With the help of some folks in a recent seminar, I think I've hit on a useful "rule of thumb" for dealing with the question of leasing equipment with an operator.
In most states, leasing of TPP is taxable. But the question is, if I get an operator for the equipment, two different taxation situations arise:
1. Am I still leasing a piece of equipment? If so, it's taxable (in most states); or
2. Am I hiring the services of an operator (which may or may not be taxable) and the equipment is just incidental to her service.
The problem is knowing when you've gone from situation1 to situation 2.
Here's the rule of thumb:
When the operator ONLY has control over the actual operation of the machine (pushing buttons, pulling levers, etc.) and has NO control over what is actually done with the equipment, then you're in situation 1; you're still leasing a piece of equipment and it's taxable (in most states).
When the operator not only has control over the operation of the machine, but decides how and where to use it, then you're probably hiring the services of the operator, and then you look at whether her services are taxable.
To summarize, if their control is limited to the console or cab of the machine, you're still leasing a machine. But if their control extends outside of the cab to the actual use of the machine, then you're probably hiring the services of the operator and the machine is something THEY use to perform that service. Then the question is: is that service taxable?
Of course, the specific rules in every state will be different.
Clear? Yeah, right.
Sales Tax Guy
The usual disclaimers apply
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