The New York Appellate Division, Third Department, held that a vehicle fleet management company properly took credits on its sales tax returns for sales taxes refunded to its lessees based on adjustments that it made at the conclusion of the lease agreements. Gelco Corp. v. New York Tax Appeals Tribunal, CV-24-1376 (Feb. 5, 2026). Although this issue may not apply to many businesses, the case demonstrates that when you believe in an issue you should continue to pursue it despite losing at the lower levels of appeal.

The Facts: Gelco Corporation (“Gelco”) leases fleets of commercial vehicles to businesses throughout the country, including in New York. Its lease agreements were generally for a period of 367 days with renewal options on a monthly basis up to a maximum term. The leases contained a terminal rental adjustment clause (“TRAC”) whereby a lessee would pay an estimated monthly rent based on the projected residual book value of the vehicle at the termination of the agreement and, at termination, the estimated rent would be adjusted upwards or downwards based on the residual book value of the vehicle at termination. When the residual book value of the vehicle at termination was greater than projected, the actual rent was less than estimated and the lessee was entitled to a refund of rent.

In accordance with the New York sales tax, at the commencement of the lease, Gelco collected and remitted sales tax based on the statutorily-deemed receipts for the first 32 months of the lease, which was calculated using the estimated rent schedule. When the lease terminated and the actual rent was calculated, if the actual rent calculation resulted in a partial refund of rent to the lessee, Gelco refunded both the excess rent and the sales tax paid thereon and took credits on its sales tax returns for the refunded sales tax.

At audit, the Division of Taxation (the “Division”) concluded that Gelco was not entitled to take the credits and assessed the company. Gelco, believing it was entitled to the credits, appealed the assessment. The Bureau of Conciliation and Mediation Services issued an order sustaining the assessment. Both an Administrative Law Judge and the Tax Appeals Tribunal agreed with the Division. Refusing to give up, Gelco went to the courts.

The Decision: The Appellate Division determined that the relevant statute required it to look to the contractual reality of the TRAC leases. What was relevant was the consideration contracted to be given and, in such leases, the consideration contracted to be given necessarily incorporates lease-end adjustments, whether upward or downward. The initial lease payments were provisional estimates rather than fixed consideration. Accordingly, “[t]ax paid on any portion of those provisional amounts that is later refunded exceeds the statutory base.” Therefore, Gelco was entitled to the credits it claimed.

The Takeaway: This case illustrates the importance of continuing to pursue an issue where you believe that you have correctly computed the tax despite having adverse results in the early stages of an appeal.