Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2013
Sales and Use Tax Annotations
330.0000 LEASES OF TANGIBLE PERSONAL PROPERTY—IN GENERAL—Regulation 1660
(a) IN GENERAL
330.2165 Early Termination. A firm contracts to lease 500 container chassis over a period of time. The contract contains an early termination clause and a purchase option clause. In order to terminate the contract early, the lessee is required to make a payment "as to all, but not less than all, of the equipment" and to return the equipment to the lessor. In order to exercise the purchase option, the lessee may purchase "all, but not less than all" the equipment at annually decreasing option prices over an 18 year period. If the lessee does not take advantage of the purchase option prior to the end of the lease term, the lessee is required to purchase all of the equipment then remaining subject to the lease for $1.00 per unit. Since the amount required to be paid to terminate the contract early is substantially less than the purchase option price, the early termination clause is considered to be bona fide. Therefore, the lease contract is not for a fixed term with title passing to the lessee upon completion of the required payments or by opting to purchase the equipment for a nominal amount, i.e., a sale under a security agreement from its inception. It is a true lease and not a conditional sales contract. 8/9/89. (Am. 2002–2).