Who reported tax after leased equipment and its lease were sold together to an investor, and was the combined transfer taxable?

Plain-English summary

The October 29 correction replaced the letter's earlier August 2 answer. Under the corrected treatment, the original lessor could not combine tax collected for investor-owned equipment with tax on its own leases. Each investor needed its own sales-tax permit and had to report tax on its own return, even though the original lessor invoiced lessees, collected rent and tax, and remitted amounts as the investor's agent.

The investor had to hold a permit and collect and remit tax on lease payments. No sales or use tax was due on the sale and assignment to the investor because the investor bought the equipment to lease in the regular course of business. Because the equipment sale and lease assignment occurred together, the lease-assignment transfer was also nontaxable.

The reproduced August 2 response had reached a different result—accelerating tax on remaining lease payments and treating the equipment sale as taxable unless supported by a resale certificate—but the October 29 letter expressly corrected that response.

Common questions

Could the original lessor report investor lease tax on its own return? No.

Did the investor need a permit and separate return? Yes.

Was the simultaneous equipment sale taxable? No, under the corrected facts.

Was the lease assignment taxable? No, because it occurred together with the qualifying equipment sale.

Which answer controls within the reproduced document? The October 29 correction, not the August 2 response.

Citations and references

The reproduced letter cites no numbered statute or rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8510L0810B08

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller October 29, 1985

Dear *****:

This letter is to correct my response dated August 2, 1985.

A re-statement of the situation, questions and corrected answer follow:

Situation: ** is currently reviewing the feasibility
of entering into the following type of transaction. **
will purchase equipment from either the manufacturer or other retail
source, and will lease the equipment to an end user. These leases
will be of the operating type lease explained earlier. *
will then package both the equipment and an assignment of the lease
contract together and sell this package to an investor. The investor
may be an individual or corporation that may or may not be primarily
engaged in the business of equipment leasing. ** then
contracts with the investor, who is now owner of both the equipment
and the lease, to act as their agent. As the agent, ***
is responsible for providing the following services:

1. ***** will invoice the lessee for the monthly rent plus
   any applicable taxes which based up the rental amount.

2. ** will receive all monies from the lessee and deposit
   same in our ("*****) account.

3. ** will disburse from its own account to the investor/
   owner the rental receipts collected, less our fee, on a regular basis.

4. ** will remit from its own account to the proper taxing
   authorities the sales/use tax based on rental which is collected from
   the lessees.

Question: Can ** include the amount of tax collected
for the investors equipment with the tax collected on "*
own leases and remit all amounts due on one tax return? Or, will
have to prepare a separate return in the investors name and submit
these taxes separately from other tax due from **?

The second question regards the method of substantiating the exemption
from sales tax on the sale by ***** to the investor.

Must the investor be registered with your office for the sale of the
package (the tangible personal property and the lease assignment) to
be exempt? Or, are the facts of the transaction sufficient to allow
for an exemption of sales tax without the investor being registered?

Answer: ** may not include the tax collected for the
investors equipment on **** sales tax return. The investor
must have its own sales tax permit and report tax on their own return
on the lease of the equipment.

The investor must hold a sales tax permit, collect and remit tax on
lease payments. Sales or use tax is not due on the sale and assign-
ment of the lease to the investor because the investor is buying the
equipment to lease in the regular course of business. Since the as-
signment and sale occur together, tax will not be due on the transfer
of the assignment.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

If you have any questions or need more information, please call me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Administration Division.

Sincerely,
Dot Burchard
Tax Policy Section
Tax Administration Division

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
BOB BULLOCK AUSTIN, 78774
Comptroller
August 2, 1985

Dear ***:

Thank you for your letter of July 15, 1985 requesting a written ruling
concerning the proper method for the collection of sales tax in the
following fact situation.

Situation: ** is currently reviewing the feasibility of
entering into the following type of transaction. *** will
purchase equipment from either the manufacturer or other retail source,
and will lease the equipment to an end user. These leases will be of
the operating type lease explained earlier. *** will then
package both the equipment and an assignment of the lease contract to-
gether and sell this package to an investor. The investor may be an
individual or corporation that may or may not be primarily engaged in
the business of equipment leasing. ** then contracts
with the investor, who is now owner of both the equipment and the
lease, to act as their agent. As the agent, *** is respon-
sible for providing the following services:

1. ***** will invoice the lessee for the monthly rent plus
   any applicable taxes which based up the rental amount.

2. ** will receive all monies from the lessee and deposit
   same in our ("**s") account.

3. ***** will disburse from its own account to the investor/
   owner the rental receipts collected, less our fee, on a regular basis.

4. ***** will remit from its own account to the proper taxing
   authorities the sales/use tax based on rental which is collected from the
   lessees.

Question: Can ** include the amount of tax collected for
the investors equipment with the tax collected on "** own
leases and remit all amounts due on one tax return? Or, will **
have to prepare a separate return in the investors name and submit these
taxes separately from other tax due from **?

The second question regards the method of substantiating the exemption
from sales tax on the sale by ***** to the investor.

Must the investor be registered with your office for the sale of the
package (the tangible personal property and the lease assignment) to be
exempt? Or, are the facts of the transaction sufficient to allow for an
exemption of sales tax without the investor being registered?

Answer: If a lease agreement exists between ** and the
lessee at the time the equipment is sold to the investor,*
is liable for and must remit sales tax on all remaining lease payments
at the time the lease is assigned. There is no further Texas sales or
use tax due on the lease contract either from ** or the
investor. The sale of the equipment by ** to the investor
is taxable and tax is to be collected unless a resale certificate is
accepted from the investor.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

If you have any questions or need more information, please call me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/475-1931. You may write me at the Tax Administration Division.

Sincerely,
Dot Burchard
Tax Administration Division