Vendor Properly Collected Virginia Sales Tax on Unfulfilled Portion of Lease

An out-of-state vendor correctly collected Virginia sales tax on a Virginia lessee’s unfulfilled portion of a lease agreement. The lessee entered into a lease agreement with the out-of-state vendor and returned the leased tangible personal property to the vendor after one year into a four-year lease. Upon the return of the property, the vendor billed the taxpayer for the cumulative total of the remaining lease payments, plus applicable sales taxes and fees. Virginia tax code provides that a lessor of tangible personal property whose place of business is outside Virginia and who leases to Virginia customers is required to register as a dealer in Virginia and collect and pay the tax on the gross proceeds. The lease agreement provided that it is a non-cancellable lease for the term indicated in the lease and that lease payments will be due despite dissatisfaction with the equipment for any reason. Due to Virginia’s regulatory requirements and the specific terms of the lease agreement, the vendor correctly collected the Virginia sales tax on the lessee’s unfulfilled portion of the lease agreement. The vendor is required by Virginia tax law to collect the sales tax on the gross proceeds of the lease, regardless of the fact that the lessee voluntarily returned the equipment to the vendor before the terms of the lease were complete.(Ruling of Commissioner, P.D. 14-127, Virginia Department of Taxation, August 7, 2014)

Posted on May 13, 2015