Were monthly leases of real estate with incidental personal property or of an entire purchased operating business subject to Texas sales tax?

Plain-English summary

The Texas Comptroller said rent for real property was not taxable. If the realty lease included tangible personal property on which the lessor had paid tax and the property was conveyed with the realty for one lump-sum fee, the lease payments remained nontaxable.

The Policy Committee also treated the purchase of an entire operating business's assets as an exempt occasional sale. The later rental of that business—land, buildings, fixtures, and operating assets—was exempt as a lease of real property with incidental tangible personal property.

What this means for you

The result depended on a complete-business acquisition and an integrated real-property lease with incidental personal property. The letter did not address separately priced equipment rent or acquisition of selected assets.

Common questions

Was ordinary real-property rent taxable? No.

Did incidental personal property make a lump-sum realty lease taxable? No, when the lessor had paid tax on it.

Was the entire-business purchase taxable? No. It was treated as an occasional sale.

Was the later business lease taxable? No, under the stated integrated-lease facts.

Citations and references

• The letter cited no numbered statute or Comptroller 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/8611L0786F09

Original ruling text

November 26, 1986

Dear ***:

Thank you for your recent letter which is restated with response below.

Situation: Please consider this letter a formal request for a ruling on
the taxability of monthly lease payments with respect to the following two
scenarios:

1. Monthly lease payments in consideration of the use of real estate
   (i.e., land rentals); and

Response: Charges for the rental of real property are not taxable. If
the rental of realty includes tangible personal property, on which the lessor
paid tax at the time of purchase, and is conveyed to the lessee along with the
realty for lump-sum fee, the lease payments are not taxable.

Situation: Monthly lease payments in consideration of the use of a going
business which would include the use of property, plant and equipment. In
this Situation we would purchase the entire business (land, buildings and
fixtures) and then enter into a lease arrangement with a third party to operate
and manage the assets leased. Of course, the operator (lessee) would remit
sales taxes on all taxable revenues generated. The ruling we request pertains
only to the taxability of the monthly lease of property, plant and equipment as
a going business.

Response: The purchase of the entire operating asses of a business is
exempt from sales tax as an occasional sale. Our Policy Committee has
determined that the subsequent rental of the business would be exempt as
lease of real property and incidental tangible personal property.

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

Please feel free to contact us if you have additional questions. You may
write us, call toll free 1-800-252-5555 from anywhere in Texas or phone
512/463-4600.

Sincerely,

Tax Policy Section
Tax Administration Division