Does a Georgia equipment lessor make a taxable sale when a leased asset is destroyed and the lessee pays the casualty amount in exchange for title?

Plain-English summary

An equipment lessor used true leases for vehicles, trucks, rail cars, and other assets. If leased equipment suffered a total loss, the contract required the lessee to pay the rent due on the loss-payment date, the stipulated loss value, and other payments. Once paid, the lessor conveyed its title and interest in the destroyed equipment to the lessee.

The Georgia Department of Revenue ruled that this exchange is a sale and a retail sale. The lessee gives consideration and receives title to tangible personal property, while also being released from future rent on the casualty equipment. The condition of the destroyed asset did not prevent the title transfer from being a sale.

Because gross sales are presumed taxable, the lessor must collect sales tax on the proceeds received as the sales price, or absorb the tax in compliance with Georgia law. The exception is when the lessor accepts a qualifying resale or other exemption certificate from the buyer in good faith.

What this means for you

Equipment and vehicle lessors

Review total-loss clauses for a title transfer. A payment may be described as casualty value, stipulated loss value, remaining rent, or other contract amounts, but if the lessee pays and receives title, Georgia can treat the event as a retail sale rather than merely a damages or insurance settlement.

Lessees and fleet operators

A totaled leased asset can trigger sales tax when the loss payment causes ownership of the wrecked property to pass to you. The tax result turns on the contract's payment and title-transfer terms, not only on whether the equipment is usable.

Accountants and tax professionals

The taxable sales price is the total consideration for the property, including the proceeds paid under the loss clause. The dealer bears the burden of establishing that the transaction is not a taxable retail sale and should retain any exemption certificate it accepts in good faith.

Common questions

Q: Is a casualty payment always subject to Georgia sales tax?
A: This ruling addressed a clause where the lessee's payment caused the lessor to transfer title to the destroyed equipment. That exchange of property for consideration was a taxable sale; different contract terms could produce a different analysis.

Q: Does it matter that the equipment was destroyed?
A: Not under these facts. The lessor still conveyed all right, title, and interest in the casualty equipment to the lessee in exchange for payment.

Q: What amount is taxed?
A: The lessor must charge or properly absorb tax on the sales price, described by the ruling as the proceeds received from the customer as part of the loss event.

Q: Can the transaction be exempt?
A: Yes if the lessor accepts a qualifying exemption certificate from the buyer in good faith. Otherwise, Georgia presumes the retail sale is taxable.

Q: Can another lessor rely on this ruling?
A: No. It binds the Department only for the requesting taxpayer and specific contract facts, and a different casualty clause may change the result.

Citations and references

Statutes:

• O.C.G.A. §§ 48-8-1 and 48-8-30 (sales and use tax imposition)
• O.C.G.A. §§ 48-8-2(31), (33), and (34) (retail sale, sale, and sales price)
• O.C.G.A. § 48-8-35 (dealer duty to collect tax)
• O.C.G.A. § 48-8-36 (dealer absorption of tax)
• O.C.G.A. § 48-8-38(a) (presumption of taxability and exemption certificates)

Source

• Landing page: Georgia Sales & Use Tax Letter Rulings
• Original PDF: LR SUT-2019-06

Original ruling text

Georgia Letter Ruling: LR SUT-2019-06
Topic: Equipment Leasing
Date Issued: August 2, 2019
This letter is in response to your request for guidance dated September 7, 2018, regarding the application of Georgia
sales and use tax to certain charges made by Taxpayer.
Facts as Presented by Taxpayer
Taxpayer is an equipment leasing company. Taxpayer leases various assets, including vehicles, trucks, and rail cars.
Several of Taxpayer’s contracts are true leases – the equipment remains the property of Taxpayer with the customer
using the equipment for a specific period of time making monthly payments. At the end of the lease, the customer has
the option to either return the equipment to Taxpayer, or to purchase the equipment for Fair Market Value.
On occasion, during the lease term equipment is destroyed in an accident. In these cases, the customer is charged for
the remaining rent, casualty value, and other expenses and the title to the destroyed asset is transferred from Taxpayer
to the customer. The contract between Taxpayer and the customer reads as follows 10. LOSS AND DAMAGE. (a) Risk of Loss. During the entire Lease Term with respect to the
Equipment covered by a Lease Schedule and until all of such Equipment is returned to Lessor, or if
applicable, purchased by Lessee, in accordance with the subject Lease, Lessee shall bear the risk of
the occurrence of a Casualty to Equipment and LESSEE SHALL NOT BE RELEASED FROM ITS
OBLIGATIONS UNDER THE SUBJECT LEASE IF A CASUALTY OCCURS.
(b) Casualty Notice. Lessee shall provide prompt written notice to Lessor of any Casualty to any
Equipment where the repairs or replacement costs are likely to exceed $100,000.00. Each such
notice must be provided together with any damage reports provided to any governmental authority,
the insurer or Supplier, and any documents pertaining to the repair of such Casualty, including
copies of work orders, and all invoices for related charges.
(c) Casualty Cure. In the event a Casualty occurs with respect to any Equipment
(1) if Lessor determines the Casualty does not constitute a Total Loss, then Lessee
shall promptly repair the Casualty Equipment by utilizing Replacement Parts in
accordance with Section 8(b) above or
(2) if Lessor determines the Casualty constitutes a Total Loss, on the Loss
Payment Date, Lessee shall pay to Lessor:
(A) the Basic Rent (or Renewal Rent, if the Total Loss occurs during a
Renewal Term) due on the Loss Payment Date, plus
(B) the Stipulated Loss Value of the Casualty Equipment as of the Loss
Payment Date, plus
(C) all Other Payments then due. Upon full and indefeasible payment to
Lessor of the sum described in clause (2) of the preceding sentence (x)
Lessee’s obligation to pay future Basic Rent (or Renewal Rent, as
applicable) shall terminate solely with respect to the Casualty Equipment
so paid for, but Lessee shall remain liable for, and pay, all Other
Payments, if any, whenever arising connected with the Casualty
Equipment and all Rent related to the remainder of the Equipment as and
when due, and (y) Lessor, without further action, shall be deemed to have
conveyed to Lessee all of Lessor’s right, title and interest in the Casualty
Equipment AS IS, WHERE IS, but subject to the requirements of any
third party insurance carrier in order to settle an insurance claim.

