Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 330.1876


330.1876 Assignment Sale of Leased Property and Assignment for Lease. A manufacturer/lessor of tangible personal property, reporting tax on a rental receipts basis, plans on selling its lease inventory to a subsidiary. In order for the transaction to be recognized as a sale for sales and use tax purposes, the transaction must be at arm's length.

The property transferred will be sold subject to existing leases. The leases generally average six weeks in length, but can be canceled at any time by the customer. Accordingly, even if the transaction is at arm's length, since the property is sold subject to existing taxable leases, the subsidiary would not have the option to pay tax on the purchase price rather than the rentals receipts. (See Regulation 1660(c)(9)9A.) However, the subsidiary could have an election to pay tax on purchase price if the following steps were taken:

(1) The original lessor/assignor must notify the lessees that the leases will terminate at a specified time, assuming the rental agreements permit this.

(2) The lessees would have to contract with the new lessor/assignee for a new lease to commence at that same specified time.

(3) The sale of the leased property to the subsidiary occurs at the same specified time.

If these transactions do not occur simultaneously, the leased property remains subject to the existing taxable leases at the time of the sale and tax would continue to be due measured by rentals payable. 5/30/91.