A “Loan” of Equipment

A “Loan” of Equipment

March 01, 2006

A “loan" of equipment was a “sale” for state sales tax purposes.

Two coffee companies lend coffee grinding and brewing equipment to customers who buy their coffee beans and other products. The customers are not charged for use of the equipment, but they end up being charged more for the coffee beans. The amount charged for the beans varies with the cost of the equipment they are given for use. When the customer stops buying beans, it must return the equipment.

Missouri tried to collect use taxes from the coffee companies on the machines. Most US states collect sales and use taxes on purchases of equipment. Sales taxes are collected on equipment bought in the state. Use taxes are collected on equipment bought outside the state but imported for use in the state, as a way of preventing consumers from doing all their shopping elsewhere.

The coffee companies argued that they should not have to pay use taxes because the coffee machines were imported into Missouri for “resale” to customers. Missouri, like other states, has a “resale exemption” that exempts purchases from sales and use taxes where the equipment is purchased to resell to someone else. The Missouri statute defines “sale” broadly to include any transfer of “the right to use” property.

The court said that even though customers are required to return the machines once they stop buying coffee beans, this “does not defeat the fact that customers give consideration for the right to use the equipment.” The case is Ronnoco Coffee Company v. Director of Revenue.