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Business Taxes Law Guide—Revision 2024
Sales and Use Tax Annotations
A B C D E F G H I J L M N O P R S T U V W X
L
330.0000 Leases of Tangible Personal Property—In General—Regulation 1660
Annotation 330.3169
(a) In General
330.3169 Alternating Proprietors Arrangement Leases. A question arose regarding the application of tax to leases of tangible personal property by alternating proprietorship wineries and breweries. When a winery or brewer is operating pursuant to an Alcohol and Tobacco Tax and Trade Bureau ("TTB") approved Alternating Proprietor Agreement, then, pursuant to that agreement, the winery or brewer is leasing the equipment from the host facility. How does a lessor establish that the tax liability is properly reported based on the fair rental value?
In order for a winery to qualify as an alternating proprietor arrangement, the arrangement must be formally approved by the TTB through an application and approval process. Likewise, the TTB must approve the brewers' qualifying documents and any necessary applications for alternate methods or procedures from existing regulatory requirements in order to establish the alternating arrangement. These requirements are discussed in detail in TTB industry circulars. Industry Circular Number 2008-4, dated August 18, 2008, explains and addresses Alternating Proprietors at Bonded Wine Premises, and it was issued to wine premises proprietors and other concerned parties. Industry Circular Number 2005-2, dated August 12, 2005, explains and addresses Alternating Proprietors at Brewery Premises, and it was addressed to brewers and others concerned.
When the lessor is using property that has been purchased solely and strictly for the purpose of leasing, and:
1. the lessor makes no other use of that property,
2. the property is ultimately leased in substantially the same form as acquired,
3. and the lessor has not paid tax or tax reimbursement at the time property is acquired nor has the lessor paid tax timely with the return for the period during which the property is first placed in rental service, then the lease of that property is subject to use tax for the use of that property in this state. In general, as explained above, that means that the tax is measured by rentals payable.
When a lessor is leasing equipment to tenants and the lessor elects to report use tax on the fair rental value, the lessor should be able to establish the following:
1. The lessor has made no use of the equipment other than leasing it;
2. There must be an approved Alternating Proprietor Agreement by the TTB;
3. The charge for the lease of the equipment must be representative of the use of the equipment. The charges must equate to the diminution of the life of the equipment and accounts for the following:
a. Cost
b. Useful life, and
c. Profit;
4. The tenant must direct the contract staff in the operating of any equipment as described in the Industry Circulars; and
5. The use tax must be separately stated on the invoice.
Accordingly, as detailed above, when a winery or brewer is operating pursuant to a TTB approved Alternating Proprietor Agreement, then, pursuant to that agreement, the winery or brewer is leasing the equipment from the host facility. In the event the host elects to collect tax on the rental receipts, then, as required by statute, the host must separately state the amount of use tax to the winery or brewer and the charge for the lease of the equipment must be representative of the use of the equipment. (7/20/15)