§ 47.16. Rental of equipment between affiliated interests.
(a) Definitions. The following words and terms, when used in this section, have the following meanings, unless the context clearly indicates otherwise:
Affiliated interest—The relationship between two corporations, associations, partnerships, proprietorships or other businesses, in which one corporation, association, partnership, proprietorship, individual or other business owns more than 50% of the stock or assets, including inventory, machinery and equipment of the remaining corporation, association, partnership, proprietorship or other business. Also, the common ownership of more than 50% of the stock or assets of each of two or more business entities results in an affiliated interest between the two commonly owned entities.
Example 1. ‘‘A’’ company owns 60% of the stock of ‘‘B’’ corporation. ‘‘A’’ has an affiliated interest in ‘‘B’’. Example 2. ‘‘C,’’ an individual, owns 75% of the stock of ‘‘D’’ corporation and 55% of the stock of ‘‘E’’ corporation. ‘‘D’’ corporation has an affiliated interest in ‘‘E’’ corporation.
Fair rental charge—The amount which would be charged for the rental of the property in the open market for a similar period of time and at a similar place.(b) Scope. When there has been a rental or lease of equipment, machinery, tools or other property between businesses having an affiliated interest, and the charge for the rental or lease, in the opinion of the Department, is not indicative of the true value of the equipment, machinery or tools, or the fair rental charge thereof, the Department may use as the constructive monthly purchase price of such rental or lease an amount equal to 4% of the original purchase price, which shall include an amount equal to the original purchase price of any accessories, attachments or additions to such equipment, machinery or tools.
Example. ‘‘A’’ company has an affiliated interest in ‘‘B’’ company. ‘‘A’’ company leases a motor vehicle ($10,000 acquisition cost) to ‘‘B’’ company for which an annual charge of $1 is made. The Department determines that the $1 charge is not indicative of the fair rental charge of the vehicle. The Department may use as the monthly tax base 4% of $10,000 or $400 as the constructive purchase price of the monthly rental charge for each month during which the vehicle was rented. The monthly tax due on the transaction is $24. For rental or lease periods for a duration of less than 1 month, appropriate allocation of this rule may be followed.
Source The provisions of this § 47.16 adopted September 7, 1973, effective September 8, 1973, 3 Pa.B. 2026.
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