Was sales tax due when an equipment lessor billed a Utah lessee for the exact personal property tax assessed on that leased equipment?

Plain-English summary

Utah Private Letter Ruling 91-025 addressed an equipment lessor that paid county personal property tax on each leased item and then billed the responsible lessee for the exact amount paid.

The lease described the reimbursement as additional rent, and Utah generally taxed amounts paid under a lease of tangible personal property.

The Commission nevertheless concluded that no sales tax was due on this particular reimbursement. It relied on Tax Bulletin 14-87 and the fact that the lessor passed through the exact personal property tax assessed on the specific leased equipment.

The lease arrangement

The lessor collected and remitted Utah sales tax on its lease payments.

County assessors separately imposed personal property tax on individual pieces of leased equipment.

The lessor paid that tax and sought reimbursement from the responsible lessee under a lease clause covering taxes and governmental charges connected with the equipment.

Exact amount controlled

Tax Bulletin 14-87 generally treated prorated property-tax charges as taxable rent.

The bulletin identified an exception when the lessee was responsible for the exact property tax and paid it directly to the county assessor or through a lessor that contractually collected and held the tax for later payment.

The Commission's response focused on the exact-amount pass-through. Because the lessor merely billed the customer for the precise personal property tax assessed on the leased equipment, no sales tax was due on that amount.

Holding

Under the stated facts:

• The lessor paid personal property tax assessed on each leased item.
• The lessee reimbursed the exact amount attributable to that equipment.
• No sales tax was due on the reimbursed property-tax amount.
• The Commission said the lessor could rely on Tax Bulletin 14-87.
• Deviations from the presented facts could negate the opinion.

What this means for you

Equipment lessors

Keep assessment and payment records tying each reimbursement to the exact property tax imposed on the specific leased equipment.

Equipment lessees

A separately billed charge labeled as tax is not automatically outside the sales-tax base. This ruling depended on the exact assessed amount and the described pass-through arrangement.

Accountants and tax professionals

Distinguish an exact reimbursement from an estimate, allocation, markup, or general additional-rent charge, and verify the current lease-tax rule and administrative guidance.

Common questions

Q: Was sales tax due on the exact property-tax reimbursement?

A: No.

Q: Did the ruling exempt all tax-related lease charges?

A: No. It addressed the exact personal property tax assessed on the specific leased equipment.

Q: What guidance did the Commission rely on?

A: Utah State Tax Commission Tax Bulletin 14-87.

Q: Would an estimated or marked-up charge necessarily receive the same treatment?

A: The ruling did not decide that situation.

Key source language

• Pass-through fact: “merely passing on to their lease customer, the exact amount of personal property tax assessed on the equipment covered by a lease.”
• Result: “no sales tax is due on the amount of the property tax.”
• Scope warning: “if there are deviations from these facts, this opinion may be negated.”

Citations and references

• Utah Code Ann. § 59-12-103
• Utah Admin. Code Rule R865-19-32S
• Utah State Tax Commission Tax Bulletin 14-87

Source

• Landing page: Utah Private Letter Rulings
• Official ruling: Utah PLR 91-025
• Scope note: the lessor reimbursed itself for the exact assessed property tax paid on each specific leased item.
• Fetch note: the exact official URL returned HTTP 404 to a direct request and was then retrieved through Sofya.

Original ruling text

November 15, 1991 Response from Tax Commission

October 31, 1991 Letter from XXXXX of XXXXX

November 15, 1991

XXXXX

c/o XXXXX

Re: Advisory Opinion -XXXXX Credit

Dear Mr. XXXXX:

This letter is in response to your recent request for a Tax Commission ruling on whether sales tax should be charged by XXXXX on billings to lease customers when passing on to the customer the exact amount of personal property tax paid to the county assessor for the specific equipment covered by the lease.

