A Lessee

A Lessee

December 01, 2004

A lessee had to pay sales taxes not only on rents, but also on the “additional rent” that the lessor collected for annual property taxes.

One lesson may be to try to have the lessee pay such taxes directly.

Most states collect sales taxes on the rents that a lessee pays for the use of equipment or other “personal property” (as contrasted with real estate). In Louisiana, the law requires that sales taxes be paid on the “gross proceeds derived from the lease or rental of tangible personal property” or on the “monthly lease or rental price paid by lessee.”  A lessor asked for a ruling from the state tax department on whether sales taxes had to be paid on reimbursements that the lease required the lessee to make for property taxes. The tax department said yes. The taxes would also apply to other costs that the lease passes through for reimbursement by the lessee. The ruling is Revenue Ruling No. 04-086. 

Keith Martin