Is a 15-year lease of a sightseeing vessel used for Statue of Liberty harbor tours exempt from New York sales tax as a commercial vessel engaged in interstate commerce, and if not, when is the tax due?

Plain-English summary

Sean and Francesca Kennedy planned to lease their 50-foot vessel for 15 years to an operator who would run it as an excursion/sightseeing boat around New York and New Jersey Harbors, offering narrated tours in front of the Statue of Liberty and other waterfront attractions, with the lessee's own captain controlling the boat at all times. They asked whether their monthly lease receipts would be exempt as a "commercial vessel primarily engaged in interstate or foreign commerce" under § 1115(a)(8).

The Department found the vessel likely satisfies the first, narrower test — a "commercial vessel" is simply one used for hire to transport people or property (as opposed to occasional non-commercial use), and running paid sightseeing tours fits that description. But the exemption requires more: the vessel must be primarily engaged in interstate or foreign commerce, meaning 50% or more of its activity involves actually moving people or property between different states or countries — not merely crossing a state boundary along the way. New York precedent is direct on this point for exactly this kind of tour: Statue of Liberty/Ellis Island sightseeing trips that start and end at New York docks are not interstate commerce, even though the boat may pass through New Jersey waters en route. By contrast, a vessel that genuinely transports property or people between a point in one state and a point in another state (say, cargo moving from a New York plant to a New Jersey distribution center) does qualify.

Because the petition didn't establish exactly how the lessee's tours would be routed, the Department couldn't resolve the exemption question — it's a question of fact about the vessel's actual usage pattern, not something an advisory opinion can decide in the abstract. Procedurally, though, the ruling lays out the mechanics either way: for a lease of a year or more, New York collects tax on the entire multi-year lease's total payments up front (at the first payment or vessel registration, whichever is earlier), not incrementally per monthly payment. If the lessee expects the vessel to qualify as exempt, it must give the Kennedys a completed Form ST-121 (Exempt Use Certificate) within 90 days of delivery; if accepted in good faith, that shifts the burden of proving nontaxability entirely onto the lessee, who remains on the hook for the tax if the vessel's actual use turns out not to qualify.

What this means for you

Vessel owners leasing to tour or charter operators

Simply operating a for-hire vessel isn't enough for the commercial-vessel exemption — trace whether your lessee's routes actually begin and end in different states/countries. Round-trip harbor tours from a single home port typically fail this test even if the route briefly crosses a state line.

Long-term vessel/vehicle lessors generally

Remember the upfront-tax rule for leases of a year or more: tax is computed on the entire lease's total payments and collected at the first payment (or vessel registration, if earlier) — not spread across each periodic payment as it's received.

Accountants and tax professionals

This is a useful citation trio — Circle Line-Statue of Liberty Ferry, Circle Line Sightseeing Yachts, and Day-Line — all holding that classic round-trip New York Harbor sightseeing tours (even those dipping into New Jersey waters) aren't interstate commerce, contrasted with Lone Star Industries for genuine point-to-point interstate cargo transport.

Common questions

Q: Does crossing a state line during a tour automatically make a vessel "engaged in interstate commerce"?
A: No — the focus is on where trips begin and end, not whether the route happens to pass through another state's waters. Round-trip tours starting and ending at the same dock aren't interstate commerce even if the route dips into neighboring waters.

Q: How is sales tax collected on a multi-year vessel lease?
A: For leases of a year or more, tax is computed on the total payments for the entire lease term and is due at the time of the first payment (or vessel registration, whichever comes first) — not collected periodically as each payment is made.

