The Pennsylvania Department of Revenue (DOR) issued guidance on the new sales and use tax law for equipment rental transactions on November 2, effective immediately. The bulletin provided compliance requirements for taxpayers engaged in renting equipment used in performing services, both with or without operators, including cranes, concrete pumps, and excavators.
When renting equipment to customers, sales tax applies if the customer directs the use of the equipment either by providing its own employee to operate the equipment or by directing an operator provided by the vendor. The vendor must charge sales tax on the entire amount charged for the rental of the equipment. If the vendor provides the operator, the total amount charged for the rental of the equipment must include the operator’s fee as this is considered a taxable help supply service. The vendor may only exclude the operator’s fee from the total amount if the fee is separately stated on the vendor’s invoices.
In contrast, sales tax does not apply if the vendor provides the services of its operator to complete a specific task or tasks without direction from the customer. This transaction is considered a non-taxable service and must be disclosed as such by the vendor on the invoice.
Taxpayers who buy equipment for rental or lease purposes are entitled to claim resale on purchasing the equipment and any repair parts. However, if the equipment is for non-taxable service, the taxpayer must pay tax on purchasing the equipment and any repair parts.
If a vendor incorrectly charges a customer with sales tax on a non-taxable service, the vendor must complete form REV-1890 to acknowledge the error for the customer to obtain a sales tax refund. The refund will not be granted if the customer fails to include a completed REV-1890 with its refund petition.
DOR also pointed out that it is required to assess sales or use tax within three years of filing or the end of the year in which the tax liability arises, whichever shall last occur. A taxpayer who willfully files a false or fraudulent return with the intent to evade the sale and use tax may be assessed at any time.
If you have any questions on how the new sales and use tax regulations may affect your business, or you need assistance in managing your business’ sales and use tax compliance, please feel free to send us a message at [email protected]. Our team of tax professionals at Stephano Slack will be glad to assist you. To learn more about our services, visit www.stephanoslack.com/services today.
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