Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2014
Sales and Use Tax Annotations
335.0000 LEASES OF MOBILE TRANSPORTATION EQUIPMENT— Regulation 1661
335.0044.175 Lease of Vessel. A lessee is in the business of acquiring, repairing, and selling boats. The lessee obtained a lease with an option to buy (after a two year period) on a 1976 model, 51 foot sailboat. Since the lessee was planning to exercise the option after the two-year period and resell the boat, he did not pay tax on any of the lease payments. The lessee then decided not to exercise the option. For consideration of $55,630, the taxpayer agreed to have his lease with the lessor canceled so that another party may lease the boat with an option to buy at the end of the two years.
Since the sailboat measures 51 feet in length, it is included in the definition of Mobile Transportation Equipment (MTE). Based on the facts presented, the lessor did not make a timely election to pay tax measured by fair rental value; therefore, the lessor owes sales tax reimbursement or use tax on the purchase price of the MTE unless the lessor has already paid tax reimbursement or use tax. Since the lease of the MTE is not a sale or a use by him for purposes of the Sales and Use Tax Law, the lessee of this MTE is not liable for the tax on the rentals he paid. 4/30/96.