Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 330.5260


330.5260 Sale and Leaseback Prior to Functional Use. Company A, engaged in financing activities, entered into a master lease agreement with company B, which contemplated execution of subsequent separate lease schedules for leases to B. For the first two lease schedules, A purchased the equipment directly from vendors and then leased it to B. However, when B desired to obtain certain equipment sold by a specific manufacturer, B purchased the equipment and paid sales tax reimbursement to the manufacturer. Prior to any functional use, B sold the equipment to A and leased it back under a third lease schedule.

Because of the way the transaction was structured, the third lease schedule, which included terms of the master lease, was a separate contractual agreement from the first two lease schedules. Regardless of the terms of the lease, the transaction between B and the manufacturer was clearly a sale from the manufacturer to B without regard to the manner in which A and B had originally contemplated that the equipment would be acquired. Since B made no functional use of the equipment before selling it to A, the purchase by B will be regarded as a purchase for resale to A. B may take a tax-paid purchase resold deduction with respect to the sales tax paid to the manufacturer. 11/27/89.