Rentals Or Leases Of Tangible Personal Property (Rule 024)

Sections 63-3609, 63-3612, 63-3613, 63-3616, 63-3622UU, Idaho Code 01. Bare Equipment Rental. A bare equipment rental is a rental of equipment without an operator and is a taxable sale. The owner of the equipment is a retailer and is required to collect and remit Idaho sales tax on each rental payment. The equipment owner who primarily rents bare equipment may buy the equipment and repair parts without paying tax to the vendor by giving the vendor a properly executed resale certificate. If the equipment owner uses the rental equipment for their own benefit or in their own business operations, the equipment owner pays use tax based on a fair market rental value for the period during which they used their own equipment. (7-1-26) 02. Fully Operated Equipment Rentals. (3-31-22) a. A fully operated equipment rental is an agreement in which the owner or supplier of the equipment or property supplies the equipment or property along with an operator, and the property supplied is of no value to the Seller (Permitted) Seller (Not Permitted) Customer Shipper (Permitted) Obtain Properly exe- cuted Resale/Exemp- tion Certificate or Collect Tax Obtain Letter of No Nexus or Collect Tax Don’t Collect Tax from Customer / Use Tax Owed by Customer Shipper (Not Permitted) Don’t Collect Tax Don’t Collect Tax Don’t Collect Tax from Customer / Use Tax Owed by Customer Shipper (Permitted) Shipper (Not Permitted) Customer Seller (Permitted) Provide Properly executed Resale/Exemption Certifi- cate None Collect Tax from Customer Seller (Not Permitted) Give Letter of No Nexus None Don’t Collect Tax from Cus- tomer / Use Tax Owed by Customer IDAHO ADMINISTRATIVE CODE IDAPA 35.01.02 State Tax Commission Idaho Sales & Use Tax Administrative Rules Section 027 Page 11 customer without the operator. A fully operated equipment rental is a nontaxable service. (7-1-26) b. The owner or supplier of the equipment or property used in a fully operated equipment rental is the consumer of the equipment or property and owes tax when they buy or use that equipment or property in Idaho. The owner who rents fully operated equipment can’t buy repair parts tax exempt. Special rules apply to transient equipment used for short periods in Idaho. See Subsection 073.03. (7-1-26) c. If the equipment or property has value to the customer without an operator, then the lease or rental of the equipment or property is a distinct transaction. It is taxable and its price will be stated separately from the price of the service provided by the operator. (7-1-26) 03. Mixed Use of Rental Equipment. (3-31-22) a. If the equipment owner primarily rents bare equipment but sometimes supplies equipment with an operator, the equipment owner is the consumer of the equipment while it is used by the supplied operator to perform a service contract. Accordingly, the equipment owner will pay use tax on the fair market rental value of the equipment for that period of time unless they pay tax when they bought the equipment. (7-1-26) b. If the equipment owner primarily rents fully operated equipment but sometimes rents bare equipment, he charges sales tax on the rental of the bare equipment even though tax was paid on the original purchase of the property. In this case, the owner purchased the equipment for a purpose other than the resale or re-rental of that property in the regular course of business. (3-31-22) 04. Operator Obligated to Be Paid by Customer. In some cases, an equipment owner supplies equipment along with an operator but a contract or a state or federal law requires the customer to pay the operator. If all other indications of an employee-employer relationship, such as the right to hire and fire, immediate direction and control, etc., remain with the equipment owner, the owner is viewed as supplying a service and no sales tax applies to the service fee. However, the fact that the transaction is a fully operated equipment rental needs to be clearly stated on the face of the invoice or other billing document. The Commission may examine the facts on a case-by-case basis to determine if a true employer-employee relationship exists between the equipment owner and the operator. (7-1-26) 05. Rentals to Exempt Entities. The rental or lease of equipment invoiced directly to an entity exempt from sales tax isn’t taxable. However, if the rental or lease is to an individual or organization performing a contract for, or working for an exempt entity, the rental is taxable. (7-1-26) 06. Rental Payments Applied to Future Sales. Rentals to be applied toward a future sale or purchase are taxable. (3-31-22) 07. Out-of-State Rental/Lease. Rental or lease payments on bare equipment used outside Idaho aren’t subject to Idaho sales tax. If the equipment is delivered in Idaho, even though it will be used outside the state, then the rental or lease payment for the first rental period is subject to Idaho tax. (7-1-26) 08. Lease-Purchase and Lease with Option to Purchase. (3-31-22) a. Lease-purchase. An agreement where the ownership of the leased property passes to the buyer at the end of the stated terms of the contract with no additional consideration from the buyer, or where the additional consideration doesn’t represent the fair market value of the property. A lease-purchase is a retail sale and tax is collected on the entire sales price on the date the property is delivered. (7-1-26) b. Lease with an option to purchase. An agreement where the ownership of the leased property remains with the seller over stated terms of the contract and the seller keeps the leased property unless the buyer exercises an option to buy it at fair market value. The seller will collect sales tax for each lease payment and the buyout if the buyer exercises the option at the end of the contract. (7-1-26) 025. – 026. (RESERVED)