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
330.2792 Sale of Leased Equipment. A lessor sold leased equipment to a third party, subject to the lessee's rights under the lease, which included the lessee's purchase option right. If the lessee defaults on the lease, the original lessor will repurchase the equipment from the third party or will make the required lease payments. The original lessor argues that this is not a sale because the third party did not acquire any of the rights of ownership such as possession, right to sell or lease the equipment or risks of ownership and that the transaction was made in the form of a sale to obtain financing.
None of the arguments are valid. Pursuant to section 6006, a sale requires only passage of title or possession, not both. Although the new owner did not have the right to sell the property because of the lessee's rights, it did have the power to sell it subject to liability for damages to the lessee and the original lessor. Furthermore, a person structuring a transaction as a sale in order to derive the benefits in so calling it must accept the tax consequences which arise from so doing. 4/15/63.