Overview - Leasing

Question 1

What is a “lease”?

Answer 1

A contract by which one party (lessor) gives to another (lessee) the use and possession of TPP for a specified time and for specified amount of consideration

Question 2

True or false: There may be a transfer of title when a lease is conducted.

Answer 2

False

Question 3

When TPP gets incorporated into real property, what are 3 criteria that must be met in order for it to be considered real property instead of TPP?

Answer 3

1. It has to get annexed, incorporated, or attached to real property,
2. The annexation, incorporation, or attachment has to be intended to be permanent,
3. It can’t be easily removed without causing substantial damage to the real property.

Question 4

What are the 8 questions to ask yourself when reviewing a lease/rental transaction?

Answer 4

1. Where is the TPP located?
2. Is there a lease? (Does it meet the definition)
3. Are there any exemptions or exclusions?
4. When is tax due?
5. What is the tax base?
6. What is the state and local tax rate?

Question 5

A person engaged in leasing or renting TPP in a state is a…… for sales and
use tax purposes.

Answer 5

retailer

Question 6

True or false: An out-of-state owner or lessor of TPP is considered to be doing business in the state where the equipment is located.

Answer 6

True

Question 7

Lessors must register with the DOR to obtain what type of sales/use tax permit?

Answer 7

retail sales/use tax permit

Question 8

…… applies to the leasing or renting of TPP when the sale, storage, use or consumption of that property has not already been subject to sales or use tax.

Answer 8

Use tax

Question 9

Who’s responsible for remitting use tax on a lease or rental if the lessor does not charge sales or use tax on it?

Answer 9

The lessee

Question 10

What are the 4 components of the definition of a lease?

Answer 10

1. Transfer of use or possession
2. Specified amount of time
3. Payment of consideration
4. No transfer of title

Question 11

A transaction which results in the passage of title, or possession or both of tangible personal property from the seller to the buyer, or which results in the provision of a service by the seller for the buyer, in exchange for consideration.

Answer 11

“Sale” or “Sale at Retail”

Question 12

What are the 2 types of leases and what are the other 2 names for each of them? (both have 2 other names they can go by)

Answer 12

1. Operating lease (“Lease” or “True lease”)
2. Capital lease (“Conditional sale” or “Financing lease”)

Question 13

For a lease to be considered a true lease (operating lease), it CAN’T have a…… purchase option, but it CAN have a…… purchase option

Answer 13

nominal, FMV

Question 14

What is a “conditional sale” (capital/financing lease)?

Answer 14

A transaction where property changes hands but title (held by the seller) does not transfer until the full sales price has been paid by the purchaser.

Question 15

A….. lease allows for a transfer of title and a nominal purchase option, whereas a….. lease does not.

Answer 15

Capital, Operating

Question 16

What type of purchase options does a capital lease allow?

Answer 16

Nominal

Question 17

What is an “exclusion”?

Answer 17

A transaction that’s outside the general scope of tax statute (real estate, stocks, bonds, and most services) or an amount that’s not included in the tax measure.

Question 18

What is an “exemption”?

Answer 18

A transaction that’s within the general scope of tax statute, but is subject to special provisions that prevent it from being taxed.

Question 19

When is tax due on operating/true leases and when is it due on capital/financing leases (conditional sales)?

Answer 19

Operating: Due on lease payments/lease stream
Capital: Due at time of sale/when the lease is signed