Virginia Taxes Costs of Total Equipment Loss on Rental and Lease Agreements

Mar 21st, 2022

The Virginia Tax Commissioner recently ruled that the proceeds received from the total loss of leased equipment are subject to sales tax. The company in this case leased out various types of equipment including vehicles and railcars. In its lease agreement, the company discussed total loss of equipment, detailing a customer's responsibilities in the event of a total loss due to operator error or misconduct.

Virginia imposes the sales tax on the gross proceeds from the lease or rental of tangible personal property. "Gross proceeds" includes the charges made for the lease or rental computed in the same way as the sales price. "Sales price" includes any amount for which credit is given to the purchaser, consumer, or lessee by the dealer, without any deduction based on losses or any other expenses. As a result, a transaction occurring as a result of a total loss is taxable.

The Commissioner pointed out that sales tax does not apply to motor vehicles, as they are subject to a separate tax administered by the Virginia DMV. The DMV would have to weigh in on the effect of total loss transactions on motor vehicles.