the primary location moved out of state. Then report those payments as exempt interstate sales.

Q: Can another lessor rely on this ruling?
A: No. A Tennessee letter ruling binds the Department only as to the taxpayer it was issued to and cannot be relied on by anyone else; it can also be revoked or modified. Your facts may differ.

Citations and references

Statutes (Tennessee Code Annotated):
- § 67-6-903(a) — a lease delivered to the lessee in Tennessee is sourced to the seller's Tennessee place of business (first payment)
- § 67-6-903(d) — after the first payment, periodic payments for periods when the property's primary location is outside Tennessee are not taxable; does not apply to transportation equipment
- § 67-6-902(b)(1)(B) — definition of "transportation equipment" (IRP-registered AND under federal interstate-carrier authority)
- § 67-6-902(b)(2)(B)(ii) — definition of "primary property location"
- § 67-6-901(a) — Tennessee tax law applies to sales sourced to Tennessee
- § 67-6-102(86)(A); § 67-6-102(51) — "sale" includes a lease or rental; definition of "lease or rental"
- §§ 67-6-101 to -907 — Tennessee Retailers' Sales Tax Act
- 2023 Tenn. Pub. Acts ch. 377, § 30 — adopted SSUTA sourcing, effective July 1, 2024

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/26-02.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 26-02
Letter rulings are binding on the Department only with respect to the individual taxpayer
being addressed in the ruling. This ruling is based on the particular facts and circumstances
presented and is an interpretation of the law at a specific point in time. The law may have
changed since this ruling was issued, possibly rendering it obsolete. The presentation of this
ruling in a redacted form is provided solely for informational purposes and is not intended
as a statement of Departmental policy. Taxpayers should consult with a tax professional
before relying on any aspect of this ruling.
SUBJECT
Application of the sales and use tax to periodic payments for the lease of motor vehicles
used outside Tennessee.

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:
The taxpayer must not have misstated or omitted material facts involved in the transaction;
Facts that develop later must not be materially different from the facts upon which the ruling
was based;
The applicable law must not have been changed or amended;
The ruling must have been issued originally with respect to a prospective or proposed
transaction; and
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.

1

FACTS
[REDACTED] (the “Taxpayer”) is a [REDACTED] limited liability company with [REDACTED]
business locations in Tennessee from which it enters into agreements to lease trucks and
truck-tractors to its customers located in [REDACTED] in exchange for recurring periodic
payments. The customers pick up the motor vehicles at the Taxpayer’s [REDACTED] location,
drive them out of Tennessee, and use them solely in [REDACTED]. The motor vehicles are
titled and registered in Tennessee. The motor vehicles all have a gross weight rating of over
ten thousand (10,000) pounds and are not registered through the International Registration
Plan by the Taxpayer or operated under authority of a carrier authorized and certificated by
the United States Department of Transportation or another federal authority to engage in
the carriage of persons or property in interstate commerce.
RULING
Is the Taxpayer required to collect and remit Tennessee sales and use tax on its leases of
motor vehicles when the rentals are used outside Tennessee?
Ruling: Because the Taxpayer leases motor vehicles that are delivered to the customer in
Tennessee and are not transportation equipment, after the first lease payment it is not liable
for collecting and remitting Tennessee sales and use tax on periodic payments that cover
periods where the primary property location of the vehicle is no longer in Tennessee.
ANALYSIS
Under the Retailers’ Sales Tax Act, retail sales in Tennessee of tangible personal property and
specifically enumerated services are subject to the sales tax, unless an exemption applies. 1
TENN. CODE ANN. § 67-6-102(86)(A) (Supp. 2023) defines the term “sale” in pertinent part to
mean “any transfer of title or possession, or both, exchange, barter, lease or rental,
conditional or otherwise, in any manner or by any means whatsoever of tangible personal
property for a consideration.” "Lease or rental" means “any transfer of possession or control
of tangible personal property for a fixed or indeterminate term for consideration.” 2
Pursuant to 2023 Tennessee Public Acts, Chapter 377, Section 30, effective July 1, 2024,
Tennessee adopted sourcing provisions for sales and use tax that are consistent with the
Streamlined Sales and Use Tax Agreement (SSUTA). When a sale is sourced to Tennessee, a
seller must apply Tennessee sales and use tax law to determine the seller’s obligation to
collect and remit Tennessee sales and use tax for the seller’s retail sales.3 Tenn. Code Ann.
1

Tennessee Retailers’ Sales Tax Act (codified at TENN. CODE ANN. §§ 67-6-101 to -907 (2022 & Supp. 2023).

