Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 330.3448


330.3448 Maintenance Contract. A lessor leases computer equipment. Excerpts from the agreement for the lease of computer equipment between the lessor and customer (lessee) states that:

(1) Customer shall enter into and maintain in force a standard maintenance agreement (with the manufacturer of the computer) covering at least prime shift maintenance of the machines. Customer will cause the manufacturer to keep the machines in good working order in accordance with the provisions of such maintenance agreement and to make all necessary adjustments and repairs to the machines, and customer shall allow the manufacturer access to the machines for such purposes. The manufacturer is hereby authorized to accept the directions of customers with respect to such maintenance adjustments and repairs.

(2) Charges for the manufacturer's maintenance agreement and all other maintenance and service charges, including installation and dismantling, shall be borne by customer, and customer agrees promptly to reimburse the lessor for any amount thereof paid by the lessor.

In the above lease agreement, the lessor does not designate the lessee as its agent in securing maintenance service and the customer is not reimbursing the lessor for the lessor's cost under the maintenance agreement if payments for the maintenance agreement are made by the lessor. There is no master agreement between the lessor and the maintenance company under which the lessor agreed to require its lessees to secure maintenance contracts with that maintenance company.

Based on the above, the charges for the maintenance service are not included in taxable rental receipts whether or not these charges are paid directly to the maintenance company by the lessor or the customer. The determining factor, based on the above conditions, is that the obligation to secure maintenance service is the obligation of the lessee. 3/12/71.