Georgia Ruling Addresses Sales Tax Treatment of Non-Itemized Lease Payments
The fees itemized or not itemized on an invoice to a customer can impact the sales tax a business must collect and remit.
By Jeff Glickman, SALT partner
One issue that comes up frequently in the sales and use tax area is how to charge sales tax when a particular amount invoiced to a customer includes both taxable and non-taxable items and that charge is not broken out on the invoice, but the specific breakdown is kept in the seller’s records. Georgia recently addressed this issue in the context of a lease transaction.
On Jan. 4, 2017, the Georgia Department of Revenue (“DOR”) issued Letter Ruling LR SUT-2016-17 (the “Ruling”), addressing the sales tax treatment of non-itemized lease payments.  Under the facts of the Ruling, the taxpayer was in the business of providing collection lease payment on behalf of its customers, who are lessors of tangible personal property. As part of its services, the taxpayer collects and remits sales tax on behalf of its clients. The lease agreements are for a certain term and then the lessee has the option to purchase the property at the end of the lease. The lease payments are invoiced as a single amount and not broken down to reflect underlying costs, which include charges for freight, installation, document fees, late fees, insurance and collection. While the lessee is provided only the non-itemized prices, the taxpayer and the lessor keep records that reflect the breakdown of costs.
The issue presented was whether sales tax was required to be collected on the entire charge or on a partial amount based on the taxable amounts. The ruling concluded that sales tax is due on the entire amount.
Sales tax is imposed on the “sales price” of tangible personal property, which means the total amount of consideration, including “charges by the seller for any services necessary to complete the sale” and “delivery charges.”  Therefore, charges for delivery, whether or not itemized, are part of the sales price and are taxable. Other charges that made up the lease amount, such as document fees, late fees, insurance and collection costs, are included in the sales prices, regardless of itemization, if such charges are necessary to complete the sale.
Factors that the DOR looks at to make this determination are (i) the extent of the relationship between the product and service, (ii) whether the customer can purchase the product without the service and vice versa, and (iii) any difference in the cost of the service/product when purchased separately as opposed to together. Therefore, with regard to those additional charges, if the lessee cannot lease the property without payment of those fees, then the fees would be part of the taxable sales price. Accordingly, those charges are included in the sales price and are taxable.
Installation is excluded from the sales price only if “separately stated on the invoice, billing, or similar document given to the purchaser.”  In this case, even though the taxpayer and lessor have documentation that reflects the breakdown of the charges, since the lessee was not provided any such documentation (it was given only a non-itemized invoice), the installation charge is taxable.
This ruling demonstrates the importance of understanding how to compute the base amount upon which sales tax is calculated (i.e., the sales price), whether or not the invoice and/or supporting documentation must separately identify the taxable versus nontaxable charges, and whether or not such documentation must be presented to the purchaser or lessee. Each state has varying answers to those issues, and so particular attention must be paid to the relevant state’s rules so that the taxpayer does not expose itself to risk of non-collection or under-collection.
Aprio’s SALT team has experience addressing these important issues and can assist you so that you remain in compliance with your sales and use tax collection and remittance requirements. We constantly monitor these and other important state tax issues, and we will include any significant developments in future issues of the Aprio SALT Newsletter.
This article was featured in the February 2017 SALT Newsletter. To view the entire newsletter, click here.
 Georgia Letter Ruling LR SUT-2016-17 (Aug. 8, 2016).
 O.C.G.A. § 48-8-2(34)(A)(iii) and (iv).
 O.C.G.A. § 48-8-2(34)(B)(iv).
Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.