Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2017
Sales and Use Tax Annotations
330.0000 LEASES OF TANGIBLE PERSONAL PROPERTY—IN GENERAL—Regulation 1660
(a) IN GENERAL
330.3121 Lease of Instruction Material. A firm offers various instructional courses to school graduates to prepare them for future examinations and furnishes written materials to its students in connection with some of these courses. The contract provides that these materials are leased to the students for use only while taking the course and that the materials must be returned on or before a certain date. Failure to return the materials by the specified date is deemed an election to extend the lease at a specified rate per month. A 1973 contract offered students an option to lease the materials alone without purchasing any instructional services. If the student contracted to lease materials and purchase instructional services but canceled the contract after possessing the materials for five or more days, the student agreed to be liable for the "materials only" option. A 1974 contract did not offer a "materials" option but did provide that if the students canceled the contract after possessing the course materials for five days or more, the student would be liable for a specified amount as the cost of using the materials. The firm believes that the lease prices do not reflect the actual value of the course materials and believes the taxable measure should only be the cost of compiling the materials.
It is concluded that the firm is leasing the materials to its students. Even if the firm destroys the materials after they are returned, it does not alter this conclusion. In view of the contract provisions for 1973, it is also concluded that when a student canceled the contract, the measure of tax is the amount of the "materials only" option. Although the specified amount was higher for the 1974 contracts, this amount is the measure of tax for the 1974 leases. The measure of tax for a lease which is a sale is the rentals payable, not the fair market value of the leased property. The firm chose to lease the materials rather than transfer title in order to insure that the materials would be returned and destroyed. Both the 1973 and 1974 contracts specified the portion of the total charge which was attributable to the lease of materials and these contracts were entered into by the parties in arm's length transactions. For these reasons, although the agreed lease price may have been high, there is no basis for using the cost of the materials as the measure of tax. 10/27/77.