N.Y. Comp. Codes R. & Regs. tit. 20 § 527.15

Current through Register Vol. 46, No. 45, November 2, 2024

Section 527.15 - Certain leases of motor vehicles, vessels and noncommercial aircraft

Tax Law, §§ 1105(a), 1110, 1111(i), 1118, 1132, 1139

(a) Section 1111 (i) of the Tax Law provides special rules for the payment of sales and use tax on certain leases of motor vehicles, vessels and noncommercial aircraft. Rather than the tax being due upon each periodic lease payment, the Tax Law provides that with respect to the leases described in this section the tax is due at the inception of the lease on the total amount of the lease payments for the entire term of the lease.

(b) For purposes of the tax imposed on leases of motor vehicles, vessels and noncommercial aircraft described in this section, the following definitions shall apply.

(1) A lease for a term of one year or more includes:

(i) any lease that covers a period of one year or more; and

(ii) any lease for a period of less than one year where the lease includes one or more options to renew or any similar contractual provisions or combination thereof that would, if exercised, make the cumulative period of the lease one year or more.

Example:

A resident of Schenectady County, New York leases a small noncommercial aircraft for three months and hangars the aircraft at Albany County Airport. The lease agreement provides the lessee with five options to renew the lease for three-month terms each. The three-month lease together with the five options to renew the lease constitute a lease for a term of one year or more.

(2)Renewal option includes any option to renew a lease as well as any contractual provision that, while not referred to as a renewal option, would obtain the same result.

(3)Motor vehicle means a motor vehicle as defined in section 125 of the Vehicle and Traffic Law, with a gross vehicle weight of 10,000 pounds or less.

(4)Vessel means any vessel as defined in section 2250 of the Vehicle and Traffic Law, including any inboard or outboard motor and any trailer, as defined in section 156 of such law, leased in conjunction with such a vessel.

(5)Noncommercial aircraft means any noncommercial aircraft having a seating capacity of less than 20 passengers and a maximum payload capacity of less than 6,000 pounds.

(6) With respect to a lease, renewal option or combination of them, other than a lease, option or combination entered into outside New York State which is subject to the provisions of subdivision (d) of this section, inception of the lease means the earlier of:

(i) the date of the first payment under the lease, renewal option or combination of them; or

(ii) the date or registration of the property so leased, with the Commissioner of Motor Vehicles.

(c)Special rules for computing tax.

(1)

(i) With respect to the lease of a motor vehicle, vessel or noncommercial aircraft for a period of one year or more, all receipts due or consideration given or contracted to be given for such property under, and for the entire period of, the lease, renewal option or combination of them, (except as provided in paragraph [2] of this subdivision) are deemed to have been paid or given and are subject to tax, and any tax shall be collected, at the inception of the lease. Renewal options are included in the computation of tax, whether or not they are exercised or are for a period of one year or more, individually or cumulatively. (For any lease entered into prior to June 1, 1992, where a lease itself was for a period of one year or more, any option to renew a lease or similar contractual provision was required to have been for a period of one year or more before it was subject to the provisions of section 1111[i] of the Tax Law.)

Example 1:

The leasing division of a New York State motor vehicle dealer offers a customer (who is a resident of a seven percent taxing jurisdiction) a two-year motor vehicle lease agreement with an option to renew the lease for an additional two years. The agreement requires the lessee to make monthly payments of $350. In order to exercise the renewal option, the lessee must pay a one time fee of $500. The amount of sales tax the lessor is required to collect from the lessee at the inception of the lease is computed as follows:

Monthly lease payment	$ 350
Original no. of months in lease	24
Plus - no. of months of renewal	+24
Total term of lease	× 48
Subtotal	$16,800
Plus - cost of renewal option	+$ 500
Receipts subject to tax	$17,300
Applicable tax rate	× 7%
New York State and local sales and use tax due	$ 1,211

(ii) Where the initial term of a lease covers a period of less than one year, but, because of the availability of renewal options the lease qualifies as a lease for a period of one year or more, all renewal options are included in determining the receipts due for the computation of the tax. This is so whether or not the renewal options are exercised and whether or not such options, individually or cumulatively, are for a period of one year or more.

