Was an equipment lessor's reimbursement for property tax subject to Texas sales tax when billed to the lessee?

Plain-English summary

An equipment-leasing company billed lessees for property taxes under its lease documents and had been charging sales tax on those reimbursements.

The Comptroller said a property-tax reimbursement was not taxable when separately stated from the equipment lease price. If the property-tax amount was included in the lease price, tax was due on the entire charge.

Because the company might be entitled to a refund for tax previously collected and remitted on separately stated reimbursements, the Comptroller referred it to Rule 3.325(b).

What this means for you

Separate statement controlled the result in this letter. A property-tax pass-through shown apart from rent was treated differently from the same amount embedded in the taxable lease price.

Common questions

Was a separately stated property-tax reimbursement taxable? No.

What if it was included in rent? Tax applied to the total lease charge.

Could prior tax produce a refund? The letter said a refund might be in order.

Citations and references

• 34 Tex. Admin. Code Rule 3.325(b) — lease provision cited for the reimbursement and possible refund

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9105L1107F13

Original ruling text

May 2, 1991

Dear ****:

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

Facts: As a leasing company, we bill back the property taxes to our
lessees as specified on our lease documents. For several years we have charged
sales tax on the property tax rebilled to our lessees. We remit it to the
state on a monthly basis in our return.

Response: Property tax reimbursements are not taxable when separately
stated from the lease price of the equipment. If the property tax were included
in the lease price, tax would be due on the total charge. Because a refund may
be in order, I am enclosing a copy of rule 3.325 for your reference. Please
refer to subsection (b).

This opinion is based on the facts you presented. Other facts, though
similar, may yield different results.

If you have questions or need more information, please call our toll-free
number 1-800-531-5441. My direct line number is 512463-4680 (FAX (512)
475-0900). You may write to me in care of Tax Administration Division.

Sincerely,

Al Van Allen
Tax Administration Division