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
(d) "SUBSTANTIAL CHANGE IN FORM"
330.4090 Restaurant Equipment. Management of a restaurant chain (franchiser) purchases individual items of restaurant equipment such as dishes, utensils, pots, pans, etc., on a tax-paid basis, assembles them into a working unit, namely an operating restaurant, and leases the unit as a whole to a franchise operator on a percentage lease. The question posed is that the rental receipts may be taxable on the grounds that the process of assembling the equipment into a "unit" results in such a substantial change in the form of the individual items of equipment that the equipment cannot retain its tax-paid status.
In this situation, the physical parts of the unit remain separate and distinct while retaining their original form. There is no physical addition or increase in value of each item. In fact, they could be extracted and leased separately for as much or more than their proportionate share of the total lease.
Accordingly, the equipment is being leased in substantially the same form as acquired and the lessor can retain the tax paid status. 9/5/68.