Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2013
Transactions and Use Tax Annotations
800.0000 APPLICATION OF TRANSACTIONS (SALES) TAX AND USE TAX—Regulation 1823
800.0020 Lease Contracts. Lessor entered into two types of leases of tangible personal property. The first type required the lessee to pay rent for a minimum of six months. Upon termination of the lease either by lapse of time or by exercise of an option to terminate after payment of six months' rent, the property would be offered for sale, and if the original value exceeded the sales price of the property plus accumulated depreciation reserve, the lessee agreed to pay such excess to the lessor. If the sales price of the property plus the accumulated reserve exceeded the original value of the property, the lessor agreed to pay the excess to the lessee. The lease further provided that the lessee agreed to pay "all taxes now or hereafter assessed of every kind of nature by whomsoever payable on or relating to the vehicle and the ownership, leasing, purchase, sale, use, and operation thereof. Any of these amounts paid for by the lessor shall be repaid by the lessee upon demand."
The lease is not "for an amount fixed by the lease prior to the operative date of the ordinance" because the lessee agreed to pay any taxes now or hereafter assessed and thus the amount of the rental could be increased after the operative date of the ordinance. This is the same construction placed on "fixed price" in section 6376 and in Bulletin 67-12.
After six monthly lease payments were made, the lessee had the option, upon notice, to terminate the lease. The rental adjustment described above would be made upon termination of the lease either by lapse of time or by reason of the exercise of the option to terminate given to the lessee. Since this adjustment is to be made regardless of whether the lease runs its full term or is earlier terminated by the lessee, this is not a condition for termination within the meaning of sections 7261 and 7262.
The second type of lease is for a straight 24-month period. The only right to terminate is given to the lessor conditioned upon default of the lessee. However, the terms of the lease provide that the lessee agrees to pay "all taxes of every kind and by whomsoever payable (other than Federal and State income taxes) on or relating to said vehicle and the ownership, leasing, purchasing, sale, use, or operation thereof."
For the reasons discussed with respect to a similar clause in the first type of lease, the second type of lease agreement cannot be said to be for "an amount fixed by a lease prior to the operative date of the ordinance." Accordingly, the district tax applies to the rentals from such leases. 3/31/70.