Q: What protects a lessor if the lessee later misuses the vessel in a way that isn't actually exempt?
A: If the lessor accepts a properly completed Form ST-121 (Exempt Use Certificate) in good faith within 90 days of delivery, the lessor is relieved of liability and the burden shifts to the lessee — who remains liable for the tax if actual use doesn't qualify as exempt.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(5) (sale/rental/lease definition); § 1101(b)(8)(i)(F) (vendor definition); § 1101(b)(16) (commercial vessel)
• Tax Law § 1105(a) (retail sales tax); § 1110(a) (compensating use tax); § 1111(i)(A) (upfront lease tax)
• Tax Law § 1115(a)(8) (commercial vessel exemption)
• Tax Law § 1131(1) (persons required to collect tax); § 1132(c)(1) (exemption certificates; burden of proof)
• 20 NYCRR § 527.15 (vessel lease tax collection); § 528.9 (commercial vessel definitions/exemption); § 532.4(b) (good-faith certificate acceptance)

Prior rulings and cases referenced:

• Matter of The Absolute Difference, Inc., TSB-D-93(43)S
• Matter of Circle Line - Statue of Liberty Ferry, Inc., TSB-H-80(164)S
• Matter of Circle Line Sightseeing Yachts, Inc., TSB-H-80(162)S
• Matter of Day-Line, Inc., TSB-H-80(163)S
• Matter of Moran Towing and Transportation Co., Inc. v. State Tax Commission, 72 NY2d 166
• Lone Star Industries, Inc., TSB-A-81(53)S
• Carolyn Mazzenga, CPA, TSB-A-01(1)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2003.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a03_7s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-03(7)S
Sales Tax
March 4, 2003

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S010829A

On August 29, 2001, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Sean and Francesca Kennedy, 980 Motsie Road, Biloxi, MS 39532.
The issue raised by Petitioners, Sean and Francesca Kennedy, is whether monthly receipts
received from the lease of their vessel are exempt from sales and compensating use tax under
Section 1115(a)(8) of the Tax Law.
Petitioners submitted the following facts as the basis for this Advisory Opinion.
Petitioners plan to enter into a 15-year lease of their 50-foot “commercial vessel” with a
lessee who will operate the vessel as an excursion/sightseeing tour boat. The lessee will make trips
in and around the New York and New Jersey Harbors and provide narrated tours in front of the
Statue of Liberty and various other waterfront attractions. The lessee’s captain will maintain control
of the vessel at all times en route.
Applicable Law and Regulations
Section 1101(b) of the Tax Law provides, 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:
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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 . . . 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.
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(8) Vendor. (i) The term “vendor” includes:
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(F) A person making sales of tangible personal property, the use of which is
taxed by this article, where such person retains an ownership interest in such

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property and where such property is brought into this state by the person to whom
such property is sold and the person to whom such property is sold becomes or is a
resident or uses such property in any manner in carrying on in this state any
employment, trade, business or profession. . . .
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(16) Commercial vessel. A vessel used primarily (i) to transport persons or
property, for hire, (ii) by the purchaser of the vessel to transport such person’s
tangible personal property in the conduct of such person’s business, or (iii) for both
such purposes.
Section 1105(a) of the Tax Law imposes a tax on the receipts from every retail sale of
tangible personal property unless otherwise exempted or excluded from tax.
Section 1110 of the Tax Law provides, in relevant part:
(a) Except to the extent that property or services have already been or will be
subject to the sales tax under this article, there is hereby imposed on every person a
use tax for the use within this state . . . except as otherwise exempted under this
article, (A) of any tangible personal property purchased at retail. . . .
Section 1111(i)(A) of the Tax Law provides, in part:
Notwithstanding any contrary provisions of this article or other law, with
respect to any lease for a term of one year or more of (1) a motor vehicle, as defined
in . . . the vehicle and traffic law . . . (2) a vessel, as defined in section twenty-two
hundred fifty of such law (including any inboard or outboard motor and any trailer,
as defined in section one hundred fifty-six of such law, leased in conjunction with
such a vessel) . . . all receipts due or consideration given or contracted to be given
for such property under and for the entire period of such lease, option to renew or
similar provision, or combination of them, shall be deemed to have been paid or
given and shall be subject to tax, and any such tax due shall be collected, as of the
date of first payment under such lease, option to renew or similar provision, or
combination of them, or as of the date of registration of such property with the
commissioner of motor vehicles, whichever is earlier. Notwithstanding any
inconsistent provisions of subdivision (b) of this section or of section eleven hundred
seventeen of this article or of other law, for purposes of such a lease, option to renew
or similar provision originally entered into outside this state, by a lessee (1) who was
a resident of this state, and leased such property for use outside the state and who
subsequently brings such property into this state for use here or (2) who was a
nonresident and subsequently becomes a resident and brings the property into this
state for use here, any remaining receipts due or consideration to be given after such
lessee brings such property into this state shall be subject to tax as if the lessee had

