Current through Register Vol. 50, No. 6, December 1, 2023
RELATES TO:
KRS
138.460,
138.463,
139.010,
139.105,
139.200,
139.210,
139.270,
139.280,
139.290,
139.310,
139.330,
139.340,
139.430,
139.471,
139.484,
139.600,
139.620
NECESSITY FUNCTION AND CONFORMITY:
KRS
131.130(1) authorizes the
department to make administrative regulations for the administration and
enforcement of all tax laws in this state, and
KRS
139.710 requires the department to administer
the provisions of KRS Chapter 139, regarding sales and use taxes. This
administrative regulation sets forth requirements for leases and rentals of
tangible personal property or digital property relating to the sales and use
tax law.
Section 1. Definitions.
(1) "Primary property location" means the
location as indicated by an address for the property provided by the lessee
that is available to the lessor from the lessor's records maintained in the
ordinary course of business, if use of this address does not constitute bad
faith. This location shall not be altered by intermittent use of the property
at different locations.
(2)
"Transportation equipment" means any of the following:
(a) Locomotives and railcars that are
utilized for the carriage of persons or property in interstate
commerce;
(b) Trucks and
truck-tractors with a gross vehicle weight rating (GVWR) of 10,001 pounds or
greater, trailers, semi-trailers, or passenger buses that are:
1. Registered through the International
Registration Plan; and
2. Operated
under authority of a carrier authorized and certificated by the U.S. Department
of Transportation or another federal authority to engage in the carriage of
persons or property in interstate commerce;
(c) Aircraft that are operated by air
carriers authorized and certificated by the U.S. Department of Transportation
or another federal authority or a foreign authority to engage in the carriage
of persons or property in interstate or foreign commerce; and
(d) Containers designed for use on and
component parts attached or secured on the items set forth in paragraphs (a)
through (c) of this section.
Section 2. Registrants.
(1) A person engaged in leasing or renting
tangible personal property or digital property for use in Kentucky is a
retailer and shall:
(a) Complete a "Kentucky
Tax Registration Application", Revenue Form 10A100; and
(b) Report and pay the applicable tax derived
from the gross lease or rental receipts utilizing the "Sales and Use Tax
Return", Revenue Form 51A102.
(2) Each period for which a lease or rental
is payable shall be considered a complete transaction in determining a retailer
responsible for the tax in accordance with
KRS
139.010.
Section 3. Gross Receipts.
(1) Gross receipts from the lease or rental
of tangible personal property or digital property shall include:
(a) The total amount of payments, or
consideration received by the lessor from the lessee;
(b) Payments paid by the lessee to a third
party for the benefit of the lessor which are required by the terms of the
agreement; and
(c) All itemized
charges for costs incurred by the lessor and passed on to the lessee as
separate charges in the lease or rental agreement including finance or interest
charges, property tax, and insurance charges.
(2) Charges by a lessor to a lessee for a
separately-executed maintenance agreement, which is not a part of the lease or
rental agreement, shall not be subject to tax.
Section 4. Tax Responsibility.
(1) The retailer/lessor leasing or renting
tangible personal property or digital property within Kentucky shall be
required to collect the sales tax from the customer/lessee.
(2) Every out-of-state retailer leasing or
renting tangible personal property or digital property for storage, use or
other consumption in this state shall be required to collect the use tax from
the purchaser and remit the tax on gross lease or rental receipts to the
Department of Revenue.
(3) The
lessee's responsibility for the use tax shall not be relieved until payment of
the amount due has been made to the Department of Revenue or to a
retailer/lessor authorized to collect the Kentucky tax.
Section 5. Resale.
(1) A lessor may claim a resale exemption for
tangible personal property or digital property purchased exclusively for lease
or rental.
(2) Parts and
accessories purchased by the lessor which become part of the leased or rented
property may also be purchased under a resale exemption. However, property
purchased by a lessee to maintain leased or rented property of a lessor shall
be subject to the sales and use tax.
(3) Tangible personal property or digital
property purchased for resale without payment of the tax and to be utilized
exclusively for lease or rental, and so used, but subsequently used by the
retailer/lessor for some purpose other than lease or rental shall become
subject to tax upon this subsequent use. The tax shall be measured by purchase
price of the property and shall be in addition to the tax due on the lease or
rental receipts.
(4) Tangible
personal property or digital property purchased in part for lease or rental and
in part for use shall not be purchased from a seller or retailer under a resale
exemption and shall be subject to tax.
(5) A retailer who purchases tangible
personal property or digital property for outright sale, but, while holding the
property in the retailer's inventory, makes use of the property in the
retailer's business through lease or rental shall be responsible for the
applicable tax to the lease or rental receipts.
