W. Va. Code R. § 110-15-129

Current through Register Vol. XLI, No. 21, May 23, 2024

Section 110-15-129 - Leases of Tangible Personal Property

129.1. In General. - The consumers sales and service and use tax laws apply to leases of tangible personal property. A lessor of tangible personal property who engages in this State in selling or leasing tangible personal property is required to collect consumers sales and service tax with respect to such leases when the lessee takes delivery of the leased property in this State. A lessee is required to pay use tax with respect to the use in this State of leased tangible personal property unless the lessee has paid West Virginia consumers sales and service tax with respect to the transaction. A lessor who is a "retailer engaging in business in this State," as defined in Section 2 of these regulations, is required to collect and remit West Virginia use taxes with respect to tangible personal property leased for use in this State. A lessee who pays to the lessor of the tangible personal property either the amount of West Virginia consumers sales and service tax due or the amount of West Virginia use tax due has no further liability for payment of the tax directly to the Tax Commissioner. Exemptions from payment of tax allowed by law with respect to certain sales of tangible personal property equally apply to leases of tangible personal property and the methods of claiming exemption from payment of tax are the same. See Section 9 (exemptions) of these regulations. Additionally, long term leases of motor vehicles are exempt. See Section 9.2.10 of these regulations. A lessee of tangible personal property used in this State is allowed credit against his West Virginia use tax liability for payment of consumers sales and service taxes lawfully imposed by another state on lease payments attributable to the period of time the lessee uses the leased property in this State. The measure of tax is the amount of the periodic lease payments.

129.2. Certain terms used in this section have the following meanings for purposes of application of this regulation:

129.2.1. Financing Lease. - The term "financing lease" means:

129.2.1.1. A lease contract which contains at the inception of the contract a provision or condition that (1) title to the leased property must be transferred to the lessee at the end of the lease, or (2) the lessee has an option to purchase the leased property at a nominal price.

129.2.1.2. A lease contract containing either of the following provisions or conditions at the inception of the contract is presumed to be a financing lease:

129.2.1.2.a. The primary lease term is equal to seventy-five percent (75%) or more of the estimated economic life of the property (determined at the time the primary term of the lease begins) and makes no provision for the return of the property to the lessor. For used property, this provision does not apply if the beginning of the lease term falls within the last twenty-five percent (25%) of the total estimated economic life of the leased property, or

129.2.1.2.b. The residual value of the leased property is less than ten percent (10%) of the property's fair market value at the inception of the lease and the contract makes no provision for the return of the property to the lessor.

129.2.1.3. The presumption that the contract is a financing lease may be rebutted by showing that the contract is not merely a security device, that the property will be usable for its intended purpose at the end of the primary lease term, that the lessor in good faith intends to reclaim possession of the property at the end of the lease term or to sell or re-lease it at that time for its fair rent or fair market value, and that the lease was not treated by the lessor as a sale of tangible personal property or by the lessee as the acquisition of a capital asset.

129.2.2. Lease. - The term "lease" means a transaction in which possession but not title to tangible personal property is transferred for a consideration. The term "lease" includes a rental, hire or license. Likewise, "lessor" includes a rentor, hiror or licensor; and "lessee" includes a rentee, hiree or licensee. For the purpose of these regulations, a lease must be made for bona fide consideration with lease payments approximating fair market lease payments at the time the lease contract is entered into.

129.2.3. Nominal Price. - The term "nominal price" means consideration for obtaining technical title to leased property which is significantly less than the fair market value of the tangible personal property at the time the consideration is paid or the option to purchase is exercised, whichever occurs first.

129.2.4. Operating Lease. - The term "operating lease" means a lease contract which gives the lessee use of the leased property for a certain period, while the lessor retains all or substantially all of the risk and rewards of ownership. For purposes of the consumers sales and use taxes, a contract in the legal form of a lease will be treated as an operating lease unless it meets the definition of a financing lease.

