Sales Tax Articles
Sales Tax State Activity Update - January 2005
Sales Tax Due on Reimbursement of Property Tax in Kansas and Louisiana
Kansas
The Kansas Department of Revenue has issued a private letter ruling stating that tax on tax is not improper when the lessor re-bills the property tax to the lessee and charges Kansas sales tax on the property tax.
According to the letter ruling, tax on a tax is an aspect of double taxation. However, for the kind of transaction where the lessor seeks reimbursement of property tax, double taxation does not occur because the business is re-billing a tax that it owes as a line item charge rather than as a hidden overhead cost.
As a property owner, the lessor owes the personal property tax to the county treasurer. The lessor paid the personal property tax and then re-bills the tax to the lessee (your company). This payment is also supported by the master lease agreement in which the lessee (your company) undoubtedly agreed to pay any property tax that is billed to it by the lessor.
In addition, the justification is codified in K.A.R. 92-19-55a(b)(3), and it provides:
"Sales tax shall be computed on the total amount of each lease payment charged to the lessee without any allowance for insurance, damage waiver fees, property taxes, maintenance, service, repair, pickup, delivery, and other handling charges, administrative charges, late fees, fuel charges, or other charges or expenses whether paid by the lessor or lessee. Any such charges or expenses shall be considered to be part of each lease payment regardless of whether the charges are segregated on the same bill or whether separate contracts are entered into for the lease or rental of the property and for the payment of these charges or expenses. Any payment for the cancellation of the lease shall be taxable as part of the final lease payment under the lease contract."
You can view the complete ruling by clicking here.
(Kansas DOR, Ruling Number {P-2004-043}, Issued July 29, 2004)
Louisiana
The Louisiana Department of Revenue (DOR) has issued a Revenue letter ruling stating that a transaction where a lessor seeks reimbursement of personal property tax from the lessee is part of gross proceeds and subject to state sales tax.
According to the DOR, pursuant to La. Rev. Stat. Ann. ยง 47:302(B), 321(B), and 331(B), the lessor charge for reimbursement of property taxes is subject to state sales tax, if it is determined that the amount is part of the "gross proceeds" from lease or rental or part of the price "contracted or agreed to be paid" by the lessee of the equipment.
You can view the complete ruling by clicking here.
(LDR Revenue Ruling No. 04-006, September 14, 2004)
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