Example 2:

A resident of Schenectady County, New York leases a vessel for six months and moors the vessel at the Schenectady County Marina. The lease agreement provides the lessee with five options to renew the lease for three-month terms each. Such a lease agreement is subject to sales tax for the entire term of the lease (including the five options) at the inception of the lease.

(2)

(i) An exception to the rule described in paragraph (1) of this subdivision applies to the lease of a motor vehicle for a term of one year or more where:

(a) the lease includes an indeterminate number of options to renew or any other similar contractual provisions; or

(b) the lease includes 36 or more monthly options to renew beyond the initial term of such lease; and

(c) the lessee of such motor vehicle has certified in the writing described in section 7701(h)(2)(C)(i) of the Internal Revenue Code of 1986, under penalty of perjury, that such lessee intends that more than 50 percent of the use of such motor vehicle is to be in a trade or business of the lessee.

(ii) Under a motor vehicle lease described in subparagraph (i) of this paragraph:

(a) all receipts due or consideration given or contracted to be given under such lease for the first 32 months, or the period of the initial term if longer, shall be subject to tax and any tax shall be collected and paid at the inception of the lease; and

(b) for each option to renew, or similar provision, or combination of them, exercised after the first 32 months, or after the period of the initial term if longer, of such lease, tax due shall be collected and paid on each lease payment when such payment is due. (See section 526.7[c] of this Title; Rentals, leases, licenses to use.)

Example 3:

A motor vehicle fleet lease agreement provides that the lessee must lease such vehicles for at least one year whereafter the lessee has an indeterminate number of options to extend the lease on a monthly basis. Unlike most renewal options which would keep a lease in effect for another specific long term, the indeterminate number of options allows for a variable lease term dictated solely at the discretion of the lessee. If the lessee certifies to the lessor that such lessee intends that more than 50 percent of the use of such motor vehicles is to be in a trade or business of the lessee as described in clause (2)(i)(c) of this subdivision, such lease is subject to sales tax at the inception of the lease based upon all receipts due or consideration given or contracted to be given for the first 32 months of the lease term. The tax due with respect to any monthly extension thereafter must be collected and paid on each lease payment when such payment is due (see section 526.7[c] of this Title; Rentals, leases, licenses to use).

(3)

(i) Where an agreement to lease a motor vehicle for a term of one year or more is entered into, the lessor must collect the tax at the inception of the lease, based on the rate of tax in effect for the local jurisdiction in which the vehicle is regularly garaged or stored.

(ii)

(a) Where an agreement to lease a vessel (including any inboard or outboard motor) for a term of one year or more is entered into, the lessor must collect tax at the inception of the lease based on the rate of tax in effect for the local jurisdiction in which the vessel and motor are delivered to the lessee. However, the lessee may also become liable for compensating use tax on the vessel (and motor if included) if:

(1) subsequent to entering into the lease, the vessel is primarily used or moored in a taxing jurisdiction in New York State that has a higher tax rate than the rate in effect in the jurisdiction in which the vessel was delivered to the lessee; and

(2) the lessee was a resident of the jurisdiction with the higher tax rate at the time of entering into the lease.

The compensating use tax is due based upon the difference between the State and local tax rates paid at the point of delivery of the vessel and the State and local tax rates in effect where the vessel is primarily used or moored. If the jurisdiction in which the vessel is subsequently moored or used imposes a lower tax rate than that in effect at the point of delivery, no credit or refund is allowed for the difference in tax rates.

(b) Where the lease of a vessel includes a trailer, tax on the trailer is based on the rate in effect for the local jurisdiction in which such trailer is regularly garaged or stored.

(iii) Where an agreement to lease a noncommercial aircraft for a period of one year or more is entered into, the lessor must collect tax at the inception of the lease based on the rate of tax in effect for the local jurisdiction in which such aircraft is normally hangared.

(4) With respect to any lease for a term of one year or more of a motor vehicle (other than one described in paragraph [2] of this subdivision), vessel or noncommercial aircraft the tax to be collected on such lease at its inception is based on the applicable tax rate times all receipts due or consideration given or contracted to be given for the leased property under and for the entire term of the lease, renewal option or combination of them.

