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Letter Ruling

Letter Ruling Letter Ruling 80-31: Lease and Conditional Sale, Distinguished

Date: 05/22/1980
Organization: Massachusetts Department of Revenue
Referenced Sources: Massachusetts General Laws

Sales and Use Tax


May 22, 1980

You ask about the Massachusetts sales tax treatment of a transaction denominated a "lease" of equipment by the terms of the governing agreement, with ********** Corporation or its subsidiary denominated "Lessor." The leasing agreement provides that:

(1) at all times during the term of the agreement, the equipment leased shall be the sole and exclusive property of the "Lessor", with the "Lessee" having only the right to use it;

(2) payment of "Total Rent" is to be made in monthly installments;

(3) for purposes of certain depreciation and investment credit provisions of the Internal Revenue Code and for related purposes, the "Lessor" is not the "tax owner" of the equipment;

(4) upon default the "Lessor" may declare all unpaid amounts of "Total Rent" immediately due and payable, and/or repossess the equipment; and

(5) title to the equipment shall vest in the "Lessee" upon expiration of the term of the agreement, so long as the "Lessee" has satisfied all of its obligations under the agreement.

The agreement does not separately state any amount representing interest or other financing charges.

You inquire (1) whether the transaction is taxable all at once at the time of sale or as each monthly installment comes due; and (2) whether the portion of charges attributable to interest received by ********** Corporation as "Lessor" is subject to tax.

Massachusetts General Laws Chapter 64H, Section 1(12)(a) defines "sale" and "selling" as any transfer of title or possession, or both, of tangible personal property for a consideration, conditional or otherwise, including lease and rental. Chapter 64H, Section 1(14) defines "sales price" as the total amount paid by a purchaser to a vendor as consideration for a retail sale, valued in money or otherwise, and declares that any amount for which credit is given to the purchaser by the vendor must be included in determining the "sales price."

Based on the foregoing, it is ruled that the transaction is a conditional sale rather than a true rental for Massachusetts sales tax purposes. Therefore, a tax based on the total sales price (that is, the "Total Rent" under the agreement) is due at the time of sale. No deduction from the sales price may be made for amounts not separately stated that may represent interest or other financing charges.

Very truly yours,

/s/L Joyce Hampers

L. Joyce Hampers
Commissioner of Revenue



LR 80-31

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