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entered into or exercised such lease, option to renew or similar provision, or
combination thereof, for the first time in this state and the relevant provisions of
sections eleven hundred ten concerning imposition and computation of tax, eleven
hundred eighteen concerning exemption from use tax for tax paid to another
jurisdiction, eleven hundred thirty-two concerning presumption of taxability and
conditions for registration and eleven hundred thirty-nine concerning refunds, of this
article, shall be applicable to any sales or compensating use tax paid by the lessee
before the lessee brought the property into this state, except to the extent that any
such provision is inconsistent with a provision of this subdivision. . . .
Section 1115(a) of the Tax Law provides, in part:
Receipts from the following shall be exempt from the tax on retail sales
imposed under subdivision (a) of section eleven hundred five and the compensating
use tax imposed under section eleven hundred ten:
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(8) Commercial vessels primarily engaged in interstate or foreign commerce
and property used by or purchased for the use of such vessels for fuel, provisions,
supplies, maintenance and repairs (other than articles purchased for the original
equipping of a new ship).
Section 1131(1) of the Tax Law provides, in part:
“Persons required to collect tax” or “person required to collect any tax
imposed by this article” shall include: every vendor of tangible personal property or
services; every recipient of amusement charges; and every operator of a hotel. . . .
Section 1132(c)(1) of the Tax Law provides, in part:
For the purpose of the proper administration of this article and to prevent
evasion of the tax hereby imposed, it shall be presumed that all receipts for property
or services of any type mentioned in subdivisions (a), (b), (c) and (d) of section
eleven hundred five . . . are subject to tax until the contrary is established, and the
burden of proving that any receipt . . . is not taxable hereunder shall be upon the
person required to collect tax or the customer. Except as provided in subdivision (h)
or (k) of this section, unless (i) a vendor, not later than ninety days after delivery of
the property or the rendition of the service, shall have taken from the purchaser a
resale or exemption certificate in such form as the commissioner may prescribe,
signed by the purchaser and setting forth the purchaser’s name and address and,
except as otherwise provided by regulation of the commissioner, the number of the
purchaser’s certificate of authority, together with such other information as the
commissioner may require, to the effect that the property or service was purchased

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for resale or for some use by reason of which the sale is exempt from tax under the
provisions of section eleven hundred fifteen, and, where such resale or exemption
certificate requires the inclusion of the purchaser’s certificate of authority number
or other identification number required by regulations of the commissioner, that the
purchaser’s certificate of authority has not been suspended or revoked and has not
expired as provided in section eleven hundred thirty-four . . . the sale shall be
deemed a taxable sale at retail. . . Where such a resale or exemption certificate . . .
has been furnished to the vendor, the burden of proving that the receipt . . . is not
taxable hereunder shall be solely upon the customer. . . .
Section 2250 of the Vehicle and Traffic Law provides, in part:
. . . a vessel shall be every description of watercraft, other than a seaplane,
used or capable of being used as a means of transportation on water. A vessel
propelled by an outboard motor shall include the hull, but shall not include the
outboard motor.
Section 527.15 of the Sales and Use Tax Regulations provides, in part:
(a) Section 1111(i) of the Tax Law provides special rules for the payment of
sales and use tax on certain leases of motor vehicles, vessels and noncommercial
aircraft. Rather than the tax being due upon each periodic lease payment, the Tax
Law provides that with respect to the leases described in this section the tax is due
at the inception of the lease on the total amount of the lease payments for the entire
term of the lease.
(b)(4) Vessel means any vessel as defined in section 2250 of the Vehicle and
Traffic Law, including any inboard or outboard motor and any trailer, as defined in
section 156 of such law, leased in conjunction with such a vessel.
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(d)(2)(ii)(a) With respect to the lease of a vessel (including any inboard or
outboard motor) the use tax is based on the rate in effect where the vessel is
primarily used or moored.
Section 528.9 of the Sales and Use Tax Regulations provides, in part:
(a) Definitions. The definitions in this section shall apply only for the
purpose of the exclusions and the exemptions provided by Tax Law, sections
1105(c)(3)(iv) and 1115(a)(8) with respect to commercial vessels.
(1) Vessel. A vessel shall mean any type of water craft used for the
transportation of property or persons on water. . . .

