An equipment lease agreement lets a company or person owning machinery, tools, or other items rent them to another party in exchange for regular payments. Depending on the industry, the anticipated usage, and the parties’ needs, equipment leases can be as short as a day or as long as multiple years.

This legal document protects the person who owns the equipment and the person renting the equipment by explaining each party’s responsibilities. It’s also advantageous to both parties, as it allows the owner to profit from the equipment they’ve purchased and lets the renter access complex or expensive equipment without buying it outright.

Equipment lease agreements can outline the terms and conditions for renting the following equipment types:

Vehicles
Power tools
Medical equipment
Heavy machinery
Electronics
Event equipment
Furniture
Appliances
Gym equipment

Table of Contents

Equipment Rental Tax Laws - By State
How to Write an Equipment Lease Agreement
Sample Equipment Lease Agreement

Equipment Rental Tax Laws – By State

Each state has its own set of tax regulations regarding equipment rentals. Learning these laws is essential for owners and renters, enabling them to adhere to the relevant regulations and effectively plan for their tax responsibilities.

State	Equipment Rental Tax Rate	Law/Website
Alabama	• 4%.	Ala. Admin. Code r. 810-6-5-.09
Alaska	• 0% state sales tax. Some local municipalities may levy a tax on rentals.	Alaska State Assessor
Arizona	• 0%.	No sales tax for renting equipment.
Arkansas	• 6.5%.	Arkansas Economic Development Commission
California	• 7.5%. • Local jurisdictions may impose up to an additional 1% tax. • If the tangible personal property being rented out is in substantially the same form as when the lessor acquired it, and if the lessor has already paid use tax based on the purchase price or sales tax reimbursement, then no additional use or sales tax is due on the lease.	California City & County Sales & Use Tax Rates and Sales and Use Tax Regulations
Colorado	• No sales tax on equipment rentals if the lease term is less than 36 months and the lessor has paid use or sales tax on the acquisition of the rental property. The lessor may request permission from the Department of Revenue to collect the tax from the lessee in lease terms of 36 months or less. • Different rules apply to motor vehicles.	Colorado Department of Revenue
Connecticut	• 6.35%. • The lessee must pay any associated state sales tax in addition to a 2.75% rental surcharge.	Connecticut Department of Revenue Services
Delaware	• No state sales tax. • The lessee must pay a lease/use tax of 1.9914%.	Del. Code tit. 30 § 4301
District of Columbia	• Ranges from 6% to 10.25% depending on the item being rented.	Office of the Chief Financial Officer
Florida	• 6%. • Counties can impose an additional discretionary sales surtax on rented equipment. • Rental equipment where the owner also furnishes the operator and supplies is exempt from sales tax.	Florida Department of Revenue
Georgia	• 4%.	Georgia Department of Revenue
Hawaii	• Hawaii doesn't technically have a sales tax. Instead it imposes a general excise tax (GET) on businesses, rather than customers. The statewide GET rate in Hawaii is 4%.	Hawaii Department of Taxation and Hawaii GET Tax
Idaho	• 6%.	Idaho State Tax Commission
Illinois	• 6.25%. • Local municipalities may add up to 4.75% in sales and use tax.	Illinois Department of Revenue
Indiana	• 2.25% tax rate for heavy equipment rentals. • Motor vehicles are subject to Indiana state sales tax (7%) and auto rental excise tax. • Lessees in Marion County must also pay a supplemental auto rental excise tax. • No sales tax on equipment rentals if they come with an operator.	Heavy Equipment Rental Excise Tax and Rental and Leasing of Personal Tangible Property
Iowa	• 6%. • Machinery that is used by contractors and builders in the process of new construction, remodeling, or alteration of existing structures is generally exempt from the rental sales tax. • Local jurisdictions may impose an additional 1% sales tax.	Iowa Department of Revenue and Iowa Admin Code § 701-219.21
Kansas	• 6.5%. • Equipment rented with an operator is exempt from sales tax.	Kansas Department of Revenue and Kan. Stat. § 79-3703
Kentucky	• 6%.	Kentucky Department of Revenue
