Which parts of a master equipment lease qualified for Texas's pre-1987 prior-contract exemption, and what later changes ended that treatment?

Plain-English summary

The company used a master lease with separate equipment schedules, each carrying its own terms and expiration date. The master lease and schedules signed before January 1, 1987 qualified for the historical prior-contract exemption; schedules added after that date did not.

Assignment accelerated tax on all remaining lease payments, which CORP A had to report. A sublease or renewal was a new contract, so one occurring after January 1 did not qualify even if the original lease continued to qualify.

Purchase options were separate transactions taxed at the rate in effect when exercised. Post-cutoff equipment upgrades did not qualify. Any price change or renegotiation also created a new contract and ended the prior-contract exemption for that agreement or schedule.

What this means for you

The exemption was tested schedule by schedule and did not automatically carry into later modifications. Continuations that changed the parties, term, property, price, or transaction type could trigger tax under the then-current rules.

Common questions

Did every schedule under the master lease qualify? No. Only schedules signed before January 1, 1987.

What happened on assignment? Tax became due on all remaining lease payments, and CORP A had to report it.

Did a later renewal or sublease qualify? No. Each was a new contract.

How were purchase options treated? As separate sales taxed at the rate effective when the purchase occurred.

What ended an existing exemption? A price change or renegotiation of the agreement or schedule.

Citations and references

• No statute or rule number is cited in the ruling text.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8706L0828C06

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller June 23, 1987

Dear ***:

Thank you for your letter of May 29, 1987 concerning a prior contact
exemption for lease agreements entered into prior to January 1, 1987.

The sample contract submitted is a master lease agreement with separate
equipment schedules added-on to the master at various times. Each
equipment schedule has its own terms, conditions and expiration date.

The master lease and any equipment schedules signed prior to January 1,
1987 will qualify for the prior contract exemption. Any equipment
schedules added-on after January 1, 1987 will not qualify.

Your contracts provide for assignments of equipment schedules, renewals,
subleases, and options to purchase. Sale tax is due on all remaining
lease payments at the time a lease agreement is assigned. CORP A is
responsible for reporting the tax at that time.

A sublease is a new contract and will not qualify for the prior
contract exemption, although the original lease may continue to qualify.
A renewal is also considered a new contract and will not qualify if the
renewal occurs after January 1, 1987.

Any options to purchase are treated as separate transactions in your
sample contract. A sales transaction which occurs after January 1,
1987 will be subject to the tax rate in effect at the time of the
purchase.

Upgrades of equipment are also listed on separate schedules. Again,
any upgrade occurring after January 1, 1987 will not qualify for
exemption. Your contract states "unless otherwise agreed, the terms
except rent of any equipment schedule shall be the same as for the
leased items to which the upgrades relate".

A price change or renegotiation of any agreement or equipment schedule
will result in the loss of a prior contract exemption for that agreement.
These are considered new contracts.

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,
Julie Pesl
Tax Policy Section
Tax Administration Division