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
(b) RENTAL RECEIPTS—ITEMS INCLUDED AND EXCLUDED
330.3177 Budgeted Maintenance and Control Agreement. Company A leases certain vehicles from Company B. The basic Fleet Lease Agreement requires Company A (the lessee) to maintain the vehicles. However, the majority of the vehicles being leased are under an optional maintenance "cost reporting program." In these instances, A has elected to receive monthly cost reports and, in addition to the basic monthly rental charge under the Fleet Lease Agreement, A pays a $20 maintenance reserve deposit per vehicle and a $2 per month management fee per vehicle. The $2 monthly fee represents a current and unrecoverable expense for A. The $20 monthly payment represents an asset on A's books and a liability on B's books. When it becomes necessary to repair a vehicle, the custodian issues the repairer a purchase order in B's name. The repairer bills B who, in turn, pays the bill and reduces A's deposit account by a like amount. Should the garage bill exceed the balance in the account, B will request an additional payment from A for the difference. At the expiration of the lease, any unused deposit balance will be returned to A by B. Likewise, should the deposit account reflect a negative balance, A would issue a check to B in that amount.
Neither the maintenance payments (initial, monthly, and additional) nor the management fees are subject to tax. The Maintenance Agreement is not in conflict with the Fleet Lease Agreement. A has undertaken to maintain the vehicles. A contracts for maintenance directly with the local service stations and, consequently, A is legally responsible to the servicing organizations for payment on work done. The maintenance payments and management fee paid under the Optional Maintenance Agreement are not payments made to B in reimbursement for expenses incurred by B under the Fleet Lease Agreement. Such payments do not constitute taxable lease receipts. The application of tax to charges by the repairer are governed by Regulation 1546. 7/21/77.