129.2.5. Tangible Personal Property. - The term "tangible personal property" means property which may be seen, weighted, measured, felt or touched, or is in any other manner perceptible to the senses. "Tangible personal property" includes, but is not limited to, motor vehicles, machinery, equipment, movies, whether they be on reel, cassette, disk or other medium, computer software, whether it be off-the-shelf software or custom designed software, music whether it be sheet music or music on records, tapes, disks or other medium, and any other tangible goods, wares or merchandise.

129.3. Treatment of Leases.

129.3.1. An operating lease will be treated as a lease for purposes of the consumers sales and use taxes.

129.3.2. A financing lease will be treated as a sale for purposes of the consumers sales and use taxes.

129.3.3. Operating and financing leases are subject to consumers sales and use taxes.

129.3.4. The lessor of tangible personal property may purchase the property provided under the terms of a lease without paying tax on its purchase price by issuing a resale certificate to the seller of the property in lieu of paying the consumers sales or use tax. Tax must be collected from the lessee on all charges contained in the lease which are subject to the consumers sales and use taxes.

129.4. Service Contracts. - The charges for services provided under a service contract relating to leased tangible personal property are subject to consumers sales and use taxes.

129.5. Equipment Leased With and Without an Operator.

129.5.1. Receipts from the lease of equipment without an operator are taxable as lease or sale of tangible personal property.

129.5.2. The furnishing of equipment with an operator for which a single charge is made to the customer is presumed to be the providing of a taxable service, even when the charge is to a customer engaged in contracting or subcontracting activity. Itemization of the charges does not change the taxability of this transaction.

129.5.2.1. Contractors renting equipment (with or without operator) for use in their contracting activity must pay consumers sales or use taxes on the entire charge for the transaction regardless of whether the charge for the equipment and the charge for the operator are separately stated or are combined in a lump sum.

129.5.2.1.a. A lease of equipment and an operator to a contractor for use in providing tax exempt contracting services will be treated as a tax exempt subcontract only when the contractor can exercise no control (beyond specification of desired results or work to be accomplished) or supervision over the equipment and the operator thereof. In such a case the denominated lessor is viewed as a subcontractor providing equipment and labor in fulfillment of a contract with a prime contractor.

129.5.2.2. Providers of taxable services who rent equipment (with or without an operator) must pay consumers sales or use taxes on the entire charge for the transaction regardless of whether the charge for the equipment and the charge for the operator are separately stated or are combined in a lump sum. Allowable exemptions from tax must be asserted as provided in Section 9 (exemptions) of these regulations.

129.5.2.2.a. A lease of equipment and an operator to a provider of taxable services will be treated as a tax exempt subcontract for taxable services only when the person providing the taxable service to the customer can exercise no control or supervision over the equipment and the operator thereof.

129.6. Other Charges In a Lease Agreement. - Operating as well as financing lease agreements may contain a variety of charges in addition to the basic lease payment. These charges and their tax consequences are as follows:

129.6.1. Separately stated charges for labor or services rendered in remodeling, maintaining, or repairing the tangible personal property being leased are subject to tax.

129.6.2. Separately stated charges for labor or services rendered in installing or applying the tangible personal property being leased are subject to tax.

129.6.3. Separately stated charges by the lessor for transportation of the leased property from the lessor to the lessee and back which are included in the lease price are taxable. Charges for transportation of property from a supplier to the lessor which are included in the lease price are taxable. Separately stated charges for transportation of the property from the supplier directly to the lessee or from the lessor to the lessee are taxable unless an exemption otherwise provided by law is applicable.

129.6.4. A charge imposed for early termination of the lease is included in the lease price and is taxable.

129.6.5. Under an operating lease, any interest charges properly included in the cost of property to the lessor, or in overhead costs of the lessor and passed on or reflected in the ultimate lease payment paid by the lessee are taxable whether or not separately stated. Interest charges clearly imposed for late payments or other defaults of the lessee under the lease are not taxable.

129.6.6. Under a financing lease, charges for interest by the lessor to the lessee will be taxable unless the rate of interest or the actual interest charged is separately stated in the contract to the customer.

