Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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235.0000 FEDERAL TAXES—Regulation 1617

Annotation 235.0116

235.0116 Federal Luxury Tax—Repeal of. A federal luxury excise tax was imposed on certain sales of vehicles, boats, yachts, aircraft, jewelry and fur articles from January 1991 to December 31,1992. The tax was excluded from "gross receipts," whether imposed with respect to a sale involving transfer of title or a lease transaction which was treated as a "sale" and "purchase."

The luxury tax applied to the "first retail sale" which was defined as the first sale, for a purpose other than resale, after manufacture, production, or importation. No luxury tax was due on a sale to a lessor who leased the property under a "qualified lease" (a lease with a term of one year or more). If the lease was not treated as the first retail sale, and unless an election was made to pay the total luxury tax up front, the luxury tax was imposed on each lease payment. Where the luxury tax was imposed on rental payments, the amount of the luxury tax on each payment was excludable from the measure of tax whether the luxury tax was separately stated or included in the rental payments set forth in the lease.

Thus, a refund of the luxury tax involving sales of vehicles used in "qualified leases" will not require a refund of any sales or use tax.

In a "nonqualified lease" (a lease with a term of less than one year), the sale to the lessor was the first retail sale and the lessor was required to pay luxury tax on that sale. While the amount of the luxury tax may presumably be passed through to the lessee, it is treated for use tax purposes as any other overhead expense passed on to the lessee. In order to file a claim for refund of the luxury tax with the IRS, the lessor must either return the amount of the luxury tax collected from the lessee or certify that it was not collected from the lessee. In limited circumstances, a refund of the use tax paid (measured by the amount of the luxury tax cost reimbursement included in "rentals payable") will be required. Thus, the only sales or use tax implication would be with respect to a lease of a passenger vehicle in a nonqualifying lease where the lessor repays the amount collected for the luxury tax to the lessee. Such repayment would be treated as a prior adjustment to the lease contract. 10/21/93; 10/27/93.