When did assigning an equipment lease avoid accelerated Texas tax, and did an out-of-state buyer of Texas leases have to collect Texas tax?

Plain-English summary

A lessor asked about assigning operating leases and leased equipment to two financial companies.

The September 15 letter said that selling both the equipment and the seller's lessor rights transferred the collection and remittance responsibility to the buyer. Tax payments were not accelerated, but the seller had to obtain a resale certificate from the buyer.

An assignment to a savings and loan initially looked like only a lease assignment because the submitted package did not clearly transfer equipment title. That would have accelerated the seller's remaining tax remittance. The later October 5 letter found that an added statement adequately transferred title, so acceleration no longer applied, again subject to obtaining a resale certificate.

The Comptroller also said an out-of-state company deriving rentals from tangible property leased in Texas was doing business in Texas even without other physical presence. A company buying these leases and equipment therefore became legally responsible for collecting Texas tax.

The letter did not decide the treatment of a third company's lease package because the Comptroller had not received it.

Common questions

Did selling a lease alone avoid accelerated tax? Not when equipment title did not transfer.

What else was required when both lease rights and equipment transferred? A resale certificate from the buyer.

Did an out-of-state lessor need another Texas physical presence? No. Texas rental income from leased tangible property was enough under the letter.

Was the third lease package resolved? No.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8910L0970A01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

October 5, 1989

Dear ***:

I examined the additional statement you included and agree that it
is sufficient to transfer title to the equipment to * Savings
and Loan Association. Your tax payments on that lease will not be
accelerated but you must obtain a resale certificate from them.

There's another point I'd like to bring to your attention. People
who derive rentals from a lease of tangible property in Texas are
considered to be doing business in this state even if they have no
other physical presence here. That means that as you sell leases
and leased equipment to companies like COMPANY ABC of ***,
Minnesota they become legally liable to collect Texas tax. It would
be helpful if you would make them aware of this.

As we discussed, I have not received a copy of the COMPANY DEF lease
package you mentioned.

Feel free to call or write me if you have questions. You can reach
me by calling toll free 800-531-5441 or FAX (512) 475-0900.

Sincerely,
Al Van Allen
Taxability Section
Legal Services Division

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

September 15, 1989

Dear ***:

Thank you for your recent letter which is restated with response
below:

"Please review these two operating lease packages; one is
to * Savings and the other is to COMPANY ABC. Accord-
ing to your letter to Texas Lessors for Fair Taxation, I
believe I am instantaneously selling these leases and there-
fore "no" accelerated tax."

Your assignment to COMPANY ABC of ***, Minnesota
calls for you to sell both the equipment and your rights as
lessor to ABC. Under these conditions, your responsibility for
collecting and remitting tax would be transferred to ABC along
with the equipment and the lease. Your tax payments on that lease
will not be accelerated but you must obtain a resale certificate
from ABC.

Your assignment to * Savings and Loan Association seems to
be nothing more than a lease assignment. If you are transferring
title to the equipment to *** Savings and Loan Association it
is not obvious. That means your responsibility for tax remittance
would be accelerated at the time of the assignment.

Feel free to call or write me if you have questions. You can
reach me by calling toll free 800-531-5441 or FAX (512) 475-0900.

Sincerely,
Al Van Allen
Taxability Section
Legal Services Division