Leased Equipment Used by Contractors See Audit Procedures for Manufacturers, Repairmen and Contractors for treatment of leases used on contracts for new construction, repair and remodeling. When the ownership or management of both the real property and the TPP are the same, the lease of the TPP is not taxable. Tax must be paid on the TPP when acquired. When the ownership or management of the real property and the TPP are not the same, then the lease of the TPP is taxable. On the sale of leased property to the lessee, the lessor may allow credit against the sales price for all or part of the lease payments made by the lessee.
Tax is due on the balance of the sales price.
When the lessor sells the leased property to a third party, tax is due on the total sales price of the property to the third party. The lessee is not entitled to a tax refund on any credit for a part of the sales price to the third party allowed by the lessor. The lessor may factor or assign to a third party the lessor's right to receive all lease payments. Tax is due from lessor on all remaining lease payments not yet reported with no reduction in tax allowed for transfer at a discount. If the lease, property, or payments are pledged as security or collateral for a note or other written debt instrument payable to the assignee then tax is due based on lessor's normal handling of the operating or financing lease.