Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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495.0000 SALE

Annotation 495.0707


495.0707 Agency by Ratification. A firm purchased equipment over a period of time in its own name and entered into contracts to lease the equipment from a third party. The firm maintains that it purchased the equipment as the agent of the lessor and thus, there was no use of the equipment by it followed by a sale and leaseback from the lessor. Rather, it maintains that the initial acquisition of the equipment was a purchase by the lessor with the firm acting as the agent.

Prior to entering into the first lease contract, the firm had no known relationship with the lessor. Since there was no known relationship, the firm could not have acted as an agent on any purchases prior to the first lease. It purchased property in its own name and without an existing relationship there could not have been a ratification by the lessor that the firm was acting as an agent.

With respect to purchases after the first lease contract, it was clear that the firm intended to act as the lessor's agent. Evidence of an agency was established by the fact that (1) the firm recorded the purchases in a special suspense account rather than its regular balance sheet, (2) it did not depreciate the equipment or claim any other benefits of ownership, and (3) it paid rent to the lessor from the date of installation of the equipment even if such installation preceded execution of the lease agreement for that particular piece of equipment. Thus, the subsequent ratification of the agency by the lessor is recognized. 5/25/93.