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BTLG Table of Contents > Sales and Use Tax Annotations > L > 330.0000 Leases Of Tangible Personal Property—In General > Annotation 330.5200

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

Annotation 330.5200

(e) Sales and Leaseback Transactions

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330.5200 Sale and Leaseback—Arms Length Transactions. Tax evasion occurs when taxpayer, a corporation and the manufacturer of mechanical equipment, sells the equipment at cost to the sole owner of the corporation who pays sales tax on the equipment and leases it back to the corporation ex-tax. The corporation then rents the equipment without collecting a use tax. Although such a transaction might be proper if there was true separation of the identities of the parties, the sale and leaseback transaction is not at arms length and the sale at cost, rather than at fair market value, indicates an attempt to evade the use tax the manufacturer would be required to collect if he rented the equipment himself. 8/14/69.