Example 4:

Assume a lease of a motor vehicle with a term of 48 months and an option to renew the lease for 12 more months is entered into. In order to reduce the amount of the monthly payments the lessee makes a substantial down payment. The total of the monthly payments for the entire term of the lease, including the option period, plus any charges for the option to renew the lease, plus the amount of the down payment made by the lessee are receipts for purposes of determining the tax due at the inception of the lease.

Example 5:

Assume a lease of a motor vehicle with a term of 36 months is entered into. The lessee does not put any money down. The lessor and lessee agree that the lessor will pay out of its own funds the tax due on the lease payments and the lease payments will be increased over the term of the lease to cover the amount of tax. The receipts subject to tax at the inception of the lease are the total of the monthly payments for the entire term of the lease, including the additional amounts included in the lease payments to repay the lessor for the tax paid.

(5) Where the lessor accepts tangible personal property for resale as a trade-in on a lease agreement, the total receipts do not include the value of the trade-in.

(6) Excess mileage and similar charges. Receipts from the following charges are subject to tax at the time they are paid by or are due from the lessee:

(i) an excess mileage or use charge;

(ii) an excess wear charge; or

(iii) a damage assessment, repair or any similar charge.

(d)

(1) Use tax. With respect to the lease of a motor vehicle, vessel or noncommercial aircraft for a period of one year or more, where the lease is entered into outside New York State but the property is subsequently brought by the lessee into New York State, any remaining receipts due or consideration to be given attributable to the use of the property in New York will be subject to tax as if the lease had been entered into for the first time within New York State if:

(i) at the time of entering into the lease, the lessee was a resident of New York State and leased the property for use outside the State but subsequently brings the property into the State for use here; or

(ii) at the time of entering into the lease, the lessee was not a resident of New York State but subsequently becomes a resident and brings the property into the State for use in the State.

(For special rules for determining the rate of tax applicable to the lease of a motor vehicle, vessel or noncommercial aircraft for a period of one year or more see subdivision [c] of this section. For rules of lessor as vendor, see paragraph [3] of this subdivision and section 526.10[a][7] of this Title, definition of vendor.)

(2) The lessee is liable for the combined State and local sales and use tax on the total of any remaining receipts due or consideration to be given beginning with the day the property is first used in New York State by the lessee as a resident of New York State.

(i) With respect to the lease of a motor vehicle, the use tax is based upon the rate in effect in the jurisdiction where the vehicle is regularly garaged or stored.

(ii)

(a) With respect to the lease of a vessel (including any inboard or outboard motor) the use tax is based on the rate in effect where the vessel is primarily used or moored.

(b) Where the lease of a vessel includes a trailer, use tax is based on the rate in effect for the local jurisdiction in which the trailer is regularly garaged or stored.

(iii) With respect to the lease of a noncommercial aircraft, the use tax is based upon the rate in effect where the aircraft is normally hangared.

Example 1:

Mr. W, a New York State resident, enters into a 48-month lease of a motor vehicle with an out-of-state lessor for use of the vehicle outside New York State. If the vehicle is subsequently used in New York, such use will be subject to the New York State and local compensating use tax. The amount of tax due is to be determined as if the original lease had been entered into in New York State, except that the receipts subject to tax will be the total of any remaining receipts due or consideration to be given under the lease after the lessee first used the motor vehicle in New York State.

Example 2:

Mr. B, an Ohio resident, enters into a 60-month lease of a motor vehicle with an Ohio lessor on June 1, 1990, with payments of $200 due on the first of each month. On November 15, 1990, Mr. B moves to Troy, New York, bringing the vehicle with him. For sales and use tax purposes, Mr. B becomes a resident of Rensselaer County and New York State on November 15, 1990, and the New York tax applies to his leased vehicle once the vehicle enters the State. The tax due on the remaining lease payments is computed as follows:

No. of whole months remaining on	54
lease agreement not yet paid for
Monthly lease payment	$200
Total of remaining receipts due	$10,800.00
× tax rate (Rensselaer Co.)	.07
New York State and local use tax	756.00
due

Example 3:

Mr. C, an Ohio resident, enters into a 48-month lease of a motor vehicle with an Ohio lessor on September 20, 1990, with payments due on the 20th of each month for the entire lease term. On December 20, 1990, Mr. C pays the current month's payment plus six months in advance through June 20, 1991. On March 10, 1991 Mr. C moves to and becomes a resident of Troy, New York, bringing the leased vehicle with him. For sales and use tax purposes Mr. C becomes a resident of New York State and Rensselaer County on March 10, 1991. Mr. C becomes liable for the New York State and local compensating use tax as of the date he becomes a resident and brings the vehicle into the State. Since Mr. C has made lease payments through June 20, 1991, the use tax due is computed based on the remaining receipts due pursuant to the lease agreement, from July 20, 1991 to the end of the lease term, even though use of the property in this State began March 10, 1991 and became subject to tax on such date.

