By Olga Goldberg and Madison Barnett
The Texas Court of Appeals ruled that Rent-A-Center is primarily engaged in retail trade and thus qualifies for the lower 0.5% franchise tax rate available to retailers and wholesalers. The Comptroller argued that the rent-to-own business is a rental service rather than the sale of merchandise in a retail trade. The court rejected the Comptroller’s argument, stating that “[t]he Tax Code asks whether revenues from Rent-A-Center’s activities in retail trade exceed those from activities in other trades, but the Comptroller frames the question as asking whether Rent-A-Center’s revenues from sales exceed its revenues from leases.” (Emphasis in original.) The court held that Rent-A-Center’s rental-purchase agreements were more like sales than leases because a customer can acquire title at any time by paying the purchase price, title to 97% of merchandise eventually passed to a customer, and items sold in an average of 20 months. Rent-A-Center, Inc. v. Hegar, No. 03-13-00101-CV, 2015 WL 3654559 (Tex. App. – Austin June 11, 2015, no pet. h.), mtn. for reh’g denied (July 27, 2015).
The specific issue raised by this case was resolved by the Legislature beginning with report year 2014. In 2013, the Legislature amended Tex. Tax Code § 171.0001(12) to expressly include “rental purchase agreement activities” in the definition of “retail trade.”