2

TENN. CODE ANN. § 67-6-102(51) (Supp. 2023).

3

TENN. CODE ANN. § 67-6-901(a) (Supp. 2023).

2

§ 67-6-903 (Supp. 2023) addresses the sourcing of sales, including leases or rentals, that are
made from a location within Tennessee and controls the sourcing of the Taxpayer’s lease
payments.
TENN. CODE ANN. § 67-6-903(a) provides that for the lease of a product from a place of
business in Tennessee delivered to a lessee within Tennessee, the sale is sourced to the
seller’s place of business in Tennessee. 4 TENN. CODE ANN. § 67-6-903(d), however, contains an
exception for the lease or rental of property delivered to a lessee in Tennessee that requires
recurring periodic lease payments for periods when the property is no longer in Tennessee.
In these circumstances, the lessor is not liable for sales and use tax after the first payment
on the periodic payments that cover periods where the primary property location is no
longer in this state. 5 Notably, TENN. CODE ANN. § 67-6-903(d) does not apply to the lease or
rental of transportation equipment. 6 For the lease or rental of transportation equipment
made from a place of business inside Tennessee, TENN. CODE ANN. § 67-6-903(a) applies to all
lease payments, regardless of whether the property remains in Tennessee.
Therefore, the sourcing of the periodic payments that the Taxpayer receives depends upon
whether the vehicles it leases are transportation equipment. Transportation equipment
includes “trucks and truck-tractors with a gross vehicle weight rating (GVWR) of ten thousand
one pounds (10,001 lbs.) or greater, trailers, semi-trailers, or passenger buses that are:
(i) registered through the International Registration Plan; and (ii) operated under authority
of a carrier authorized and certificated by the United States department of transportation or
another federal authority to engage in the carriage of persons or property in interstate
commerce.”7
Here, the Taxpayer leases trucks that have a GVWR of ten thousand one pounds (10,001 lbs.)
or greater, but according to the Taxpayer, the trucks are not registered through the
International Registration Plan or operated under authority of a carrier authorized and
certificated by the United States Department of Transportation or another federal authority
to engage in the carriage of persons or property in interstate commerce. Therefore, the
exception for transportation equipment does not apply to the trucks.
Accordingly, the initial lease payment that the Taxpayer receives is subject to sales and use
tax in Tennessee. 8 Subsequent monthly lease payments for trucks no longer located in

4

TENN. CODE ANN. § 67-6-903(a) (Supp. 2024)

5

TENN. CODE ANN. § 67-6-903(d).

Id. For this purpose, under TENN. CODE ANN. § 67-6-902(b)(2)(B)(ii), primary property location is “as indicated by an address for
the property provided by the lessee that is available to the lessor from its records maintained in the ordinary course of business,
when use of that address does not constitute bad faith.”

6

7

TENN. CODE ANN. § 67-6-902(b)(1)(B).

8

See TENN. CODE ANN. § 67-6-903(a).

3

Tennessee are not subject to Tennessee sales and use tax after the lessee notifies the
Taxpayer of the date that the primary property location of the trucks is outside Tennessee. 9
The Taxpayer must report those lease payments as exempt interstate sales on its Tennessee
sales and use tax return. 10

APPROVED:

David Gerregano
Commissioner of Revenue

DATE:

February 3, 2026

9

See TENN. CODE ANN. § 67-6-903(d).

10

Sales and Use Tax Manual, Tenn. Dept. of Revenue (June 2025), p. 96,

4