Can a security company buy its 'security vehicles' tax-free for resale, when some vehicles are leased out with a uniformed driver providing patrol services and others are leased out empty for customers to park and move themselves?

Plain-English summary

Aron Security provides both security guards and "security vehicles" -- used cars, often still marked "Security" (many bought from local police departments), leased to customers either with or without a driver. Leased without a driver, the car is simply parked wherever the customer wants to create the impression a security presence is on-site, with keys left for the customer to move it as needed. Leased with a driver, the customer directs where a licensed (unarmed but arrest-authorized) security guard patrols the property in the vehicle, and the customer is contractually responsible for the driver's actions during the lease. Aron maintains a 38-vehicle fleet with its own mechanic and repair shop, buys and sells cars as an ongoing part of the business, and had been claiming a sales-tax exemption on its vehicle purchases using Form DTF-803 on the theory that the vehicles are bought for resale (as rentals) to customers.

New York courts look at a security business's service as a whole, not by breaking it into components. Where Aron provides a vehicle with a security-guard driver, the vehicle is an inseparable part of a taxable protective/patrol service under Tax Law § 1105(c)(8) -- like the compactors in the Waste Management case or the linens in Atlas Linen Supply, title and possession of the vehicle never really pass to the customer, so Aron is the true "consumer" of the vehicle rather than reselling it, and its purchase of that vehicle (and related parts/supplies) is taxable.

Where Aron leases a vehicle WITHOUT a driver purely for the customer's own use, that's a genuine rental of tangible personal property, which qualifies as a purchase for resale -- Aron's purchase of that specific vehicle can be tax-free with a timely Resale Certificate (Form ST-120), and Form DTF-803 is acceptable proof of the exemption at registration. But the resale exclusion requires each vehicle to be bought for that ONE purpose only -- if Aron uses the same vehicle interchangeably for both driver-patrol services and driverless rentals, none of its purchases qualify for the resale exemption. Leased vehicles (with or without a driver) are also separately subject to either the short-term rental tax (Tax Law § 1160, for leases under a year) or the long-term lease tax computed on the full lease term upfront (Tax Law § 1111(i), for leases of a year or more).

What this means for you

Security companies that also lease vehicles

Track vehicle usage carefully and keep your fleet segregated by purpose. Vehicles used (even occasionally) with a guard-driver providing patrol services are taxable purchases for you -- they can never qualify as resale-exempt, even if you also rent that same vehicle out driverless some of the time. Only vehicles dedicated exclusively to driverless rental use can be purchased tax-free for resale.

Vehicle rental and leasing businesses more broadly

The "look at the whole service" principle applies well beyond security companies -- any business bundling equipment with an operator/service provider (compactors with waste hauling, linens with laundering, cars with security guards) risks having the equipment purchase treated as taxable rather than resale-exempt, because the equipment is inseparable from the taxable service being sold.

Accountants and tax professionals

The exclusive-use requirement (from Model Auto Driving School and P-H Fine Arts) is strictly applied -- mixed use between resale and business-use purposes disqualifies the ENTIRE purchase from the resale exclusion, not just the portion attributable to non-resale use. Also flag the separate lease-tax mechanics under §§ 1111(i) and 1160 depending on lease term, which apply on top of (not instead of) the underlying purchase-tax analysis.

Common questions

Q: Can a security company ever buy its patrol vehicles tax-free for resale?
A: Not the vehicles used with a security-guard driver -- those are inseparable from the taxable protective service being sold. Only vehicles leased driverless, purely for the customer's own use, and used exclusively for that purpose, can qualify.

Q: What happens if the same vehicle is sometimes used with a driver and sometimes rented out empty?
A: The resale exclusion is lost entirely for that vehicle -- mixed use disqualifies the purchase from the exemption, even for the portion of time it's used as a pure rental.

Q: Does leasing vehicles trigger any tax beyond the purchase-tax question?
A: Yes -- leases under a year face an additional 5% short-term rental tax (§ 1160), while leases of a year or more require tax on the full lease-term receipts upfront (§ 1111(i)).

