Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2013

Sales and Use Tax Annotations

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Annotation 335.0690

335.0690 Fair Rental Value—Lump-Sum Payments. A lessor of mobile transportation equipment has elected fair rental value as the measure of tax. It is expected that over the whole term of the lease, the fair rental value would be equivalent to the actual payments by the lessee for the use of property. The Board has not administered any strict rule that the amounts reported as fair rental value during the lease must vary precisely according to amounts paid by the lessee from time to time during the lease.

A capital reduction is a lump-sum payment by a lessee during the term of the lease which will have the effect of reducing the individual amounts of the further rental payments due over the remaining term of the lease. The amounts attributable to capital reduction could be spread over the remaining term of the (fair rental value) lease. In any event, the fair rental value would be equivalent to actual payments made by the lessee.

Deficiency payments which occur because of the decline in value through use of the vehicle (rather than a decline in value through catastrophic loss) would be a reflection of fair rental value of the equipment under that lease. But the deficiency payable at the end of the lease could not be redistributed over the prior term and so would result in a fair rental value adjustment upon termination and that adjustment must be included in the amount upon which tax is computed.

The concept of rental receipts applicable under sections 6011 and 6012 focuses on the actual payments made and billed as the measure of the tax due at the time payments are determined. That concept does not apply to fair rental value. Therefore, where the lessor experiences unusual high or low payments by the lessee, the lessor measuring use tax liability by the fair rental value may report the tax based upon payments when made or may redistribute excess or deficiency over the term of the lease as a method of reporting fair rental value. 12/19/80.