Sale of Equipment with Service is a Taxable Bundled Transaction in Louisiana

Louisiana has issued a letter ruling on two types of bundled transactions that involve the sale of equipment and wireless internet service. The letter ruling discusses two scenarios that involve a wireless internet service provider that requires customers to sign a one year contract and purchase certain equipment. In both scenarios the wireless provider purchases equipment from a supplier and issues a resale certificate. The provider, in turn, sells the equipment to an authorized dealer, who also issues a resale certificate, at a below market price. In the first scenario, the customers make the purchase through the dealer and pay the same below market price. This below market price is contingent upon the customer signing the one year agreement. Therefore, in essence, the monthly payments over time represent partial payment for nontaxable internet service and partial payment for the cost of taxable equipment. In this scenario, the dealer should collect and remit tax on the below market price paid by the customer, which leaves the service provider liable for use tax on the remaining cost of the equipment. In the second scenario, the customer makes the purchase directly from the service provider. In this scenario, a credit memo is issued to the dealer on the purchase of the equipment. This leaves the provider liable for collecting the sales tax on the below market price from the customer and paying use tax on the remaining cost of the equipment. So in both scenarios tax is due on the entire cost of the equipment, but the person liable for the tax is different. (Private Letter Ruling No. 08-010, Louisiana Department of Revenue, August 15, 2008)

Posted on September 5, 2008