Was an equipment lease between related Texas corporations taxable when no cash changed hands?

Plain-English summary

The Texas Comptroller addressed two corporations owned by the same stockholder. One corporation leased heavy equipment to the other in exchange for rent-free use of office space, and no cash changed hands. Sales tax had already been paid when the equipment was purchased.

The Comptroller said sales tax was due on the lease amount. With no cash payment, that amount was the lease payments or receipts transferred in the corporations' books.

If there was no book transfer, the letter found no consideration and therefore no sales tax due, given that tax had already been paid on the equipment purchase.

What this means for you

Related corporations

Common ownership and the absence of cash did not automatically eliminate tax. Bookkeeping entries could establish the taxable lease amount.

Equipment-owning businesses

The letter treated recorded intercompany lease payments or receipts as consideration.

Accountants and tax professionals

Review both corporations' ledgers and the office-use arrangement. The ruling's no-tax answer depended on there being no book transfer and on prior tax payment for the equipment.

Common questions

Q: Was the lease taxable even though no cash changed hands?
A: Yes, if lease payments or receipts were transferred in the corporations' books.

Q: What was the taxable lease amount?
A: The amount recorded in the books as lease payments or receipts.

Q: What if there was no cash and no book transfer?
A: The letter found no consideration and no sales tax due because tax had already been paid on the equipment.

Citations and references

• The letter cites no statute or administrative rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8411L0622B10

Original ruling text

November 8, 1984

Dear ***:

The situation and question in your September 24, 1984 letter are
outlined below with response:

I have a client who is the sole stockholder of two separate Texas
Corporations. Corporation (1) owns heavy equipment which has been
purchased at various times in the past. Sales tax was paid on each
item as it was purchased.

My client now leases the equipment from Corporation (1) to Corporation (2)
in return for Corporation (2) allowing Corporation (1) to have its corporate
offices in Corporation (2)'s building at no charge. No money changes hand.

QUESTION: Is there any sales tax responsibility generated by this exchange?

ANSWER: Sales tax would be due on the lease amount. Since no money changes
hands, the lease amount would be the amount transferred in the corporations'
books as lease payments/receipts. If there is no book transfer, there is no
consideration and no sales tax would be due since tax was paid on the purchase
of the equipment.

This opinion is based on the facts you presented. If there are additional or
different facts, this opinion may change.

Please feel free to contact us if you have additional questions. You may call
toll free 1-800-252-5555 from anywhere in Texas.

Sincerely,

Tax Policy Section
Tax Administration Division