Renting Out Tangible Personal Property

A bare equipment rental is when the owner rents out only the property, and the person who rents that property will operate it. The owner charges tax on:

• The rental charge, no matter how it’s determined (e.g., by the hour, by the week, by mileage)
• Any charges related to using the property

  Examples:

  • Tire wear
  • Blade sharpening
  • Mandatory damage waiver
  • Mandatory warranty
  • Supplies provided with the rental
  • Cleaning charges agreed to as part of the rental
  • Labor charges to prepare the equipment for the customer’s specifications
  • Environmental fees, except those a federal government agency imposes
  • Fuel sold to the customer when motor vehicle tax is not paid on the fuel (e.g., dyed diesel)
  • Damage charges when the customer returns the property

Owners sometimes add personal property tax to the rental or lease fee. It’s taxable unless all of the following apply:

• The owner separately stated the property tax in the charge to the lessee.
• The lease agreement is for an initial period of one year or more.
• The amount the owner charged isn’t more than the property tax the lessor pays.

Bare rental with service fee

Some rentals include both a bare rental charge and a nontaxable service fee. In these rentals, tax is due on the personal property. The services might not be taxable if they’re a significant portion of the cost of the rental contract and are separately stated. Nontaxable services must be personal or professional, and not related to creating or altering the property rented.

Examples

• Renting out a garbage container and providing a service to empty the container
• Renting out portable toilets and providing a service to clean the units

In these situations, the customer uses the property between servicing, so it’s a bare rental of the property. Owners shouldn’t charge tax on service charges if they’re separately stated on the invoice.

Collecting tax

You’re a retailer if you make bare rentals. You must collect tax unless your customer qualifies for an exemption and provides a completed  Form ST-101 – Sales Tax Resale or Exemption Certificate. Read more about requirements in our Retailers guide.