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Business Taxes Law Guide—Revision 2024

Sales and Use Tax Annotations


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330.0000 Leases of Tangible Personal Property—In General—Regulation 1660

Annotation 330.2460

(a) In General


330.2460 Operating and Lease Agreement. The owner of a hotel contracted with a management company, to operate the hotel under an "Operating and Lease Agreement." Under the terms of the agreement the operator/lessee was to operate the hotel subject to specific limitations, which are not generally consistent with a lessor/lessee agreement. The agreement imposed limitations on legal proceedings, concession agreements, large expenditures, employees salaries, and labor relations. In addition, there was no provision in the agreement for rent. The operator/lessee received a fee equal to a percentage of the total revenues, and the owner/lessor, was to receive the gross operating profits.

In a typical lease arrangement, the lessor receives a rental consideration consisting of a fixed amount or of a fixed amount plus a percentage of gross receipts, and the lessee is the party at risk for the profitability of the business. However, in this case, the "lessor" is not guaranteed any "rental" payments, nor does the "lessee" have any risk for the profitability of the business because its remuneration is a percentage of gross revenues. As such, the agreement is a management contract, not a lease and no tax is due on the "lease" payments related to the tangible personal property used in the hotel. 4/23/91.