The Tax Commission policy is to refer such requests to the division most qualified to analyze the request and make recommendations concerning it. As such, your request was referred to the Tax Commission's Auditing Division for their analysis and recommendation. The division's recommendation is as follows:

XXXXX may rely on the information contained in Tax Bulletin 14-87. Where they are merely passing on to their lease customer, the exact amount of personal property tax assessed on the equipment covered by a lease, no sales tax is due on the amount of the property tax.

Based upon the facts presented in your letter, we are in agreement with the Auditing Division's recommendation. Obviously, if there are deviations from these facts, this opinion may be negated.

If you do not agree with this determination, you may appeal to the Tax Commission for a formal hearing. The results of that hearing would constitute a declaratory judgment and be appealable to the Utah State Supreme Court. A Notice of Appeal Rights and a copy of the Utah Taxpayer's Bill of Rights are attached.

For the Commission,

Joe B. Pacheco

October 31, 1991

XXXXX, Auditor

Sales Tax Auditor

Utah State Tax Commission

Auditing Division, Sixth Floor

160 East 300 South

Salt Lake City, UT 84134-5000

Re: Request for Advisory Opinion on Behalf of XXXXX

Dear Mr. XXXXX:

This is a follow-up to our telephone conversation earlier this year on the collection of sales/use taxes on personal property taxes paid by a lessee of equipment located in Utah. On behalf of XXXXX("XXXXX"), we hereby request a technical advisory opinion on the below described procedure followed by XXXXX:

FACTS

XXXXX leases equipment to certain lessees in the State of Utah. XXXXX collects and remits to the State of Utah sales tax on the lease payments received by XXXXX from Utah lessees. The equipment leased in the State of Utah is also subject to Utah personal property taxes. The personal property tax is assessed on each separate piece of leased equipment by the County Assessor where the equipment is located. XXXXX pays the assessed personal property tax directly to such collecting authority. XXXXX then requests reimbursement from the responsible Utah lessee for the exact amount of personal property taxes assessed and paid on each specific piece of equipment. XXXXX is entitled to such reimbursement pursuant to the terms of the lease agreement which provides in applicable part as follows:

Lessee shall promptly reimburse lessor for, as additional rent, all taxes, charges, and fees imposed or levied by any governmental body or agency upon or in connection with the purchase, ownership, leasing, possession, use or relocation of the equipment . . . or otherwise in connection with transactions contemplated by the lease.

QUESTION PRESENTED

The question raised is whether a sales/use tax should be collected and paid by XXXXX to the State of Utah on the personal property tax reimbursed to XXXXX by lessees of equipment located in the State of Utah.

SOURCES OF AUTHORITY

Section 59-12-103 of U.C.A. provides that a sales/use tax is levied on the purchaser for the amount paid or charged for the . . . "(k) leases and rentals of tangible personal property if the property situs is in the state, if the lessee took possession in this state, or if the property is stored, used, or otherwise consumed in this state;" . . .

Utah Administrative Code Rule R865-19-32S provides in applicable part as follows:

"When a lessee has the right to possession, operation or use of tangible personal property, the tax [sales or use] applies to the amount paid pursuant to the lease agreement, regardless of the duration of the agreement."

Utah State Tax Commission Tax Bulletin 14-87 provides the following with respect to the assessment of sales tax on property taxes paid on leased equipment:

Prorated property tax charges are taxable to the lessee as part of the rental unless the lessee is responsible for paying the exact amount of the property tax directly to the county assessor, or to the lessor who contractually collects the tax for the lessee and holds it in trust (such as a tax reserve account) for later payment to the assessor.

REQUESTED TECHNICAL ADVISORY OPINION

XXXXX requests a technical advisory opinion on the question presented which opinion can be relied upon by XXXXX for Utah sales tax purposes. Please direct the opinion to XXXXX in care of the undersigned. Because the lessee only reimburses to XXXXX the exact amount of assessed personal property tax paid by XXXXX, the above sources of authority suggest that no sales/use tax should be collected on the reimbursed personal property taxes.

Please advise if you need any additional information in order to render the requested technical advisory opinion.

Very truly yours,

XXXXX