South Dakota Administrative Rules
Title 64 - REVENUE
Article 64:06 - Sales tax
Chapter 64:06:01 - Administration of program
Section 64:06:01:09.01 - Sale and leaseback contracts

If a company enters into a contract to purchase equipment from another company with the intention to resell it to a third company from whom the first company will lease it back, the first transaction is presumed to be for resale if the company who purchased the equipment can show its intention. The subsequent sale and leaseback arrangement with the leasing company cannot be an afterthought or a follow-up financing mechanism. The company must demonstrate its intention, either through simultaneous or concurrent contracts or other documentation that proves their intention was not to purchase, but to resell and lease back the equipment.

General Authority: SDCL 10-45-47.1(3), 10-46-35.1(3).

Law Implemented: SDCL 10-45-1(10), 10-45-9.1, 10-46-2.3.

Example:

Company A enters into a contract with Company B to purchase a bulldozer. At the same time, Company A enters into a contract with Company C to sell the bulldozer to Company C and lease it back. At the time of purchase from Company B, no sales tax is due provided Company A furnishes Company B with an exemption certificate. The second transaction, the resale to Company C, is not a taxable transaction because the intention of Company A was always to resell the equipment to Company C. The lease payments to Company C are subject to sales or use tax.