Georgia Letter Ruling: LR SUT-2019-06
Topic: Equipment Leasing
Date Issued: August 2, 2019
Page 2 of 3

1

Taxpayer now asks the Department’s opinion as to whether, based on the contractual language provided
above, a casualty loss event constitutes a sale and whether the casualty loss event is subject to sales and use
tax.
Issues
1.) Based on the contractual language provided, does the casualty loss event constitute a sale?
2.) Is this loss event subject to sales and use tax?
3.) Is Taxpayer obligated to charge tax on proceeds received from the customer as part of a loss event?
Analysis
Georgia levies and imposes a tax (subject to certain specific exemptions) on the retail purchase, retail sale, storage,
use, or consumption of tangible personal property, certain enumerated services, and utilities. 2 For purposes of this tax,
“retail sale” means a sale of tangible personal property for any purpose other than for resale. 3
“Sale” mean any transfer of title or possession, exchange, barter, lease, or rental, conditional or otherwise, in any
manner, by any means of any kind of tangible personal property for a consideration. 4 In the event of a retail sale, a
dealer must add the amount of the tax to the sales price (unless he or she absorbs the tax in compliance with O.C.G.A.
§ 48-8-36), and any dealer who neglect, fails, or refuses to collect the tax shall be liable for and shall pay the tax
himself. 5
The “sales price” is the amount subject to tax and means the total amount of consideration, including cash, credit,
property, and services, for which personal property or services are sold, leased, or rented, valued in money, whether
received in money or otherwise. 6 All gross sales of a dealer are subject to the tax imposed by this article until the
contrary is established. The burden of proving that a sale of tangible personal property is not a sale at retail is upon
the dealer unless the dealer, in good faith, accepts from the purchaser a certificate of exemption stating that the property
is purchased for resale or is otherwise tax exempt. 7
Based on the provisions in paragraph (c) quoted above, in the case of a Total Loss, Lessee is required to pay certain
amounts to Lessor. In exchange, Lessee obtains title to the Casualty Equipment and Lessee is relieved of its future
obligations to pay Rent. Such a transaction constitutes a “sale” and a “retail sale”, both as defined in O.C.G.A. § 488-2.
Rulings
1.) Taxpayer’s contract stipulates that in the event of a total loss, the lessee must pay to the lessor the total amount
due under the contract and in exchange for such payment, the lessor will convey all rights, title, and interest in
the property to the lessee. The statutory definition of the term “sale” can be summarized as the exchange of

Citizens Commercial Banking Asset Finance Master Lease Agreement.
O.C.G.A. §§ 48-8-1, 48-8-2(31)(A), and 48-8-30.
3
O.C.G.A. § 48-8-2(31).
4
O.C.G.A. § 48-8-2(33).
5
O.C.G.A. § 48-8-35.
6
O.C.G.A. § 48-8-2(34).
7
O.C.G.A. § 48-8-38(a).
1
2

Georgia Letter Ruling: LR SUT-2019-06
Topic: Equipment Leasing
Date Issued: August 2, 2019
Page 3 of 3
tangible personal property for a consideration. Thus, a sale occurs when Taxpayer conveys title to property to the
lessee in exchange for payments due under the contract. Taxpayer’s loss event is a sale.
2.) Georgia taxes the retail sales price of tangible personal property. All sales are retail unless the seller accepts in
good faith a certificate of exemption from the purchaser. Thus, any retail sale of tangible property made pursuant
to the contract will be subject to tax unless Taxpayer accepts a certificate of exemption from the buyer meeting
the good faith standard.
3.) Dealers must add tax to the sales price charged to the customer (unless the dealer absorbs the tax in compliance
with O.C.G.A. § 48-8-36). As the seller in the above described retail sale, Taxpayer is obligated to charge tax (or
absorb the tax) on the sales price (i.e., proceeds received from the customer as part of a loss event).
The opinions expressed in this ruling are based upon the information contained in your request and limited to the
specific transactions, facts, circumstances and taxpayer in question. The facts herein are those presented by the
taxpayer and the Department accepts them as true for this ruling. If the facts presented herein change, are not true, are
different, or material facts have been omitted, the conclusions reached in this ruling may change. In addition,
subsequent statutory or administrative rule changes or judicial interpretations of the statutes or rules upon which this
advice is based may subject similar future transactions to a different tax treatment than that expressed in this ruling.