DAR File No. 27820

Tax Commission, Auditing

R865-19S-32

Leases and Rentals Pursuant to Utah Code Ann. Section 59-12-103

NOTICE OF PROPOSED RULE

DAR File No.: 27820
Filed: 04/15/2005, 01:29
Received by: NL

RULE ANALYSIS

Purpose of the rule or reason for the change:

The conditional lease option is removed because S.B. 147 (2003) and S.B. 127 (2005) codify that option. (DAR NOTE: S.B. 147 is found at UT L 2003 Ch 312, and was effective 07/01/2004. S.B. 127 is found at UT L 2005 Ch 158, and will be effective 07/01/2005.)

Summary of the rule or change:

The proposed amendment removes language that allowed a lease to be treated as a conditional sale because that language has been codified by S.B. 147 (2003) and S.B. 127 (2005).

State statutory or constitutional authorization for this rule:

Section 59-12-103

Anticipated cost or savings to:

the state budget:

None--Any fiscal impacts were taken into account by S.B. 147 (2003) and S.B. 127 (2005).

local governments:

None--Any fiscal impacts were taken into account by S.B. 147 (2003) and S.B. 127 (2005).

other persons:

None--Any fiscal impacts were taken into account by S.B. 147 (2003) and S.B. 127 (2005).

Compliance costs for affected persons:

None--The codified language from the bills is substantially similar to the removed rule language.

Comments by the department head on the fiscal impact the rule may have on businesses:

None--There are no changes in the treatment of leases with the removal of this language. Pam Hendrickson, Commission Chair

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Direct questions regarding this rule to:

Sheri McFall at the above address, by phone at 801-297-3901, by FAX at 801-297-3919, or by Internet E-mail at sherimcfall@utah.gov

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

06/01/2005

This rule may become effective on:

06/02/2005

Authorized by:

Pam Hendrickson, Commissioner

RULE TEXT

R865. Tax Commission, Auditing.

R865-19S. Sales and Use Tax.

R865-19S-32. Leases and Rentals Pursuant to Utah Code Ann. Section 59-12-103.

A. The lessor shall compute sales or use tax on all amounts received or charged in connection with a lease or rental.

B. When a lessee has the right to possession, operation, or use of tangible personal property, the tax applies to the amount paid pursuant to the lease agreement, regardless of the duration of the agreement.[ The tax applies when situs of the property is in Utah or if the lessee takes possession in Utah. However, if the leased property is used exclusively outside Utah and an affidavit is furnished to the lessor to this effect, the tax does not apply. Examples of taxable leases include neon signs and custom made signs on the premises of the lessee, automobiles, and construction equipment leased for use in Utah.]

C. Lessors of tangible personal property shall furnish an exemption certificate when purchasing tangible personal property subject to the sales or use tax on rental receipts. Costs of repairs and renovations to tangible personal property are exempt if paid for by the lessor since it is assumed that those costs are recovered by the lessor in his rental receipts.

D. Persons who furnish an operator with the rental equipment and charge for the use of the equipment and personnel are regarded as the consumers of the property leased or rented. An example of this type of rental is the furnishing of a crane and its operating personnel to a building erector. Sales or use tax then applies to the purchase of the equipment by the lessor rather than to the rental revenue.

E. Rentals to be applied on a future sale or purchase are subject to sales or use tax.[

F. A lessee may, at its option, treat a conditional sale lease as either a sale or lease for sales or use tax purposes.

A conditional sale lease is a lease in which:

1. the consideration the lessee is to pay the lessor for the right to possession and use of the property is an obligation for the term of the lease not subject to termination by the lessee, and

2. the total consideration to be paid by the lessee is fixed at the time the lease is executed and cannot be modified by use, condition, or market value, and either:

a. the lessee is bound to become the owner of the property; or

b. the lessee has an option to become the owner of the property for no additional consideration or nominal additional consideration upon compliance with the lease agreement. Nominal consideration in this sense means ten percent or less of the original lease amount.

G. If the lessee treats a conditional sale lease as a sale, and if the lessor is also the vendor of the property, the sales price for sales tax purposes must be at least equal to the average sales price of similar property.

H. If the lessee treats a conditional sale lease as a sale, the sales tax must be collected by the lessor on the full purchase price of the property at the time of the purchase.]

KEY: charities, tax exemptions, religious activities, sales tax

[December 21, 2004]2005

Notice of Continuation April 5, 2002

59-12-103

ADDITIONAL INFORMATION

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For questions regarding the content or application of this rule, please contact Sheri McFall at the above address, by phone at 801-297-3901, by FAX at 801-297-3919, or by Internet E-mail at sherimcfall@utah.gov

For questions about the rulemaking process, please contact the Division of Administrative Rules (801-538-3764). Please Note: The Division of Administrative Rules is NOT able to answer questions about the content or application of these administrative rules.