SALT Report 1966 – The Indiana Department of Revenue issued a ruling regarding an assessment of use tax against a Taxpayer who runs a medical facility. The use tax was assessed on third party contracts for patient imaging equipment and equipment operators. During an audit, the auditor determined that the contract between the Taxpayer and the imaging company constituted a taxable lease of tangible personal property. The auditor assessed use tax on the Taxpayer’s payments to the imaging company pursuant to the contract. The Taxpayer protested the assessment.
In his appeal, the Taxpayer claimed that the contract with the imaging company required the use of an operator as the Taxpayer’s personnel were not qualified to operate the machinery. According to the Taxpayer, the contractual requirement for the imaging company to provide an operator who “is necessary for the equipment to perform as designed” and who “does more than maintain, inspect, or set up the tangible personal property” excludes the contract from being considered a taxable lease under 45 IAC 2.2-4-2.
Upon review of the case, the Department referred to 45 IAC 2.2-4-27(d)(3)(A), which states: “The renting or leasing of tangible personal property, together with the services of an operator shall be subject to the tax when control of the property is exercised by the lessee. Control is exercised when the lessee has exclusive use of the property, and the lessee has the right to direct the manner of the use of the property.”
In their ruling, the Department determined that the Taxpayer’s contract with the imaging company did not qualify as a lease agreement under 45 IAC 2.2-4-27(d)(3)(A) because:
- A lease or rental agreement does not include the provision of tangible personal property along with an operator if the operator is necessary for the equipment to perform as designed, and
- The operator does more than maintain, inspect or set up the property
Therefore, the Taxpayer was not liable for Indiana use tax on its contract with the imaging company and the audit assessment was dismissed.
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