129.7. Imposition of Tax; Returns; Credits.

129.7.1. Operating Leases. - An operating lease executed while the property is within this state is subject to consumers sales and service tax. Tax is due on the total lease amount for the entire term of the lease regardless of where the property is used unless as a condition for the lease the lessor delivers the property to an out-of-state location for use there. Any renewal of the contract, extensions or options exercised while the lessee uses the property outside this State will not be subject to consumers sales and use taxes unless the property reenters this State.

129.7.2. Financing Leases. - A financing lease executed while the property is within this State is subject to consumers sales and service tax unless the lessor deliverers the property to an out-of-state destination for use there. Consumers sales and service tax will be due on the total amount of the contract regardless of where the leased property received in this State is used during the lease.

129.7.3. Leases Subject to Use Tax; Credit. - Tangible personal property bought or shipped into this State for use under the terms of a financing lease or an operating lease are presumed to be subject to use tax. The use tax will be due on the lease price, for the entire term of the lease and regardless of where the initial contract was executed, determined in the same manner as if consumers sales and service tax applied to the transaction. Credit will be allowed against any sales or use tax legally imposed and paid to another state. See Section 10 of these regulations.

129.7.4. Method and time for filing returns. - A lessor required to collect consumers sales and service tax or use tax must report the tax due based upon the lessor's method of accounting. The term "method of accounting" means the method of accounting used for federal income tax purposes. If the lessor does not have a method of accounting for federal income tax purposes, then any generally recognized method of accounting which correctly reflects the lessor's business operation may be used.

129.7.4.1. Under an operating lease, tax must be reported by the lessor in the period in which the lease payments are considered income based upon the lessor's method of accounting.

129.7.4.2. Under a financing lease, tax must be collected on any payment made at the time the purchaser (lessee) takes possession of the property or on any payment made when the first payment is due from the purchaser (lessee). Tax must be reported on each lease payment and paid as provided in Section 5 of these regulations.

129.7.4.3. When the lessor is not a "retailer engaging in business in this State" as defined in Section 2 of these regulations or a foreign retailer authorized to collect use tax, the lessee must remit the use tax directly to the Tax Commissioner. Tax must be reported by the lessee based upon the method of accounting the lessee uses for federal income tax purposes. Under a financing lease, the use tax must be reported on any payment made by the lessee when the lessee takes possession of the property or on any payment made when the first payment is due, whichever is earlier and on each lease payment made thereafter.

129.8. Sales of Leased Property Under Operating Leases; Credit Allowed.

129.8.1. When the lessor sells leased property to the lessee and allows credit against the sales price for all or part of the lease payments previously made by the lessee, tax should not be collected on the amount allowed as credit provided the lessor has collected and remitted tax on the prior lease payments. The lessor must collect tax on the balance of the sales price.

129.8.2. When the lessor sells leased property to a person other than the lessee and allows the lessee credit for a part of the sales price against lease payments previously made by the lessee, tax may not be refunded on the amount allowed as credit. The lessor must also collect the tax on the sales price of the property to the third party.

129.9. Sales for Resale

129.9.1. The purchaser of tangible personal property which the purchaser intends to hold for lease may issue an exemption certificate in lieu of payment of consumers sales and service tax at the time the property is purchased under the sale for resale exemption. If the purchaser subsequently uses the property in any manner other than by leasing it, or by displaying or demonstrating it, the purchaser becomes liable at the time of such other use for use tax based on the fair rental value of the property for the period of time it is used for a nonexempt purpose. The fair market rental value is the amount that the purchaser would pay on the open market to rent the item for use. If the fair market rental value of the property cannot be ascertained, tax is due on the original purchase price of the property.

129.9.2. At any time, the lessor using the property purchased under a exemption certificate may stop paying tax on the fair market rental value of such property and instead pay tax on the original purchase price. When the lessor elects to pay tax on the purchase price, no credit is allowed for taxes previously paid on the fair market rental value of the property.

