North Dakota Administrative Code › Title 81 - Tax Commissioner › Article 81-04.1 - Sales and Use Taxes › Chapter 81-04.1-04 - Specific Occupations › Section 81-04.1-04-40 - Rentals and rental agencies

Current through Supplement No. 393, July, 2024
The lease or rental of tangible personal property is subject
				  to sales tax based on the periodic payments as they are made unless the
				  retailer has paid sales or use tax on its purchase of the tangible personal
				  property. Sales tax is applied based on where the lease or rental equipment
				  will be located in the state.
Examples of lease or rental transaction include:
1. A customer picks up lease or rental
				equipment for the day from a rental business. State and local sales tax will
				apply to the lease or rental charge based upon the location of the rental
				business.
2. A customer has lease
				or rental equipment delivered to the customer's location for the day. State and
				local sales tax will apply to the lease or rental charge based upon the
				location of the customer.
3. A
				customer enters into a six-month lease of equipment with lease payments due
				monthly. The customer picks up the equipment at the lessor's business location
				in the state. Because the customer first takes possession of the equipment at
				the lessor's business location, the first lease payment is subject to sales and
				local sales tax based on the lessor's business location. Sales tax on
				subsequent lease payments will be due based on the location where the equipment
				is stored or used in this state. If stored or used outside this state, the
				subsequent lease payments applying to this period of time will not be taxable.
North Dakota sales tax law continues to provide an exemption
				  from sales tax on lease or rental receipts for tangible personal property
				  purchased for lease or rental when sales or use tax had been paid to North
				  Dakota on the purchase price. To qualify for an exemption on periodic lease or
				  rental payments, the retailer leasing or renting the tangible personal property
				  shall disclose on an invoice, contract, lease agreement, or other supporting
				  sales document provided to the customer that the retailer paid sales or use tax
				  on the retailer's purchase price. Retailers that pay tax on the purchase price
				  of lease or rental property are required to collect sales tax on a payment made
				  to exercise a purchase option.
In a lease-purchase arrangement, sales tax must be charged on
				  the rentals until the option is exercised. When the option is exercised, sales
				  tax must be charged on any additional amount the purchaser must pay to complete
				  the purchase.
An agent acting for an undisclosed principal and leasing
				  tangible personal property to the public is the owner, and the rentals received
				  are subject to sales tax. Tax applies to the full rental as long as the leased
				  item is used within this state.
Persons engaged in the business of leasing or renting
				  tangible personal property other than motor vehicles are retailers and subject
				  to sales tax. Purchases by rental agencies of items to be leased or rented are
				  purchases for resale and are not subject to sales tax. A certificate of resale
				  must be presented to the seller for these purchases.
The term "sale" does not include sales or rentals of motor
				  vehicles licensed by the director of the North Dakota department of
				  transportation on which the motor vehicle excise tax has been paid to North
				  Dakota.
When the sales tax rate changes during the term of an
				  existing lease, the rate of tax to be charged on the remaining lease or rental
				  payments will reflect the new rate of tax.
In a sale-leaseback arrangement, when a company purchases or
				  owns tangible personal property on which applicable sales and use taxes were
				  paid, and enters into a sale-leaseback arrangement with a financial business
				  for the sale and leaseback of the same property, no sales tax shall apply to
				  the transfer of title to the business or subsequent lease to the company. The
				  subsequent sale of the property by the financial business at the conclusion of
				  the lease is subject to sales tax. "Leaseback" means a transaction involving
				  the sale of property and the seller's simultaneous lease of the property from
				  the purchaser.
General Authority:
NDCC
					 57-39.2-19
Law Implemented:
NDCC
					 57-39.2-01,
					 57-39.2-02.1,
					 57-39.2-04,
					 57-39.2-20