January 02, 2014
Taxable sales include transfers of title or possession by rental or lease agreement.
- Definition of rental/lease: all transactions in which there is a transfer of possession of tangible personal property without a transfer of title to the property.
- Tax Reg 541.2(p)(2): an equipment rental including the services of an operator is presumed to be the sale of a service rather than a rental.
-taxpayer friendly presumption
Taxable Customers: Equipment or machinery rentals or leases are subject to tax. If, however, the equipment or machinery is driver operated and dominion and control over the driver/operator and the equipment remains with the lessor, the transaction will be viewed as the purchase of a service.
- Dominion and control: the right to direct and control use of equipment
- Factors for consideration:
- Who is responsible for costs of operation and maintenance?
- gas, insurance
- Who is paying the operator/driver’s salary?
- Who has the right to hire and fire?
- whether the purchase of a service is taxable depends upon the end result thereof.
- If a lease, an operator’s wages not taxed if separately stated on invoices.
- Tax treatment may depend on contract language.
Example: an otherwise exempt purchase of subcontractor services to install a pedestrian walkway on capital improvement project was taxed because contract labeled transaction as a rental of materials.
Tax Exempt Customers: All rentals on projects performed for tax exempt owners are subject to sales tax.
- Tax Law and Regulations only provide that purchases of materials made in the performance of a project for a tax exempt organization are exempt if they become an integral component part of the structure.
- Regulations specifically tax contractor rentals of construction machinery and equipment
- Purchase of a service, on the other hand, is exempt
Example: Lease of temporary boilers to provide heat to tax exempt building is taxable.
- boilers do not become an integral component part of structure
- the service of providing the heat is not taxable
Example: Tax Reg: Equipment rentals under dominion and control of contractor, such as cranes, bulldozers, backhoes, for use in building a structure for tax exempt organization are taxable.
Author: Brian G. Cunningham, Esq.
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