Sales Tax and Leasing Transactions: Are You Missing Something?
- What type of lease is it? Is it a "true" lease?
- Are you leasing equipment with an operator? If so, is it a service or lease of property?
- Where is the leased property located?
- Do any exemptions or exclusions apply?
- When is the sales tax due? Upfront or over the term of the lease?
- What state is the tax due to?
- What is included in the tax base?
- What is the tax rate?
- Are the parties (lessor and lessee) related?
- Is this a "sale/leaseback" transaction?
- What happens if the lessor "assigns" the lease to another party?
- How are lease "syndication transactions" handled? Who is responsible for the sales tax?
Some common audit issues are:
- Record retention - contracts for entire lease term
- Sampling periods - statistical sampling vs. actual basis
- Tax Rate changes - may not be "grandfathered" to existing lease contracts
- Exemption certificates - from lessee; not on file, or acceptance of "good faith" exemption may be questioned.
- Exemption claimed may not apply to leased property
- Tax may be imposed on lessor; making the exemption certificate "not applicable"
- Tax base issues (what charges are included?)
- Sale of equipment coming off lease (may be taxable)
- Claiming deduction for bad debts (may not be allowed)
- Auditors may not care who pays sales tax (lessor or lessee)
- Assignment of leases (transfer of title or assignment of rental stream?)
- Leased property may create nexus for lessor
- Use of property by lessor prior to leasing to lessee (may create use tax liability for lessor)
This is just a brief overview of the potential sales tax issues surrounding leasing transactions.
Please contact me at firstname.lastname@example.org  to review the sales taxation of your leasing transactions.