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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 330.5260

(e) Sales and Leaseback Transactions

330.5260 Sale and Leaseback Prior to Functional Use. Company A, engaged in financing activities, entered into a master lease agreement with company B, which contemplated execution of subsequent separate lease schedules for leases to B. For the first two lease schedules, A purchased the equipment directly from vendors and then leased it to B. However, when B desired to obtain certain equipment sold by a specific manufacturer, B purchased the equipment and paid sales tax reimbursement to the manufacturer. Prior to any functional use, B sold the equipment to A and leased it back under a third lease schedule.

Because of the way the transaction was structured, the third lease schedule, which included terms of the master lease, was a separate contractual agreement from the first two lease schedules. Regardless of the terms of the lease, the transaction between B and the manufacturer was clearly a sale from the manufacturer to B without regard to the manner in which A and B had originally contemplated that the equipment would be acquired. Since B made no functional use of the equipment before selling it to A, the purchase by B will be regarded as a purchase for resale to A. B may take a tax-paid purchase resold deduction with respect to the sales tax paid to the manufacturer. 11/27/89.