Q: Can another security company rely on this ruling?
A: No. It binds the Department only as to this petitioner's fleet and business practices described. Other companies should track their own vehicles' actual usage patterns before assuming the same treatment.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4)(i) (definition of "retail sale"; resale exclusion)
• Tax Law § 1101(b)(5) (definition of "sale, selling or purchase")
• Tax Law § 1105(c)(8) (tax on protective and detective services, including guard/patrol services)
• Tax Law § 1111(i) (sales tax on long-term motor vehicle leases)
• Tax Law § 1132(f) (Form DTF-803, Claim for Sales Tax Exemption -- Title/Registration)
• Tax Law § 1160 (additional tax on short-term passenger car rentals)
• 20 NYCRR § 527.15 (motor vehicle lease tax mechanics)

Prior rulings and cases referenced:

• Matter of Atlas Linen Supply Co., Inc. v. Chu, 149 AD2d 824
• Matter of Waste Management of New York v. New York State Tax Appeals Tribunal, 185 AD2d 479
• Model Auto Driving School, Inc., Adv Op Comm T&F, May 2, 1996, TSB-A-96(25)S
• Price Waterhouse LLP, Adv Op Comm T&F, Sept. 9, 1998, TSB-A-98(62)S and TSB-A-98(63)S
• Matter of P-H Fine Arts Ltd. v. New York State Tax Appeals Tribunal, 227 AD2d 683

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2000.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a00_8s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-00(8)S
Sales Tax
February 2, 2000

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S990429B

On April 29, 1999, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Aron Security, Inc., 390C Suffolk Avenue, Islandia, New York 11722. Petitioner,
Aron Security Inc., provided additional information pertaining to the Petition on July 12, 1999.
The issues raised by Petitioner are:
(1) Whether its purchases of motor vehicles used to provide security services are exempt
from sales tax as purchases for resale.
(2) Whether its purchases of supplies and parts used to maintain such motor vehicles are
exempt from sales tax as purchases for resale.
(3) Whether it is correctly supplying Form DTF-803, Claim for Sales Tax Exemption­
Title/Registration, in connection with its purchases of motor vehicles.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner began business in 1995 to provide security services to individuals, businesses,
shopping centers and governmental entities located primarily in Long Island, New York. Petitioner
derives its income from two sources: (1) by supplying security guards and (2) by supplying security
vehicles. Only Petitioner’s dealings with customers requesting security vehicles are at issue in this
Advisory Opinion.
Petitioner purchases used cars for use in its business from available sources such as local
police departments. Many of the vehicles say “Security” on them and are intended to act as a
deterrent to wrongdoing. Petitioner has grown by focusing on a niche market of leasing these
vehicles to its customers. It also derives profits from contracting out drivers for the vehicles.
Petitioner’s customers have a choice of leasing a vehicle with or without a driver. If leased
without a driver, the car is parked in an area chosen by the customer to create an impression that a
security force is present. Petitioner does not tell its customers where to park the unmanned vehicles.
The car keys are left with the customer at the customer’s location so that the car may be moved as
the customer wishes. When a car is leased with a driver, the customer determines where the vehicle
patrols and for how long, e.g., around the parking areas of a shopping center. The driver and car are
under the control and direction of the customer during the lease period, and the customer is
contractually liable for the driver’s actions during the time the car and driver are under the
customer’s control. All drivers are licensed security guards. As such, they do not carry firearms but

