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Michigan – New bills exempt mining equipment from sales and use tax

The Michigan Legislature passed two bills that exempt from sales and use tax the sale of tangible personal property to a taxpayer for use as or at mineral-producing property. For purposes of the new exemptions “mineral-producing property” means “real and personal property in this state that is part of a producing mine or utilized directly in association with a producing mine on a parcel on which the shaft, incline, or adit is located, or a parcel contiguous or appurtenant to a parcel on which the shaft, incline, or adit is located.” 

Click here for H.B. 6010 

Click here for H.B. 6011

Both laws were enacted on December 20, 2012.

New York – Lessors must collect sales tax at inception of lease says advisory opinion

The New York Department of Taxation and Finance concluded that a lessor of non-vehicle equipment must collect sales tax on the entire amount of payments at the outset of the lease, rather than as payments become due. This opinion was based, in part, on a finding that the lessor’s standard lease is a security agreement for purposes of sales and use tax. And thus, the entire amount of sales tax must be collected upon entering into the lease.

What is a “Security Agreement” for N.Y. Sales and Use Tax Purposes?

The opinion’s analysis hinged on the distinction between what constitutes a true lease and what constitutes a security agreement. In connection with the definition of “security agreement” under revised UCC Section 1-201(37), the opinion walked through a facts and circumstances approach to the lessor’s standard lease agreements. Importantly, the lessor’s lease agreements included a termination provision that provided the lessee with either an option to buy the underlying equipment for $1 or return the equipment to the lessor, or required the lessee to purchase the equipment for $1.

The opinion stated that under UCC Section 1-201(37), a facts and circumstances approach is generally applied with the “bright line” exception that a lease qualifies as a security agreement if it is not cancellable by the lessee prior to the end of the lease period and one of the four conditions listed below is satisfied: 

  1. The original term of the lease is equal to or greater than the remaining economic life of the goods
  2. The lessee is bound to renew the lease for the remaining economic life of the goods or is bound to become the owner of the goods
  3. The lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or nominal additional consideration upon compliance with the lease agreement
  4. The lessee has an option to become the owner of the goods for no additional consideration

Under the lessor’s standard lease, the agreement is irrevocable and the lease also provides the option to the lessee of buying the equipment upon termination for the nominal amount of $1. These two factors being present in the lessor’s standard lease indicates that the lessor’s lease is a security agreement. 

Click here to read the N.Y. Department of Taxation’s advisory opinion.

Tennessee – Online service permits businesses to verify resale and exemption certificates

The Tennessee Department of Revenue (“Department”) has unveiled an online service to assist businesses to verify the status of resale and exemption certificates presented to them by their customers.

According to the Department, Tennessee businesses often have customers who wish to make purchases free from state sales taxes, either because they intend to resell the items being purchased, the purchase is by a nonprofit organization or the purchase is for agricultural purposes.

The use of this new online service will allow businesses to ensure that the certificates of resale, nonprofit exemption certificates and agricultural exemption certificates are valid and that the entity making the purchase is qualified to be exempt from state sales tax on the purchase before the sale is completed.

The business owner simply types in the account number on the certificate and selects the type of exemption certificate being presented. The search results will show whether such certificate is valid or invalid. Use of this online service does not relieve businesses of the responsibility for maintaining a copy of such resale or exemption certificate. 

Click here to access this new online service.

For additional information regarding these subjects or any other multistate tax issues, please contact:

David M. Kall

216.348.5812

dkall@mcdonaldhopkins.com

Susan Millradt McGlone

216.430.2022

smcglone@mcdonaldhopkins.com

Jeremy J. Schirra

216.348.5444

jschirra@mcdonaldhopkins.com

Multistate Tax Services

Businesses must be vigilant and careful in managing their state and local tax liabilities and exposures. We understand this can be a daunting task. McDonald Hopkins Multistate Tax Services provides a broad range of state and local tax services including tax controversy, tax evaluation, tax planning, and tax policy. With professionals who have worked both inside and outside government agencies, our multistate tax team leverages its knowledge and experience to help clients control their complex multistate taxes.

 

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