A fleet management company that leases fleets of vehicles to businesses in New York was told by an administrative law judge at the New York Division of Tax Appeals that it could not claim sales tax credits for refunds of tax paid to vehicle lessees at the end of their leases following a rental adjustment that decreased the total rent paid under the lease. The corporation has a “terminal rental adjustment clause” language in each of its leasing agreements. According to this clause, the total rental amount owed under the lease agreement will change at the end of the lease period based on the residual book value of the actual leased vehicle as opposed to the residual book value predicted for the purpose of calculating the monthly rental amount. The corporation additionally reimbursed the sales tax paid by the lessee and then claimed sales tax credits on the refunded tax amounts in situations where the actual residual book value was higher than predicted, resulting in a decrease of the aggregate rental amount and a refund of rent to the lessee. In accordance with the administrative law judge, “the New York sales tax is a transaction tax and obligation for the tax occurs at the moment of the taxable transaction.” The judge cited New York Tax Law section 1111(i)(B), noting that for leases with identical features to those in question, the lessee is required to pay all sales tax on the first 32 months of the lease at the beginning of the lease. This ruling was made due to the company’s lack of eligibility for sales tax credits in relation to the reimbursement of sales tax paid to its lessees. (New York State Division of Tax, July 21, 2022.)