(3) Any person who makes sales of tangible personal property, the use of which is subject to tax, where such person retains an ownership interest in the property and the property is brought into this State by the purchaser who is or becomes a resident of this State or uses the property in any manner in carrying on any employment, trade, business or profession in this State, is a vendor. (See section 526.10[a][7] of this Title.)

(e)Limitations on refunds and credits.

No refund or credit shall be allowed based upon the fact that receipts are not actually paid as in the case of early termination of a lease, failure to exercise an option to renew a lease or bad debt (see section 534.7 of this Title) since, under section 1111(i), such receipts are deemed to have been paid. For additional information on refunds see Part 534 of this Title and sections 198-a and 198-b of the General Business Law.

(f)Reciprocity.

(1) Where a lessee pays sales or use taxes to another state or jurisdiction within such state on the lease of a motor vehicle, vessel or noncommercial aircraft, as defined in this section, the use of which becomes subject to the New York State and local compensating use taxes, the lessee may be eligible to claim a credit for the tax paid to such other state or local jurisdiction.

(2) Credit for the other state and local tax paid may be allowed where:

(i) the tax was legally due and paid to the other state or jurisdiction without any right to a refund or credit thereof; and

(ii) a similar credit is allowed by the other state or jurisdiction for the New York State and local sales and compensating use taxes paid under similar circumstances.

(3) The reciprocity credit is computed based upon the rate of tax paid to the other state and locality and the rate of tax to be paid to New York State and local jurisdictions within New York State, not on the dollar amounts of tax paid. The claim for credit will be allowed only to the extent that the rate used to determine the tax paid to the other state and locality does not exceed the New York State and local compensating use tax rate used to determine such tax due to New York State and its local jurisdictions. Where the New York State and local rate exceeds the other state's rate, the lessee will only be required to remit tax based on the difference in tax rates and on any remaining receipts due or consideration to be given under the lease, renewal option or combination of them beginning with the day the property is first used in New York State. The credit described in this subdivision may only apply to the extent that taxes have been paid to another state or jurisdiction based upon such remaining receipts or consideration.

Example:

A New York resident of a seven percent taxing jurisdiction (four percent State and three percent local tax) leases a motor vehicle for a three-year period from an out-of-state lessor for use out-of-state. The tax law in the lessor's state considers such leases to be retail sales and requires the lessor to collect sales tax at the inception of the lease on the total amount payable for the entire term of the lease. The rate of tax in the lessor's state is five percent and the total amount payable under the lease agreement is $16,200 ($450 monthly payment × 36 months = $16,200). After one year, the lessee brings the vehicle into New York State for use in the state for the remaining two years of the lease agreement. The remaining lease payments (24 months × $450 = $10,800) are taxable under section 1111 (i) of the Tax Law.

However, if New York State has reciprocity with the other state, since the lessee has already paid a five percent sales tax to the out-of-state lessor, the lessee will only be required to remit tax based on the difference in tax rates (two percent) and only on any remaining receipts due or consideration to be given beginning with the day the vehicle is first used in New York State. ($450 monthly payment × 24 months = $10,800 × 2% = $216 tax due)

(g)Miscellaneous.

Any receipts due or consideration given or contracted to be given under an option to renew a lease of a motor vehicle described in this section or a similar contractual provision or combination of them, exercised as part of any such lease between the same lessor and lessee with respect to the same motor vehicle or vehicles, where such lease or any option to renew such lease or any other similar contractual provision is subject to tax in accordance with this section and section 1111 (i) of the Tax Law shall not be subject to the Special Tax on Passenger Car Rentals imposed pursuant to the provisions of article 28-A of the Tax Law.

N.Y. Comp. Codes R. & Regs. Tit. 20 § 527.15