Louisiana	• 4.45%. 1 Rentals with an operator are not taxable.	La. Revenue and Taxation § 47:321.1 and Louisiana Department of Revenue FAQ
Maine	• 5.5%.	Maine Revenue Services
Maryland	• 6%.	Comptroller of Maryland
Massachusetts	• 6.25%.	Massachusetts Department of Revenue
Michigan	• 6%. • An additional 2% tax may apply to renters of heavy equipment. • No sales tax on equipment rentals if they come with an operator. • The lessor may choose to pay tax on the acquisition of the property rather than collecting tax from the lessee at the time of rental.	Michigan Department of Treasury and Heavy Equipment Excise Tax
Minnesota	• 6.875%.	Minnesota Department of Revenue
Mississippi	• 7% for tangible personal property. • 1.5% for farm tractors, logging equipment, and manufacturing machinery. • Varying rates for other equipment.	Mississippi Department of Revenue
Missouri	• 4.225%. • If the lessor pays tax on the purchase price, the impending lease of the property isn't subject to tax.	Missouri Secretary of State
Montana	• No state sales tax. • 4% tax for rental vehicles, but some vehicle sales are exempt, such as those vehicles being rented for 30 or more continuous days.	Mont. Admin. R. 42.14.1202
Nebraska	• 5.5%. • Sales tax is not imposed on the rental and use of manufacturing machinery and equipment.	Nebraska Legislature and Neb. Rev. Stat. § 77-2704.22
Nevada	• 6.85%.	Nevada Department of Taxation
New Hampshire	• 0%.	No state sales tax (including for equipment rentals).
New Jersey	• 6.625%.	New Jersey Division of Taxation
New Mexico	• 4.875%.	N.M. Code R. § 3.2.1.17
New York	• 4%. • The sales tax won't apply if the rental comes with an operator, but the rental may still be subject to a service tax.	New York Department of Taxation and Finance
North Carolina	• 4.75%. • Local jurisdictions may impose an additional tax rate of 1.2%.	NC Gen. Stat. § 153A-156 and North Carolina Department of Revenue
North Dakota	• 5%. • Rented equipment is exempt from the sales and use tax in some instances if the equipment is used for direct manufacturing.	North Dakota Office of State Tax Commissioner and ND Admin Code § 81-04.1-01-23
Ohio	• 5.75%.	Ohio Department of Taxation
Oklahoma	• 4.5%. • Equipment may be exempt from sales tax if it is rented with an operator of the vendor.	Okla. Admin. Code § 710:65-1-11
Oregon	• 2% for heavy equipment rentals.	ORS § 307.872
Pennsylvania	• 6%. • It doesn't apply if the vendor provides the equipment for use using their operator without direction from the customer.	Pennsylvania Department of Revenue and Sales and Use Tax Bulletin 2021-05
Rhode Island	• 7%.	Rhode Island Division of Taxation
South Carolina	• 7%. • 2.5% for heavy equipment rentals. • The heavy equipment rental fee does not apply for rentals to federal or state governments.	South Carolina Department of Revenue and SC Code § 56-31-60
South Dakota	• 4.2%.	South Dakota Department of Revenue
Tennessee	• 7%. • There is no sales and use tax when the equipment is provided with an operator.	Tennessee Department of Revenue
Texas	• 6.25%. • Local jurisdictions may impose an additional tax of up to 2%.	34 Tex. Admin. Code § 3.294
Utah	• 4.85%. • No tax levied if the business rents the equipment and provides an operator.	Utah State Tax Commission
Vermont	• 6%.	Vermont Department of Taxes
Virginia	• 5.3%. • There may be additional local taxes depending on where the equipment is rented.	Virginia Department of Taxation
Washington	• No sales tax on equipment rentals if they come with an operator. • 1.25% for heavy equipment rentals.	Washington Department of Revenue
West Virginia	• 6%. • 2.5% for heavy equipment rentals.	W. Va. Code § 11-5-15
Wisconsin	• 5%.	Wis. Stat. § 77.52
Wyoming	• 4%. • Local jurisdictions may approve additional taxes of up to 2%.	Wyoming Department of Revenue

How to Write an Equipment Lease Agreement

Step 1 – Gather Both Parties’ Contact Information

List each party involved in the lease, which can be a company or an individual:

Lessor: The lessor is the equipment’s owner.
Lessee: The lessee is the entity or individual renting equipment from the lessor.

This section clearly identifies both parties involved in the equipment rental agreement, ensuring they’re aware of each other’s roles, responsibilities, and contact information.

