How did the October 2, 1984 rate change affect old leases, later leases, purchases, and early payoffs?

Plain-English summary

For leases entered before October 2, 1984, the historical prior-contract exemption preserved the pre-October 2 rate on later payments. The letter said that relief expired September 30, 1987.

A lease signed after October 2 could still qualify if entered pursuant to a bid offered before that date. Otherwise, the new 4 1/8% state rate plus applicable city and MTA taxes applied.

Buying equipment to fulfill a financing lease entered before October 2 qualified for prior-contract relief, but a purchase under an operating lease did not. An early payoff of a qualifying lease was taxed at the old rate; an equipment purchase followed the financing-versus-operating distinction.

Common questions

Did every post-October 2 lease use the new rate? No; a qualifying earlier bid could preserve relief. Did a purchase option always qualify? No; the letter distinguished financing from operating leases. What rate applied to a qualifying early payoff? The old rate.

Citations and references

The reproduced letter cites no numbered statute or 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/8505L0637B09

Original ruling text

May 8, 1985

Dear ***:

Thank you for your recent letter which is restated in part with response
below.

We need letter from your department outlining what sales tax rates we
collect for:

1. Lease payments collected subsequent to October 2, 1984, for contracts
   signed prior to that date.

Response: There is a prior contract exemption for agreements entered into prior
to October 2. The statute of limitations is September 30, 1987. On a lease entered
into prior to October 2, the pre October 2 tax rate would apply.

2. Lease payments collected on contracts signed subsequent to October 2, 1984.

Response: If the lease were entered into pursuant to a bid offered prior to
October 2, the lease could still qualify for the prior contract exemption.
Otherwise, the new state tax rate of 4 1/8% plus applicable city and MTA taxes
would apply.

3. Sales of equipment to lessees for the residual value of the equipment subsequent
   to October 2, 1984, under lease contracts signed prior to October 2, 1984.

Response: If the equipment is purchased to fulfill the provisions of a financing l
ease entered into prior to October 2, the prior contract exemption would apply. If
the contract were an operating lease the prior contract exemption would not apply.

4. Early payoffs and purchases of equipment subsequent to October 2, 1984 under lease
   contracts signed prior to October 2, 1984.

Response: Early payoff of a lease qualified for the prior contract exemption will be
taxed at the old rate. Equipment purchases will be treated as in #3.

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

If you have any questions or need more information, please call us at
1-800-252-5555 toll free from anywhere in Texas. You may write us at the Tax
Administration Division.

Sincerely,

Tax Policy Section
Tax Administration Division