How did Utah tax equipment bought for rental both with an operator and without an operator?

Plain-English summary

Utah Private Letter Ruling 92-014 addressed a company renting motion-picture and television production equipment.

Some rentals included the company's qualified operator. Others transferred the equipment directly to the production company without company personnel.

The Commission confirmed different tax treatment for the two rental types and explained how to buy equipment used for both.

Buying mixed-use rental equipment

Equipment purchased for rental both with and without an operator could be purchased tax-free.

The ruling did not require the company to allocate purchase tax between the equipment's two anticipated uses.

Rental without an operator

The lessor had to collect tax on rentals without an operator.

In that arrangement, the customer rented the equipment itself.

Rental with an operator

The lessor did not collect tax from the customer when it supplied an operator.

Instead, the lessor became the consumer of the equipment.

It had to accrue and pay tax based on the rental rate for the equipment without an operator.

Holding

Under the stated facts:

• Mixed-use equipment could be bought tax-free.
• Equipment rentals without an operator were taxable to the customer.
• Equipment rentals with an operator were not taxed to the customer.
• For an operator-provided rental, the lessor became the equipment's consumer.
• The lessor accrued tax using the rental rate without an operator.

What this means for you

Equipment rental companies

Track whether each transaction transfers equipment alone or includes your operator. The ruling imposed tax differently on those two transaction types.

Film and television production suppliers

Maintain a supportable equipment-only rental rate when the same asset is sometimes supplied with an operator.

Accountants and tax professionals

Verify the current rule before applying this 1992 treatment, especially where personnel perform broader production services.

Common questions

Q: Could equipment used for both rental types be bought tax-free?

A: Yes.

Q: Was a rental without an operator taxable?

A: Yes. The lessor collected tax from the customer.

Q: Was customer tax collected when the lessor supplied an operator?

A: No.

Q: Who was treated as the consumer for an operator-provided rental?

A: The lessor.

Q: What amount did the lessor use to accrue tax?

A: The rental rate without an operator.

Key source language

• Mixed use: “the equipment should be purchased tax-free.”
• No operator: “Tax should then be collected on rentals without an operator.”
• With operator: “no tax should be collected from the customer.”
• Lessor liability: “tax should be accrued and paid by the lessor based upon the rental rate without an operator.”

Citations and references

• Utah Admin. Rule R865-19-32S

Source

• Landing page: Utah Private Letter Rulings
• Official ruling: Utah PLR 92-014
• Scope note: the response addressed the same equipment's use in rentals both with and without the lessor's operator.
• Fetch note: the exact official URL returned HTTP 404 to a direct request and was then retrieved through Sofya.

Original ruling text

Response
August 28, 1992

August
28, 1992

XXXXX

Re: Advisory Opinion - Leased Equipment

Dear
XXXXX:

Your
request for an advisory opinion on how to tax equipment which is leased both with and without an operator was referred to the Auditing Division for their analysis.

It
is the division staff recommendation that:

1.
XXXXX's understanding of provisions contained in rule R865-19-32S is correct.

2. If equipment is purchased for the purpose of
   leasing it both with and without an operator, the equipment should be purchased tax-free. Tax should then be collected on rentals without an operator. In the case of rentals with an operator, no tax should be collected from the customer, but tax should be accrued and paid by the lessor based upon the rental rate without an operator, since the lessor becomes the consumer of the equipment.

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 judgement and be appealable to the Utah State Supreme Court. A Notice of Appeal Rights and a copy of the Utah Taxpayer Bill of Rights are attached.

To
arrange for Americans with Disabilities Act accommodations, please contact the Tax Commission at (801) 530-6920, (801) 530-6077 or TDD (801) 530-6269 allowing three working days notice.

For
the Commission

Joe
B. Pacheco

Commissioner

XXXXX,
Administrative Assistant

Utah
State Tax Commission

Heber
M. Wells Building

Salt
Lake City, Utah 84134

Re: Request for opinion on sales tax issue

Dear
XXXXX:

Per
instructions by other personnel in the tax commission, I was told to direct a letter such as this to you to request assistance in obtaining advise on a sales tax matter which affects one of my clients.

My
client is in the business of renting and leasing motion picture and tv production equipment to various production companies throughout the United States. In some cases the equipment needs qualified personnel from my client's office to operate the equipment, and in other cases, the equipment is rented directly to the production company without supervision or personnel.

Per
the regulations of sales tax law, rentals of equipment with the operating personnel from the rental company is not subject to sales tax. Rental of equipment without personnel is subject to sales tax. As described elsewhere in the regulations, equipment purchased that will be subject to sales tax under rental is not subject to sales tax at time of purchase, and equipment purchased that is not subject to sales tax under rental (with qualified personnel accompanying) is subject to sales tax at the time of purchase.

My
client has invested hundreds of thousands of dollars of equipment for such purpose and in most cases, has paid sales tax. He does have equipment which plays both roles, i.e., sometimes rented with qualified personnel and sometimes directly to the production companies without qualified personnel. Under multiple use such as this, the sales tax liability at the time of the purchase of such equipment becomes uncertain.

I
request a ruling or advise on the circumstances and also request a confirmation of the correct interpretation of our understanding of the example given in the regulations of equipment being rented with or without qualified personnel (R865-19-32S).

A
quick response to this request would be appreciated. If a response is not possible within 30 days of this letter, please advise.

Sincerely,

XXXXX

Certified
Public Accountants