Iowa Administrative Code › Agency 701 - Revenue Department › Title I - Administration › Chapter 18 - Taxable and Exempt Sales Determined by Method of Transaction or Usage › Rule 701-18.36 - True Leases and Purchases of Tangible Personal Property by Lessors

Current through Register Vol. 47, No. 3, July 24, 2024
(1)
True
				leases and purchases by lessors prior to, on, and subsequent to July 1,
				1978.
The definition of a sale specified in Iowa Code subsection
				422.42(2) does not include leases. Hence, the exemption from tax on sales for
				resale is inapplicable to the purchase of tangible personal property for the
				purpose of leasing such property to others, but not for the purpose of
				reselling such property.
Cedar Valley Leasing, Inc. v. Iowa Department
				of Revenue,
274 N.W.2d 357 (Iowa 1979). However, even though the
				general rule is that the acquisition cost of tangible personal property
				purchased for the purpose of leasing it to others is subject to the Iowa sales
				or use tax, certain transactions are exempted from tax by statute. See subrule
				18.36(4).
(2)
General.
Prior to July I, 1984, tax is due on the lease or
				rental payments derived from the service of equipment rental only and not from
				the lease or rental of other tangible personal property. See 701-subrule
				26.18(1). Tax would also be due on the gross receipts received on the disposal
				of the tangible personal property provided no exemption exists. When property
				is purchased for the purpose of financing under a conditional sales contract,
				the property is purchased for resale, and the acquisition of the property is
				not subject to Iowa tax. See rule
				701-1647.
				(422,423).
The gross receipts from the leasing of property for
				  subletting purposes is exempt from tax as a resale of a service, but the lessee
				  must collect tax on the gross receipts from subletting unless such subletting
				  is otherwise exempt from tax.
a. Where
				a resident or nonresident lessor leases equipment to a resident or nonresident
				lessee and the lease contract is executed in Iowa and the equipment is
				delivered to the lessee in Iowa, the rental payments are subject to Iowa sales
				tax, even if the equipment is taken by the lessee to another
				state.
Williams Rentals, Inc. v Tidwell,
516 S.W.2d 614 (Tenn.
				1974).
b. Where a nonresident
				lessor leases equipment to a resident or nonresident lessee and the lessee uses
				the equipment in Iowa, the nonresident lessor has the responsibility of
				collecting Iowa use tax on the lease payments, provided the lessor maintains a
				place of business in Iowa as provided in Iowa Code sections
				4231(6). and
				4239..
				Whether the lease agreement is executed in Iowa or not is
				irrelevant.
State Tax commission v. General Trading Co.,
322
				U.S. 335, 64 S.Ct. 1028,88 L.Ed 1309, (1944).
c. Where a lessee is the recipient of
				equipment rental services as defined in
"a"
and
"b
				"
above and no tax has been collected from such lessee by the lessor,
				the lessee should remit Iowa use tax to the department of revenue. In the event
				no tax is remitted, the department, in its discretion, may seek to collect the
				tax from the lessor or lessee. In the event that the lessee is the recipient of
				equipment rental services, and the lessor does not maintain a place of business
				in Iowa and does not collect use tax pursuant to Iowa Code section
				42310.,
				such lessee shall remit tax on its rental payments to the department.
d. Where a resident lessor leases equipment
				to a nonresident lessee outside of Iowa, and the equipment is delivered to the
				lessee outside Iowa, the act of leasing is exempt from the Iowa sales tax on
				the rental payments. However, in the event the lessee brings the equipment into
				Iowa and uses it in Iowa, Iowa use tax applies to rental payments, but
				see
"g "
below.
e.
				Where a resident or nonresident lessor purchases tangible personal property in
				Iowa for subsequent lease in or out of Iowa and takes delivery of the equipment
				in Iowa, the lessor's purchase is subject to Iowa sales tax.
Dodgen
				Industries, Inc. v. Iowa State Tax commission,
160 N.W.2d 289 (Iowa
				1968).
f. When a resident or
				nonresident lessor purchases tangible personal property outside of Iowa for the
				purpose of leasing it in Iowa and the equipment is brought into Iowa and used
				by the resident or nonresident lessee in this state, the lessor is considered
				as having a "use" of the property in Iowa and Iowa use tax will apply to the
				lessor's purchase price of the property, regardless whether or not the lessor
				makes any physical use of the property in Iowa.
Union Oil company of
				California v. State Board of Equalization,
1963, 34 Cal. Rpts. 872,
				386 P.2d 496.
g. If a sales or use
				tax has already been paid to another state on the purchase price of equipment
				prior to the use of that equipment in Iowa, a tax credit against the Iowa use
				tax on the purchase price will be given. After the equipment is brought into
				Iowa, if a sales or use tax is properly payable and is paid to another state on
				the rental payments of equipment, for the same time the Iowa tax is imposed on
				such rentals, a tax credit against the Iowa use tax on such rental payments
				will be given.
Henneford v. Silas Mason Co.,
1937, U.S.577, 57
				S.Ct. 524, SI L.Ed. 814.