(6) Tangible personal property or digital
property purchased by a retailer engaged exclusively in leasing or renting the
property may be eligible for a deduction from the retailer's gross lease or
rental receipts for an amount equal to the purchase price of the property used
exclusively for lease or rental if the retailer has paid the sales or use tax
applicable to the purchase price of the property.
Section 6. Lease with an Exemption
Certificate. A lessor of tangible personal property or digital property shall
not include within the measure of the tax gross receipts from a lease or rental
if the lessor takes from the lessee a fully completed certificate of exemption
as evidence that the property leased will be used in an exempt manner under the
sales and use tax law.
Section 7.
Motor Vehicles.
(1) The lease or rental of
motor vehicles, which are for use on the public highways and upon which any
applicable tax levied under
KRS
138.460 or
KRS
138.463 has been paid, shall not be subject
to the sales or use tax.
(2) Motor
vehicles, which are not subject to the motor vehicle usage tax established in
KRS
138.460 or the U-Drive-It tax, established in
KRS
138.463, shall be subject to the sales and
use tax unless another applicable exemption applies.
Section 8. Reciprocity.
(1) The sales and use tax law shall provide
for credit against any Kentucky use tax for state sales tax paid in another
state which imposes a sales tax substantially identical to that of
Kentucky.
(2) Out-of-state lessors
who have collected sales tax on a lump-sum basis for their state shall be able
to receive credit for the amount paid that other state up to the amount due to
Kentucky.
(3) Kentucky shall tax
any excess lease or rentals, relating to the lump-sum tax amounts.
(4) Reciprocity shall apply to any tax due
Kentucky on lease or rental receipts only if the reciprocal state has levied
and is legally due the sales or use tax paid on the lease or rental
receipts.
Section 9.
Lease of Real, Tangible, Digital and Intangible Property.
(1) If lease or rental activity involves the
lease or rental of real property, in combination with tangible personal,
digital property or intangible property, as in the lease or rental of a
business operation or establishment, the total amount of the lease or rental
shall be subject to the sales and use tax unless the amount applicable to the
tangible personal property or digital property is separately stated.
(2) The amount separately stated for the
tangible personal property and digital property shall not be less than the fair
market lease or rental value for like property for a like rental or lease
period.
(3) The lease or rental of
tangible personal property and digital property between separate entities owned
by the same or similar stockholders shall be subject to the tax unless
otherwise exempted by the sales and use tax law.
(4) The tax shall be levied on the lease or
rental amount charged or the fair market lease or rental amount, whichever is
greater.
Section 10.
General Sourcing Rules.
(1) The lease or
rental of tangible personal property or digital property, other than property
identified in subsection (5) of this section, shall be sourced according to the
provisions of
KRS
139.105(1).
(2) For a lease or rental that requires
recurring periodic payments, the first periodic payment shall be sourced as
follows according to the provisions of
KRS
139.105(1). Periodic
payments made subsequent to the first payment shall be sourced to the primary
property location for each period covered by the payment. The primary property
location shall not be altered by intermittent use at different locations.
Intermittent use shall include business property that accompanies employees on
business trips and service calls.
(3) For a lease or rental that does not
require recurring periodic payments, the payment shall be sourced the same as a
retail sale in accordance with the provisions of
KRS
139.105(1).
(4) This subsection shall not affect the
imposition or computation of sales or use tax on leases or rentals based on a
lump sum or accelerated basis, or on the acquisition of property for
lease.
(5) The lease or rental of
motor vehicles, trailers, semi-trailers, or aircraft that do not qualify as
transportation equipment shall be sourced as follows:
(a) For a lease or rental that requires
recurring periodic payments, each periodic payment shall be sourced to the
primary property location.
(b) For
a lease or rental that does not require recurring periodic payments, the
payment shall be sourced in accordance with the provisions of
KRS
139.105(1).
(c) This subsection shall not affect the
imposition or computation of sales or use tax on leases or rentals based on a
lump sum or accelerated basis, or on the acquisition of property for
lease.
Section
11. Forms. The forms listed within this administrative regulation
may be inspected, copied, or obtained, subject to applicable copyright law:
(1) At the Kentucky Department of Revenue,
501 High Street, Frankfort, Kentucky 40620;
(2) At a Kentucky Taxpayer Service Center;
or
(3) On the department Web site
at
http://revenue.ky.gov.
12 Ky.R. 458; 651;
eff. 11-12-1985; 17 Ky.R. 1130; eff. 11-21-1990; 32 Ky.R. 469; eff. 9-22-2005;
TAm eff. 6-22-2016; 44 Ky.R. 1101, 1496; eff. 2-2-2018; Crt eff.
6-7-2019.
STATUTORY AUTHORITY:
KRS
131.130(1),
139.710