United States

Indiana: Lessee Did Not Establish it Lacked Exclusive Control over Scaffolding; Owed Use Tax on Scaffolding Rentals

Apr 16, 2018
From KPMG TaxWatch

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In a recent Letter of Findings, the Indiana Department of State Revenue addressed a taxpayer’s position that it did not owe use tax on rentals of scaffolding systems. The taxpayer’s scaffolding vendor not only designed and erected the scaffolding, but also regularly inspected the scaffolding and controlled access to it. The vendor’ representatives were “virtually always” on site at the taxpayer’s plant. However, the taxpayer set forth standards with respect to the scaffolding, such as requiring the vendor’s employees to have a certain level of training and to comply with the taxpayer's safety handbook. Under Indiana law, there is an exclusion from the definition of a taxable lease for situations in which tangible personal property is provided with an operator for a fixed or determinable period. A regulation interpreting this statute further provides that rentals of tangible personal property, together with the services of an operator, will be subject to sales and use 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. If these conditions are present, control is deemed to be exercised even though it is not actually exercised. Thus, a determination of whether the taxpayer owed use tax on the rentals involved analyzing whether the taxpayer had exclusive use of the scaffolding and the right to direct the manner of the use of the scaffolding.

The Department, noting that the exclusive control issue had been addressed in earlier tax court decisions, found that the taxpayer’s situation had similarities to decisions in which the tax court held both for and against the taxpayer. However, in reviewing all the relevant facts, the Department concluded that the taxpayer controlled the use of the scaffolding equipment on the front-end of the project and allowed the vendor to work within that control. Notably, while the vendor controlled access to the scaffolding and exclusively installed and repaired the scaffolding, the parameters of the scaffolding projects and the associated safety rules were set forth in the taxpayer’s safety handbook. The Department concluded that the taxpayer failed to provide sufficient evidence to show that it, as the lessee, it did not have exclusive use of the property and could not direct the manner of use of the property. As such, the taxpayer’s protest was denied. An alternative claim that separately stated labor charges for the installation and repair of the scaffolding should be deleted from the tax base of the rental was sustained. Please contact Dave Perry at 513-763-2402 with questions on this Letter of Findings.


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.