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are authorized to make a citizen arrest or call the police for assistance. The customers are billed one
price, either for the use of the vehicle for a certain period of time or, for a higher fee, for the use of
the vehicle with the driver for a certain period of time. Sales tax is collected from customers who
lease vehicles from Petitioner.
Petitioner maintains a fleet of about thirty-eight vehicles which necessitates the employment
of a full-time mechanic and a fully equipped indoor repair facility which can service at least three
cars at one time. Petitioner purchases supplies, car parts and equipment which become an integral
part of its leased cars so that they remain mechanically sound and safe. On a regular basis, the repair
shop mechanic, together with management, determine if a car should be sold rather than held for
lease and repaired. It is the nature of Petitioner’s business that cars are constantly being bought and
sold such that a profit on each car occurs when the expenses associated with that car are less than
the total income from the car. The expenses of each car include the purchase price, repair costs,
insurance and other overhead. The income from each car includes the lease income and the sales
price of the car.
When Petitioner purchases a car, it files New York State Department of Taxation and Finance
form DTF-803, Claim for Sales Tax Exemption - Title/Registration, and provides its sales tax
certificate of authority number as required on the form. It elects, by checking box 3 on the form, to
claim a sales tax exemption and states that the motor vehicle will be exclusively used for rental or
lease to its customers.
Applicable Law and Regulations
Section 1101(b) of the Tax Law states, in part:
When used in this article for the purposes of the taxes imposed by
subdivisions (a), (b), (c) and (d) of section eleven hundred five and by section eleven
hundred ten, the following terms shall mean:
*

*

*

(4) Retail sale. (i) A sale of tangible personal property to any person for any
purpose, other than (A) for resale as such or as a physical component part of tangible
personal property, or (B) for use by that person in performing the services subject to
tax under paragraphs (1), (2), (3), (5), (7) and (8) of subdivision (c) of section eleven
hundred five where the property so sold becomes a physical component part of the
property upon which the services are performed or where the property so sold is later
actually transferred to the purchaser of the service in conjunction with the
performance of the service subject to tax. . . .

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(5) Sale, selling or purchase. Any transfer of title or possession or both,
exchange or barter, rental, lease or license to use or consume (including, with respect
to computer software, merely the right to reproduce), conditional or otherwise, in any
manner or by any means whatsoever for a consideration, or any agreement therefor,
including the rendering of any service, taxable under this article, for a consideration
or any agreement therefor. (Emphasis added)
Section 1105 of the Tax Law provides, in part:
Imposition of sales tax. – . . . there is hereby imposed and there shall be paid
a tax . . . upon:
(a) The receipts from every retail sale of tangible personal property, except
as otherwise provided in this article.
*

*

*

(c) The receipts from every sale, except for resale, of the following services:
*

*

*

(8) Protective and detective services, including, but not limited to, all services
provided by or through alarm or protective systems of every nature, including, but not
limited to, protection against burglary, theft, fire, water damage or any malfunction
of industrial processes or any other malfunction of or damage to property or injury
to persons, detective agencies, armored car services and guard, patrol and watchman
services of every nature other than the performance of such services by a port
watchman licensed by the waterfront commission of New York harbor, whether or
not tangible personal property is transferred in conjunction therewith. (Emphasis
added)
Opinion
Petitioner provides security services to individuals, businesses and governmental entities. As
part of the services it offers, Petitioner provides security vehicles (cars) to its customers, available
either with or without a driver. A driver licensed as a security guard is used to periodically patrol
the customer’s protected premises in the security vehicle. In this instance, Petitioner charges one
fee that includes compensation for the driver and for providing the security vehicle. For a lower fee,
the car is provided without a driver, in which case it is parked in an area chosen by the customer to
create an impression that a security force is present. The keys are left with the customer so that the
vehicle may be moved if the customer wishes.