Step 2 – Establish the Lease Type

The most common types of equipment rental agreements are:

Fixed Lease: A fixed lease starts on the agreed-upon date and ends on a predetermined date.
Interval Lease: An interval lease starts on the agreed-upon date. It continues for set periods, such as each week, month, or quarter, until one party gives notice to terminate.

After you and the other party agree on a lease type, you can record the start date. If you settle on an interval lease, indicate how many days’ notice is required for termination.

Step 3 – Describe the Equipment

Provide a detailed description of the leased equipment, including the following information:

Make and model
Serial number
Condition (new or used)
Manufacture date
Value
Unique features, such as alterations or existing damage (if applicable)

This detailed description serves as a legal record, protecting both parties and preventing any confusion or swapping of the equipment.

Step 4 – Determine the Payments and Deposits

Choose Payment Methods

Agree on how the renter will make payments to the equipment owner. Possible options include:

Cash
Check
Debit card
Credit card
Automatic draft

Rental Costs and Schedule

Rental Costs: Clearly state the rental price for the equipment.
Payment Schedule: Decide if lease payments will be one-time or recurring.
- One-Time Payment: A single, nonrecurring payment for the rental period.
- Interval Payments: Regular payments the renter makes at agreed intervals, such as monthly or quarterly.

By clearly outlining the rental costs, payment schedule, and methods, both parties will have a shared understanding of the financial terms. Here are some additional costs that equipment lease contracts specify:

Cost Item	Details
Late Payments	• Specify a reasonable late fee. • Decide whether the renter will have a grace period. • Review state laws for limits on late fees and grace periods.
Insufficient Funds	• Include a fee for payments with insufficient funds. • Confirm that the fee is reasonable. • Check state laws for limits on NSF charges.
Security Deposit	• Charge a security deposit to safeguard against a renter returning damaged equipment. • Detail the conditions under which you will return the security deposit. • The security deposit should only cover damage by the renter beyond normal wear and tear.
Use Tax	• Specify if a use tax applies. • The lessee may have to pay use tax if the lessor didn't pay sales tax when they purchased the item. • Consult state law for information on use taxes.

Step 5 – Detail Lease Terms

Negotiate the following terms and note them in the equipment rental contract:

Delivery and Returns:
- Decide who handles delivery and when the lessee can report issues.
- Specify by what date the lessee must return the equipment when the lease ends.
Equipment Location:
- Explain where the lessee will keep the equipment during the lease.
Maintenance and Repairs:
- Determine who is responsible for regular maintenance and unexpected repairs.
- Decide if you will allow the lessee to alter or modify the equipment in any way.
- Allow yourself to conduct periodic inspections as the lessor (if desired).
Insurance and Tax:
- Establish procedures for handling equipment loss or damage.
- Include details on liability insurance and taxes.
- Specify if the lessee will cover additional costs, such as those for permits, taxes, and miscellaneous fees.
Warranty Period:
- Choose between one of the following:
  - No warranties: The lessor will lease the equipment “as-is.”
  - Limited warranty: The lessor warrants that the equipment is in good working condition when they lease it.
Lease Cancellation:
- State the notice period required if the lessor wants to cancel the lease due to a violation.
- Clarify the notice period the lessee must give if they want to end the lease.
Subletting:
- Specify if the lessee can sublet the equipment.
- Clarify if they need to first acquire written permission from the lessor.
Option to Purchase and Renew:
- Clarify if the lessee has the option to purchase the equipment at the end of the lease.
- State the purchase price in advance.
- Decide if the lessee can renew the lease for another term.
Disputes:
- Choose a method for resolving disputes:
  - Mediation: A neutral third party helps reach a nonbinding agreement.
  - Arbitration: A neutral third party makes a final, binding decision.
  - Mediation then Arbitration: The parties start with mediation and move to arbitration if needed.
Additional Clauses:
- Add any additional clauses to the equipment rental agreement template.
- For example, the lessor may require the lessee to maintain the equipment’s identification markers to ensure they don’t confuse it with other assets.

Step 6 – Governing Law

Choose the state whose laws will apply if there is a dispute about the agreement.

Step 7 – Collect Signatures

Leave spaces for both parties to sign the contract to make it legally binding. Have them provide the date of signing.

Sample Equipment Lease Agreement

Download an equipment lease agreement template in PDF or Word format below:

equipment lease agreement template

Download: PDF / Word

Equipment Lease Agreement Template

What Type of Equipment Can You Lease?