03.06.01.28

.28 Lease of Tangible Personal Property.

A. The transfer of possession, absolutely or conditionally by any means, of tangible personal property for a consideration, by way of lease, rental, royalty agreement, or grant of a license for use, referred to in this regulation as a "lease", is included within the statutory definition of the term "sale" and is thus subject to the tax in the absence of a specific exemption or exclusion.

B. Each lease payment period is considered a separate lease, and thus a separate sale, for the purpose of determining when the tax is to be collected or paid.

C. The tax applies to the entire lease payment if property acquired by lease is within this State at any time during that lease payment period, regardless of where the lease was transacted or possession of the property taken.

D. A transaction involving the utilization of equipment with an operator supplied by the owner is a lease if control over the utilization of the equipment passes to the customer, but is not a lease if the transaction is for the performance of a specific job in a manner to be determined by the owner or his operator. In this transaction, the burden is on the parties to establish that no lease occurred. When the billing for this transaction is on a time basis, it is presumed that control passed for the time indicated and that the transaction is a lease. This presumption may be rebutted only by clear and convincing evidence, such as a written contract, that at the time the transaction was entered into each party contemplated that the agreement was for the completion of a specific job rather than for the provision of a particular piece of equipment with an operator for a particular purpose for as long as necessary. The fact that the owner issued a resale certificate to buy the equipment tax free is evidence that a subsequent transaction involving that equipment is a lease.

E. Service Charges.

(1) The tax applies to the entire lease payment if a charge for lease or rental of tangible personal property includes a charge for a service, whether the charge for service is separately stated or not, if the dominant purpose of the transaction is to obtain the tangible personal property and the service is a mandatory charge imposed by the vendor as a condition of renting the item or is incidental and is not the dominant purpose of the transaction. For example, a charge for the lease of a portable toilet that includes a mandatory charge for cleaning is subject to the tax whether the cleaning charge is separately stated or not. The dominant purpose for the lease of the toilet is to provide a specific item of tangible personal property and not to provide cleaning or servicing of the toilet. Separately stated charges for the services enumerated in §F(2) of this regulation are excluded from taxable price.

(2) The tax does not apply to a charge for a service that includes a charge for lease or rental of tangible personal property, whether the charge for the tangible personal property is separately stated or not, or whether the charge is mandatory or not, if the dominant purpose of the transaction is to obtain a service, and the provision of the tangible personal property is incidental to the service. For example, a charge for trash removal service where a trash receptacle is provided in conjunction with the service is not a taxable lease of tangible personal property. The dominant purpose of the lease is to remove trash from a premise and not to lease a trash receptacle.

F. Computation of Tax.

(1) The tax applies to the value in money of the consideration of any kind required to be paid to the lessor under the terms of the lease, except as provided in §E(2) of this regulation. Included in the taxable price are charges for required maintenance or required insurance agreements, reimbursement for registration fees, taxes, and other expenses of the owner, passed on to the lessee, and all charges for an operator of leased equipment including waiting time, overtime, guaranteed time, travel time, and holiday pay.

(2) The following charges, if separately stated and identified, are not a part of the taxable price:

(a) Installation charges;

(b) Charges for professional services;

(c) Late payment charges, but not any charges included in a timely payment even though computed in a manner similar to the computation of interest or finance charges;

(d) Delivery charges, including charges for an operator to get the item to the lessee at the beginning of the lease and to return the item to the owner at the expiration of the lease;

(e) Charges for an amount directly attributable to any personal property tax on the leased property if the lease is noncancellable except for cause and is for a period exceeding 1 year.

G. A person who buys tangible personal property for the dual purpose of leasing it to others and also for personal use, or who buys tangible personal property with the sole intention of leasing it but in fact also employs the property for personal purposes, shall pay the tax on the purchase price and shall also collect the tax on all leases. The fact that the buyer may simultaneously or subsequently offer this property for outright sale does not create an exemption for the original purchase.