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Petitioner characterizes part of its business operations as “vehicle rental,” and collects New
York State sales tax on its fees described as rental charges for the leasing of motor vehicles.
However, in determining a service’s taxability, the New York courts have focused their analyses on
the service in its entirety, as opposed to reviewing the service by components or by the means in
which the service is effectuated (see Matter of Atlas Linen Supply Co., Inc. v. Chu, 149 AD2d 824,
lv denied 74 NY2d 616; Matter of Penfold v. State Tax Commn., 114 AD2d 696; Matter of Waste
Management of New York v, New York State Tax Appeals Tribunal, 185 AD2d 479, lv denied 80
NY2d 762). In those instances where Petitioner provides vehicles with licensed security guards as
drivers, it is clear that Petitioner’s primary function is to provide security services to its customers.
The provision of a security vehicle with a patrolling security guard is one of the services specifically
subjected to the tax imposed under Section 1105(c)(8) of the Tax Law. Accordingly, Petitioner is
providing taxable protective services as described in Section 1105(c)(8) of the Tax Law (see Price
Waterhouse LLP, Adv Op Comm T&F, September 9, 1998, TSB-A-98(62)S and TSB-A-98(63)S).
Under Section 1101(b)(4)(i)(B) of the Tax Law, purchases of tangible personal property for
use in performing services which are subject to sales tax may be excluded from sales tax as
purchases for resale under certain conditions. To qualify for this resale exclusion, the tangible
personal property must become a component part of the property upon which the services are
performed, or it must be later actually transferred to the purchaser of the service in conjunction with
the performance of the service subject to tax. As described above, the security vehicles provided by
Petitioner are an integral and inseparable component of Petitioner’s security service and Petitioner
is not, in reality, selling two separate items or services. Like the compactors in Waste Management,
supra, and the linens in Atlas Linen Supply, supra, title or possession of the vehicles is never
permanently transferred to Petitioner’s customers. They remain the property of Petitioner, do not
become part of the real property being protected and are removed at the end of the contract period.
Since Petitioner will be using the vehicles in performing its security service, Petitioner is not
considered to be reselling the vehicles to its customers but is considered to be the ultimate consumer
of the vehicles. Accordingly, Petitioner’s purchases of such motor vehicles, and their parts/supplies,
which are used in providing its protective services do not qualify as purchases for resale as described
in Section 1101(b)(4)(i) of the Tax Law and are subject to sales or compensating use tax (see Model
Auto Driving School, Inc., Adv Op Comm T&F, May 2, 1996, TSB-A-96(25)S; Price Waterhouse
LLP, supra;).
On the other hand, if Petitioner furnishes vehicles without drivers to its customers for the
customers’ own use as described above, and does not provide any protective services, the transfer
of such vehicles for a consideration will constitute a rental of tangible personal property. Petitioner's
purchases of vehicles (and their parts/supplies) used exclusively for this purpose are purchases for
resale within the meaning and intent of Section 1101(b)(4)(i) of the Tax Law, and are therefore not
subject to State or local sales tax, provided Petitioner furnishes its supplier a properly completed
Resale Certificate (Form ST-120) no later than 90 days after the purchase. When registering such
vehicles with the Department of Motor Vehicles, Petitioner’s submission of a properly completed

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Form DTF-803, Claim for Sales Tax Exemption-Title/Registration, is acceptable proof that no sales
tax is due on such vehicles. (See Section 1132(f) of the Tax Law.)
It is emphasized that for these purchases to be eligible for the resale exclusion, Petitioner
must show that each vehicle was purchased for only one purpose, resale (see Matter of P-H Fine Arts
Ltd. v. New York State Tax Appeals Tribunal, 227 AD2d 683, lv denied 89 NY2d 804). A mixed
use of the vehicles between Petitioner’s own use in providing protective services and the leasing of
such vehicles to its customers does not satisfy this requirement (Model Auto Driving School, Inc.,
supra). Therefore, if Petitioner uses its vehicles interchangeably for rental and non-rental purposes,
the purchases of all the vehicles are subject to sales or use taxes.
As a consequence of leasing motor vehicles to its customers, Petitioner is subject to the
provisions of either Section 1160 or Section 1111(i) of the Tax Law, depending on the term of the
lease. Section 1160 of the Tax Law imposes an additional special tax on short term passenger car
rentals (less than one year) at the rate of 5% of the rental receipts (see BEJ Taxi Corp., Adv Op
Comm T&F, February 13, 1991, TSB-A-91(20)S). Section 1111(i) of the Tax Law provides that with
respect to any lease for a term of one year or more, sales tax must be collected on the total amount
of receipts due under the entire term of the lease as of the date of first payment under the lease, or
as of the date of registration of such vehicle with the Commissioner of Motor Vehicles, whichever
is earlier. See Section 527.15 of the Sales and Use Tax Regulations.

DATED: February 2, 2000

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.