The Kentucky Supreme Court has held that equipment leased by a company to its affiliates is subject to sales tax. The decision in LWD Equipment Inc. et al. v. Revenue Cabinet was filed June 17.

According to a report in the State Laws Newsletter by Robert Pitcher, the companies were all subsidiaries of a single holding company. One of them held title to industrial and office equipment, which it leased to the others. No sales tax was collected on the transactions, based on the theory that they were occasional sales and therefore not subject to tax. The state revenue agency assessed nearly $200,000 in sales tax, on the grounds that the leasing constituted the sole and regular business of the lessor.

Pitcher reported that the court upheld the assessment, saying that the exemption for occasional sales was limited to business liquidations and reorganizations, and pointed out that if the leases were exempt, the lessor could also have purchased the equipment tax-free in sale-for-lease transactions, and escaped tax altogether.