Section 35.01.02.024 - RENTALS OR LEASES OF TANGIBLE PERSONAL PROPERTYSections 63-3612, 63-3613, 63-3616, 63-3622UU, Idaho Code
01.In General. The lease or rental of tangible personal property, including licensed motor vehicles, is a sale. (3-31-22)02.Bare Equipment Rental. A bare equipment rental, that is, a rental of equipment without operator, is a taxable sale. The owner of the equipment is a retailer with a requirement to collect and remit Idaho sales tax on each rental payment and remit the tax to the State Tax Commission just like any other retailer. The tax applies whether the equipment is rented by the hour, day, week, month, or on a mileage, or any other basis. The equipment owner who primarily rents bare equipment may buy the equipment without paying tax to the vendor by giving the vendor a resale certificate. See Rule 128 of these rules. If the equipment owner uses the equipment for his own benefit or in his own business operations, the equipment owner pays use tax based on a fair market rental value for the period during which he used his own equipment. (3-31-22)03.Fully Operated Equipment Rentals. (3-31-22)a. A fully operated equipment rental, equipment with operator, is a service rather than a retail sale of tangible personal property. No sales tax is due on a fully operated equipment rental. (3-31-22)b. A fully operated equipment rental is an agreement in which the owner or supplier of the equipment or property supplies the equipment or property along with an operator, and the property supplied is of no value to the customer without the operator. (3-31-22)c. The owner or supplier of the equipment or property used in a fully operated equipment rental is the consumer of the equipment or property, and is taxable when he buys or uses the equipment in Idaho. Special rules apply to transient equipment used for short periods in Idaho. See Rule 073 of these rules. (3-31-22)d. If the equipment or property has value to the customer without an operator, then the lease or rental of the equipment or property is a distinct transaction. It is taxable and its price must be stated separately from the price of the service provided by the operator. (3-31-22)e. Example: A crane rental company provides a mobile crane to a contractor, along with an operator. The contractor may not use the crane without the operator, so the leasing company is not required to charge sales tax on the lease of the crane. (3-31-22)f. Example: Pick-Up Industries provides a three (3) cubic yard trash container to a customer. Pick-Up also provides trash hauling service to empty the container. Since the container is used to store trash between collections, its transfer to a customer is a taxable lease. (3-31-22)04.Mixed Use of Rental Equipment. (3-31-22) a. If the equipment owner primarily rents bare equipment but sometimes supplies equipment with an operator, the equipment owner is the consumer of the equipment while it is used by the operator to perform a service contract. Accordingly, the equipment owner must pay use tax on the fair market rental value of the equipment for that period of time unless he paid tax when he bought the equipment. (3-31-22)b. If the equipment owner primarily rents fully operated equipment but sometimes rents bare equipment, he charges sales tax on the rental of the bare equipment even though tax was paid on the original purchase of the property. In this case, the owner purchased the equipment for a purpose other than the resale or re-rental of that property in the regular course of business. (3-31-22)05.Operator Required to Be Paid by Customer. In some cases, an equipment owner supplies equipment along with an operator but a contract or a state or federal law requires the customer to pay the operator. If all other indications of an employee-employer relationship, such as the right to hire and fire, immediate direction and control, etc., remain with the equipment owner, the owner is viewed as supplying a service and no sales tax applies to the service fee. However, the fact that the transaction is a fully operated equipment rental needs to be clearly stated on the face of the invoice or other billing document. The Commission may, whenever it deems appropriate, examine the facts on a case-by-case basis to determine if a true employer-employee relationship exists between the equipment owner and the operator. (3-31-22)06.Maintenance of Rental Equipment. If the owner who primarily rents bare equipment is responsible for the maintenance of the equipment, he may buy the necessary repair parts and equipment tax exempt by providing his vendor with a resale certificate. The owner who rents fully operated equipment may not buy the equipment or repair parts tax exempt. (3-31-22)07.Rentals to Exempt Entities. The rental or lease of equipment invoiced directly to an entity exempt from sales tax, such as the state of Idaho or one (1) of its political subdivisions, is not taxable. However, if the rental or lease is to an individual or organization performing a contract for, or working for an exempt entity, the rental is taxable. (3-31-22)08.Exempt Equipment Rentals. Equipment which would have been exempt from tax if purchased is also tax exempt if leased or rented. To claim this exemption, the renter provides the owner with a properly completed exemption certificate. See Rule 128 of these rules. (3-31-22)09.Rental Payments Applied to Future Sales. Rentals to be applied toward a future sale or purchase are taxable. (3-31-22)10.Personal Property Tax. A lessor may require reimbursement from the lessee for the personal property tax the lessor pays on leased equipment. A charge for personal property tax will be exempt from sales tax if the lease is for a term of one year or longer; if the property tax is billed as a separate line item; and if the charge is no more than the property tax actually paid by the lessor. (3-31-22)11.Out-of-State Rental/Lease. Rental or lease payments on equipment used outside Idaho are not subject to Idaho sales tax. Rental or lease payments on equipment used in Idaho are taxable. If the equipment is delivered in Idaho, even though it will be used outside the state, then the rental or lease payment for the first month, or other period, is subject to Idaho tax. (3-31-22)12.Lease-Purchase and Lease with Option to Purchase. (3-31-22) a. Lease-purchase agreements include transfers which are called leases by the parties but are really installment, conditional, or similar sales. Where ownership passes to the transferee at the end of the stated terms of the lease contract with no additional consideration from the transferee, or where the additional consideration does not represent the fair market value of the property, the transaction is a sale and tax on the entire sales price is collected on the date the property is delivered. (3-31-22)b. Lease with option to purchase agreements include transfers in which the personal property owner, lessor, transfers possession, dominion, control or use of the property to another for consideration over a stated term and the owner, lessor, keeps the property at the end of the term unless the lessee exercises an option to buy the property at fair market value. The owner/lessor collects sales tax from the lessee at the time each lease payment is charged. If the lessee exercises the option to buy, the lessor/owner collects sales tax from the lessee/buyer on the full remaining purchase price when the option is exercised. (3-31-22)13.Cross-References. (3-31-22) a. See Rule 025 of these rules on real property rental. (3-31-22)b. See Rule 037 of these rules on aircraft and flying services. (3-31-22)c. See Rule 038 of these rules on flying clubs. (3-31-22)d. See Rule 044 of these rules on trade-in for rental or lease property. (3-31-22)e. See Rule 049 of these rules on warranties and service agreements. (3-31-22)f. See Rule 073 of these rules on transient equipment. (3-31-22)g. See Rule 106 of these rules on motor vehicles. (3-31-22)Idaho Admin. Code r. 35.01.02.024