Did assigning or factoring lease-payment rights accelerate Texas sales tax on all remaining lease payments?

Plain-English summary

Rule 3.294(h) required the lessor to report sales tax on all remaining lease payments when the right to those payments was assigned or factored to a third party. A discounted transfer did not reduce the tax, and recourse or nonrecourse terms did not change the result.

The acceleration rule did not apply when lease contracts, leased property, or payment rights were merely pledged as collateral for a note or other written debt owed to the assignee.

The submitted documents called for an assignment of lease proceeds and did not identify the proceeds as collateral for a debt instrument. The Comptroller therefore agreed that tax on the remaining lease payments was due at assignment.

Common questions

Did the lessor owe all remaining tax at assignment? Yes.

Did a discounted transfer reduce the tax due? No.

Did recourse versus nonrecourse matter? No.

What transaction avoided acceleration under the rule? A pledge of lease contracts, property, or payments as collateral for a note or other written debt instrument.

Citations and references

• Texas Comptroller Rule 3.294(h) — assignment and factoring of lease payments.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8512L0693B05

Original ruling text

December 23, 1985

Dear ***:

Thank you for your recent letter to *** regarding the sales
tax treatment of lease payments transferred from ** to
** for collection. I have been asked to review your
presentation and respond.

Rule 3.294 (h) regarding assignment of lease payments states:

A lessor may factor or assign to a third party the lessor's right to
receive all lease payments due under the agreement with the lessee. At
the time the lease agreement is factored or assigned, tax is due on all
remaining lease payments. The lessor is responsible for reporting the
tax to the Comptroller's department at the time the lease agreement is
assigned or factored. No deduction in the amount of tax due and payable
by the lessor is allowed if a transfer at a discount is made to a
third party. This section does not apply to the assignment or pledge
of lease contracts by a lessor to a third party as loan collateral.

In other words, if the lease is assigned or factored, all tax must be
remitted at that time without regard to recourse or nonrecourse provisions
of the assignment.

However, this does not apply to situations where the lease, property, or
payments are pledged as security or collateral for a note or other
written debt instrument payable to the assignee (third party).

The material you have presented clearly calls for an assignment of lease
proceeds with no mention of those proceeds being any type of debt instrument,
for this reason I agree that sales tax was due on the remaining lease payments
at the time of 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 us at
1-800-252-5555 toll free from anywhere in Texas. You may write us at the
Tax Administration Division.

Sincerely,

Tax Policy Section
Tax Administration Division