129.10. Leases of Real Property With Tangible Personal Property.

129.10.1. If a contract for the lease of real property for a lump sum amount includes the lease of tangible personal property as part of the contract, e.g. a lease of a furnished apartment, no consumers sales or use taxes are due on the portion of lump sum rental amount charged the lessee, which is attributable to the leased tangible personal property. However, the lessor may not issue an exemption certificate, and consumers sales or use taxes must be paid at the time the tangible personal property is purchased by the owner or manager of the real estate.

129.10.2. Consumers sales and service tax is due on the separate lease of tangible personal property by a person owning or managing the real property in which the tangible personal property is or will be situated. An exemption certificate may be issued in lieu of paying the consumers sales and service tax at the time the tangible personal property is purchased for purposes of leasing it to a third party.

129.11. Leases of Motor Vehicles.

129.11.1. If the rental of a motor vehicle, leased in another state and driven into West Virginia, is paid in West Virginia, the entire amount of such rental is taxable. If a credit card is used in lieu of cash payments, the West Virginia vendor honoring the credit card is liable for the collection of the tax on the rental and the remitting of it directly to the Tax Commissioner. If the rental of a motor vehicle leased in West Virginia and driven to a destination in another state is paid in such other state, such rental is exempt from West Virginia tax. However, if a motor vehicle is leased in West Virginia and the rental is paid in West Virginia, the rental is taxable even though the motor vehicle is removed from West Virginia immediately after the lessee takes possession thereof.

129.11.2. A rental car agency shall charge the consumer sales and use taxes on the total rental charge, including any charge for insurance, except for a policy issued to the customer by a licensed insurance company for which a specific charge is made.

129.11.3. Where a "collision damage waiver" fee is paid by a customer (lessee) to the lessor of a vehicle and is considered as payment for the lessor's waiver of all claims against the customer for damage to the leased vehicle and the fee is not required as a condition of the lease, the fee, when separately stated, does not constitute rent and is not taxable.

129.11.4. Where a "personal accident insurance" fee is paid by a customer (lessee) to the lessor of a vehicle, which fee covers personal injuries, and the fee is not required as a condition of the lease, the fee, when separately stated, does not constitute rent and is not taxable.

129.11.5. Parts and materials used to maintain, repair, rebuild, and recondition aircraft, boats, and motor vehicles, which are used exclusively for rental purposes are exempt when tax is charged on the rental of such vehicles. Likewise exempt when the rentals are subject to tax are polishes, lubrication oils, and greases used in their operation when purchased by the owner-lessor of the vehicles. All items above are subject to the tax when the owner-lessor of motor vehicles is not required to charge tax on the rentals of the motor vehicles.

129.11.6. The taxable gross proceeds derived from the lease or rental of a vehicle shall not include the price of fuel on which the proper tax has been paid, provided the fuel is separately stated from the rental or lease charge. If the price of the fuel is not separately stated from the rental or lease charge, it is considered to be a portion of the gross proceeds derived from the rental or lease and is fully taxable.

129.12. Third Party Lessors; Sale and Lease-Back.

129.12.1. Each purchase of tangible personal property by a person engaged in the business of renting or leasing such tangible personal property to the final user or consumer shall be exempt from consumers sales and service tax as a purchase for resale when the lessor has a West Virginia Business Registration Certificate.

129.12.2. Consumer sales and service tax shall be imposed on the total amount of each lease payment when the lessee is obligated under the contract to pay the lessor for the continued use of the tangible personal property. There is no deduction or exclusion from the lease price for insurance, taxes, service or maintenance contracts, handling charges, administration charges, late fees, repair or service charges, or any other charges regardless of how any contract, invoice or other evidence of the transaction is stated or computed or whether separately billed or segregated on the same bill.

129.12.3. When a lessee contracts with a third party lessor to purchase and lease back to the original purchaser tangible personal property after the purchaser has received the billing and paid the vendor on the initial transaction, both the original purchase by the lessee and the subsequent lease payments made by the lessee shall be taxable. No deduction, exclusions, credits or refunds for consumers sales and service tax previously paid on the original sale shall be allowed. Both transactions are treated by the Tax Commissioner as separate sales subject to the consumers sales and service tax and neither transaction qualifies for an exemption.

W. Va. Code R. § 110-15-129