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(3) Commercial vessel. A Commercial vessel is any vessel used or engaged
in the transportation for hire of persons or property on water. Any vessel used or
engaged for other purposes on more than an occasional basis is not a commercial
vessel.
(4) Commercial vessel primarily engaged in interstate or foreign commerce.
A commercial vessel [is] primarily engaged in interstate or foreign commerce when
50 percent or more of the receipts from the vessel’s activities are derived from
interstate or foreign commerce.
(5) Interstate or foreign commerce. Interstate or foreign commerce means
the transportation of persons or property between states or countries.
(b) Exemption. (1) Receipts from the sale of the following are exempt from
the sales and compensating use tax:
(i) commercial vessels primarily engaged in interstate or foreign commerce;
(ii) property used by or purchased for the use of such vessels for fuel,
provisions, supplies, maintenance and repairs; and
(iii) the services of installing, maintaining, servicing or repairing such
commercial vessels or property. . . .
Section 532.4(b) of the Sales and Use Tax Regulations provides, in part:
Burden of proof. (1) The burden of proving that any receipt . . . is not taxable
shall be upon the person required to collect the tax and the customer.
(2) A vendor who in good faith accepts from a purchaser a properly
completed exemption certificate or, as authorized by the Department, other
documentation evidencing exemption from tax not later than 90 days after delivery
of the property or the rendition of the service is relieved of liability for failure to
collect the sales tax with respect to that transaction. The timely receipt of the
certificate or documentation itself will satisfy the vendor’s burden of proving the
nontaxability of the transaction and relieve the vendor of responsibility for collecting
tax from the customer.
(i) A certificate or other document is “accepted in good faith” when a vendor
has no knowledge that the exemption certificate or other document issued by the
purchaser is false or is fraudulently presented. If reasonable ordinary due care is
exercised, knowledge will not be imputed to the seller required to collect the tax.

