Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 150.0386

150.0386 Lease of Land and Buildings. A is the lessee of land and building and operates a bowling alley at the site. A purchased the business from B, the previous lessee of the site. The purchase included the liquor license, fixed assets, inventory, bowling lanes and equipment, office and bar furniture and equipment, stock in trade including resale merchandise and leasehold interest, etc. Pursuant to the lease agreement with the lessor C, B covenanted that "the fixtures, furniture, and equipment listed above shall remain on the premises during the entire period covered by the present lease and its extensions, and that, as and when, any of the fixtures and equipment installed in or upon the demised premises shall become obsolete, lessee shall replace the same . . . ." B claims that it did not have the present right to remove the fixtures at the time of their sale since it was obligated to maintain them on the site pursuant to the lease.

It is clear that the owner of the real property, C, regarded B as the owner of the fixtures and equipment. The fact that B has agreed to keep the property in place during the term of the lease does not negate a conclusion that B had the present right to remove the items within the meaning of Regulation 1596. The lessor's "interest" in the property arose not from the law concerning accession to real property but from B's contractual undertaking to have the items in place during the term of the lease. Under the lease agreement, B has undertaken to keep on the premises office furniture and equipment and other items in no way affixed to the real property. Clearly the sale of these items was subject to tax despite the undertaking of B not to remove them from the premises. This conclusion should not differ with respect to items which may have been affixed to the realty when the items constituted trade fixtures and were treated by the lessor and the lessee as property belonging to, and alienable by, the lessee. 8/20/76.