64:06:01:09.  Conditional sales contracts -- Assigned and repossessed merchandise. If conditional sales contracts are assigned or negotiated by the retailer to a finance company, sales tax must be paid by the retailer on the full amount of the purchase price under the contract at the time the retailer makes the required tax remittance for the reporting period in which the sale was made.

          If repossession by the finance company becomes necessary, the retailer may deduct as a bad debt, as provided in SDCL 10-45-30, that portion of the tax previously paid, provided that in liquidation of the repossessed merchandise the retailer has actually suffered a loss and the gross receipts prove to be less than anticipated under the original contract price.

          If the merchandise repossessed is later sold by the retailer to a consumer, the tax applies to the second sale the same as it did to the first sale.

          Source: SL 1975, ch 16, § 1; 5 SDR 60, effective January 25, 1979; 7 SDR 80, effective February 22, 1981; 12 SDR 111, effective January 12, 1986; 13 SDR 129, 13 SDR 134, effective July 1, 1987; 16 SDR 76, effective November 1, 1989; 21 SDR 219, effective July 1, 1995; 25 SDR 167, effective July 1, 1999; 28 SDR 178, effective July 1, 2002; 33 SDR 226, effective June 27, 2007.

          General Authority: SDCL 10-45-47.1(2).

          Law Implemented: SDCL 10-45-1(10), 10-45-2, 10-45-30.

          64:06:01:09.01.  Sale and leaseback contracts. If a company enters into a contract to purchase equipment from another company with the intention to resell it to a third company from whom the first company will lease it back, the first transaction is presumed to be for resale if the company who purchased the equipment can show its intention. The subsequent sale and leaseback arrangement with the leasing company cannot be an afterthought or a follow-up financing mechanism. The company must demonstrate its intention, either through simultaneous or concurrent contracts or other documentation that proves their intention was not to purchase, but to resell and lease back the equipment.

          Source: 16 SDR 76, effective November 1, 1989; 21 SDR 219, effective July 1, 1995; 28 SDR 178, effective July 1, 2002; 33 SDR 226, effective June 27, 2007.

          General Authority: SDCL 10-45-47.1(3), 10-46-35.1(3).

          Law Implemented: SDCL 10-45-1(10), 10-45-9.1, 10-46-2.3.

          Example:

          Company A enters into a contract with Company B to purchase a bulldozer. At the same time, Company A enters into a contract with Company C to sell the bulldozer to Company C and lease it back. At the time of purchase from Company B, no sales tax is due provided Company A furnishes Company B with an exemption certificate. The second transaction, the resale to Company C, is not a taxable transaction because the intention of Company A was always to resell the equipment to Company C. The lease payments to Company C are subject to sales or use tax.