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(3) When a vendor has met the criteria in paragraph (2) of this subdivision,
it is protected from liability for failure to have collected tax from the purchaser and
the burden of proving the nontaxability of such transaction rests solely on the
purchaser.
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(5) A vendor is not relieved of the burden of proof when it failed to obtain an
exemption certificate or accepted an improper certificate, or had knowledge that the
exemption certificate issued by the purchaser was false or fraudulently presented.
Opinion
Petitioners’ receipts from the lease of their vessel are subject to the sales tax imposed under
Section 1105(a) of the Tax Law if the boat is delivered in New York, or the use tax imposed under
Section 1110(a)(A) of the Tax Law if the boat is delivered outside of New York and subsequently
used by a business in New York waters, unless the vessel meets the criteria for exemption as a
“commercial vessel” primarily engaged in interstate or foreign commerce under Section 1115(a)(8)
of the Tax Law. If the vessel is used as described by Petitioners, i.e., to transport persons for hire
(sightseeing tours), and not for other purposes on more than an occasional basis, it appears to meet
the statutory and regulatory definitions of a commercial vessel engaged in transportation for hire
contained in Sections 1101(b)(16) of the Tax Law and Section 528.9(a)(3) of the Sales and Use Tax
Regulations. See Matter of The Absolute Difference, Inc., Dec Tax App Trib, November 24, 1993,
TSB-D-93(43)S.
However, the exemption for commercial vessels provided in Section 1115(a)(8) of the Tax
Law also requires that the vessel be primarily engaged in interstate or foreign commerce. Merely
because a vessel crosses state lines does not establish that it is primarily engaged in interstate
commerce for purposes of the exemption in Section 1115(a)(8) of the Tax Law. See Matter of
Circle Line - Statue of Liberty Ferry, Inc., State Tax Commission, August 21, 1980,
TSB-H-80(164)S. Interstate commerce has been defined by reference to the origin and destination
of what is moved in commerce. The focus is on what the taxpayer does, not where it does it. See
Matter of Moran Towing and Transportation Co., Inc. v. State Tax Commission ,72 NY2d 166.
For example, if the sightseeing excursions of the vessel in question were to begin and end in New
York with the only stop being at a point or points in New York, the vessel would not be considered
primarily engaged in interstate commerce. Likewise, sightseeing trips to view the Statue of Liberty
and Ellis Island commencing and terminating at New York docks are not in interstate commerce,
notwithstanding that the trips may pass into New Jersey waters (see Matter of Circle Line Sightseeing Yachts, Inc., State Tax Commission, August 21, 1980, TSB-H-80(162)S; Matter of
Day-Line, Inc., State Tax Commission, August 21, 1980, TSB-H-80(163)S; Circle Line - Statue of
Liberty Ferry, Inc., supra).

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On the other hand, vessels used for the transportation, for compensation, of property through
New York and New Jersey waters from a company’s New York plant to its New Jersey distribution
center and for transportation from the New Jersey distribution center to customers in New York
qualify as being engaged in interstate commerce for the purpose of the exemption provided by
Section 1115(a)(8) of the Tax Law. See Lone Star Industries, Inc., Adv Op State Tax Commission,
November 25, 1981, TSB-A-81(53)S. Accordingly, transportation of persons for compensation
from destinations in one state to destinations in another would qualify as a use of a vessel
commercially in interstate commerce.
Whether the vessel in Petitioners’ case meets the criteria for exemption under Section
1115(a)(8) of the Tax Law is a question of fact that cannot be determined based on the information
provided in this Advisory Opinion, but must be resolved based on evidence which shows the actual
extent of the vessel’s activity within New York waters and in interstate and foreign commerce.
If the vessel is not exempt from sales and use tax, Petitioners, as vendors, would be required
to collect any tax due on the lease of the vessel. See Sections 1101(b)(8)(i)(F) and 1131(1) of the
Tax Law. In the case of a 15-year lease, such tax is to be computed on the total amount of payments
due under the lease, option to renew or similar provision, or combination of them. The tax is due
and payable to the Tax Department as of the date of the first payment made under the lease or at the
time the vessel is registered with the Department of Motor Vehicles, whichever is earlier. See
Section 1111(i) of the Tax Law.
In the event that it is expected that the vessel’s use will meet the criteria for exemption, the
lessee must properly complete and submit Form ST-121, Exempt Use Certificate, to Petitioners
within 90 days after delivery of the vessel in order to relieve Petitioners of their liability to collect
tax. See Section 1132(c)(1) of the Tax Law and Section 532.4(b) of the Sales and Use Tax
Regulations. Therefore, if Petitioners, in good faith, timely accept a properly completed exempt use
certificate from the lessee, Petitioners are relieved of their liability for failure to collect sales tax
with respect to the lease, and the burden of proving that the lease is not taxable rests solely upon the
lessee. The lessee continues to be liable for the tax where actual use of the vessel is not in
qualifying exempt activity. Petitioners are not relieved of this duty to collect tax if they have
knowledge that the exempt use certificate is false or fraudulent. See Carolyn Mazzenga, CPA, Adv
Op Comm T&F, January 10, 2001, TSB-A-01(1)S.

DATED: March 4, 2003

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

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