Texas sales tax treatment of leases and rentals of tangible personal property according to Comptroller Rule 3.294. Key points include:
- Leases and rentals are taxable as sales.
- Operating Lease:
- Allows use of leased property for a specific period.
- Written contracts are treated as operating leases unless they qualify as financing leases.
- Oral leases are always considered operating leases.
- Sales tax is due on each payment.
- Financing Lease:
- Treated similarly to a sale.
- Full tax liability must be collected and remitted upfront.
- Defined as a lease containing one of the following:
- Title transfer to the lessee at the end of the lease.
- Bargain purchase option (less than 10% of fair market value at option exercise time).
- Lease term is 75% or more of the property’s economic life, with no return option.
- Residual value is less than 10% of the property’s fair market value at lease inception, with no return option.
- Special Rules for Equipment Leases with an Operator:
- If a lump sum price is charged (labor + materials), it is treated as a service (taxable or nontaxable depending on the work).
- If equipment rental is separately stated, it is subject to sales or use tax as tangible personal property rental.
- Labor charges may or may not be taxable depending on the service performed.