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CPA Now
Apr 18, 2022

Tax Rules on Rentals: A Look at the Pa. DOR’s Equipment Rental SUT Bulletin

Mark A. Balistrieri, CPABy Mark A. Balistrieri, CPA


The Pennsylvania Department of Revenue (DOR) issued Sales and Use Tax Bulletin 2021-05 on Nov. 2, 2021, regarding the taxation of equipment rental and equipment rental with operators. The bulletin restates the presumption that when a vendor provides the use of equipment with an operator the transaction is a rental of equipment.1 As such, the charge for the rental of the equipment is subject to Pennsylvania sales and use tax, and the charge for the operator is subject to tax as a help supply service.2 The presumption can be rebutted if the transaction can be supported by facts that demonstrate that the work being performed is exclusively under control of the vendor. If those facts can be established, the transaction is treated as a nontaxable service. Additionally, providing equipment without an operator is also considered to be taxable rental of the equipment.3

Regarding the operator charges, if that portion is separately stated the employee cost can be excluded from the taxable base and the tax would be applied to the markup of the operator charge consistent with the taxation of other help supply services.4 If the charge is not separated from the equipment, the full charge is subject to tax.

Tractor in use on field.The bulletin also addresses taxation of the purchase of the equipment by the vendor. If the predominant purpose of the equipment is for rental activities, the vendor is entitled to claim the resale exemption at the time of purchasing the equipment.5 Conversely, if the predominant purpose of the equipment is to be used in providing a nontaxable service, the vendor owes tax on the original purchase price of the equipment.6 If the resale exemption was claimed on the exempt equipment, and that equipment is then used to provide a nontaxable service, the vendor would be required to accrue and remit use tax on the fair rental value during the usage to provide the nontaxable service.

The bulletin also addresses the assessment of tax against vendor refunds of tax paid by the purchaser of nontaxable services. Regarding refunds of tax, the purchaser may obtain refunds where they are able to document through invoices and/or contracts that the transaction is a nontaxable service. The DOR has also added an additional documentation requirement before a refund will be approved. Form REV-1890 will now be required to be completed by the vendor stating that the vendor incorrectly charged sales tax on the transactions and that the vendor will remit the use on the fair rental value of the equipment. The bulletin also states that it is the DOR’s position that if a vendor charged tax on the original transaction, then provided REV-1890 in support of the purchaser’s refund claim, the DOR can assess tax against the vendor on the fair rental value of the equipment, even if the equipment was purchased outside the three-year statutory assessment period – seemingly based on 72 P.S. Section 7260 regarding the filing of false and fraudulent returns.

Vendors of equipment rentals and nontaxable services involving the use of equipment should review their invoicing and contracts to verify that the sales and use tax treatment is consistent with Pennsylvania sales and use tax regulations and that the tax decisions can be supported under a DOR audit or review.

1 Pa. Code Section 31.4(a)(1))
2 72 P.S. Sections 7201(g)(6) and (k)(15)
3 61 Pa. Code Section 31.4(a)
4 72 P.S. Section 7201(g)(6)
5 61 Pa. Code Section 31.4(b)
6 61 Pa. Code Section 31.4(b)(1)


Mark A. Balistrieri, CPA, is director, state and local tax, with KPMG LLP in Pittsburgh. He is also chair of PICPA’s Sales and Use Tax Thought Leadership Committee. Balistrieri can be reached at mbalistrieri@kpmg.com.


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Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of PICPA officers or members. The information contained in herein does not constitute accounting, legal, or professional advice. For professional advice, please engage or consult a qualified professional.
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