Minnesota Court Rules Equipment Transfer Was Taxable Lease, Not Occasional Sale

A taxpayer who owned a sole proprietorship had entered into an agreement in 1993 granting an employee use and possession of construction and excavating equipment owned by the business. The agreement specified that the employee would pay the sole proprietor part of his gross receipts from the use of the equipment, as well as a monthly fee of $500 for the use of the shop and other equipment for a two year period. At the end of the agreement the employee would purchase the equipment for its fair market value. However, the Court did not find that the documents indicated that the transaction was a one-time sale of the taxpayer’s business and noted that the language of the agreements indicated that it was a lease. In addition, Minnesota statutes specify that in order to be considered an occasional sale and be exempt, a transaction must occur in a 12-month period. Given these facts, the court ruled that all the transactions constituted a lease and that all the payments made were subject to Minnesota sales and use tax. (Stoeckmann v. Commissioner of Revenue, August 19, 2004)

Posted on October 22, 2004