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

Annotation 330.4188

(d) "Substantial Change in Form"

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330.4188 Water Purification Systems. The taxpayer leases fiberglass tanks which are filled with chemically charged resin for use as water purification systems. These tanks are attached to the customer's water supply pipelines. The "leased" tank package is comprised of a shell, a boot, connectors, a head, a cap, a collector, and resin. The shell and boot are purchased pre-assembled and the remaining components, except the resin, are purchased pre-threaded. The unit is substantially completed prior to any preparation by the taxpayer. It takes approximately 10–12 minutes for a technician to install the components and fill the tank with resin.

Under these facts, the components are leased in substantially the same form as acquired. (See Annotation 330.3980 (11/1/67; 8/21/90).) Accordingly, the taxpayer may elect to pay sales tax reimbursement or use tax to its vendor when purchasing the components (except for the resin) that comprise the water purification systems. The taxpayer may also pay use tax, measured by the purchase price, directly to the Board with its timely return for the reporting period in which the property is first placed into rental service. If the taxpayer does not make this election, use tax, measured by the rentals payable, must be collected by the taxpayer from the lessee at the time the rentals are paid.

The resin, which is periodically replaced with new resin to filter out the impurities of the water, is not considered to be leased, but rather is consumed in the process of purifying the water for the taxpayer's customer. Thus, the taxpayer's purchase of the resin is for purposes of reselling this product to its customer. Accordingly, the transfers of resin by the taxpayer to its customers are not leases but sales which are subject to sales tax. 2/8/96.