KEN KIRSCHENBAUM, ESQ
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More comment on leases and taxes
August 14, 2021
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More comment on leases and taxes from article on August 4, 2021
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Ken
I’d like to comment on the article “Comment on Leases and Taxes” in your column on August 4, 2021
We are obviously the “litigious fire alarm ‘leasing’ company” Anon on the West coast is referring to. I will, once again, set the record straight for your readers.
The fire alarm “lease” is NOT an actual lease. It is a term of art used in the industry to describe an account where the alarm company retains ownership of the alarm system installed in a protected premises. However, our contracts provide that we are providing a service (whether fire, sprinkler and/or security alarm); they do not actually state or otherwise indicate that we are leasing the system. The alarm company is simply installing its system in the premises so it can provide the service contracted for.
In other words, the customer is paying for the alarm company to provide a service; it is not paying the alarm company to lease its equipment/system.
As for the tax issue, it follows that since there is no lease, there should be no “lease tax.” Sales tax on the service is another matter, and it varies depending on the type of service provided and the jurisdiction you are in.
Robert Kleinman, Esq
CEO and House Counsel
AFA Protective Systems
New York
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Response
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A rose by any other name is still …. Just in case you don’t know how that ends:
“It's from Romeo and Juliet [by Shakespeare] and the full quote is: "What's in a name? That which we call a rose. By any other name would smell as sweet." Basically, what it means is that what matters is what something is, not what it is called.” Wikipedia.org
The original issue was taxes, not just sales tax. Ad valorem tax was raised [by me – and I admit I know nothing about taxes]. Some states have the ad valorem tax. I believe that means that a company is taxed based on its property in the state, sort of – or just like- real property tax. So if AFA installs its equipment at customer premises in an ad valorem taxed state AFA is going to get taxed on the value of that property, just as if it were real property owned by AFA. I think that’s how it works.
The Standard Form Agreements do include Leases, because some alarm companies lease security systems to residential and commercial customers, and some lease commercial fire alarm systems to their customers. These All in One Leases clearly state they are leases. AFA’s perspective is interesting, but I’m not convinced. In order for AFA to provide its fire alarm monitoring service it has to first install its system and then repair it when needed and provide periodic inspection. AFA charges a monthly charge to provide this service. I don’t know, but I surmise, that AFA charges an installation fee and that fee depends on the size of the building and complexity of the fire alarm. AFA also charges a monthly fee to provide its service, which includes inspection, repair and monitoring. The amount of the fee likely depends on the size of the job and may be related, somewhat, with the installation charge. The AFA agreement does not permit the customer to acquire the fire alarm system or any part of it, including the wiring. At the end of the service the system is removed, or at least can be if not abandoned. Again, AFA does have an agreement, but it never uses the word “lease”.
The Kirschenbaum Contracts™ for leasing work exactly the same way and they are priced based on the same considerations. I am not clear on what could be gained by removing the word “lease” from the document or specifically and adamantly providing, “This is not a lease”, it’s a “fire alarm service agreement”. I assume you have some legal reasons for not mentioning the word "lease" and perhaps you can enlighten us, especially as you are the progenitor from which AFA's litigation reputation springs] .
Also, how about AFA’s erudite President, who is a CPA, shed some light on this issue, because it surely has to have some legal consequence, which for the moment, escapes me. Presumably AFA’s contract has been drafted with either taxes or liability in mind. I admit that the All in One leases have been drafted with liability issues, enforcement and building equity in your business issues in mind, not taxes issues.
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
ken@kirschenbaumesq.com
www.KirschenbaumEsq.com
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