If a sightseeing cruise ticket bundles in a meal that can't be purchased separately, can the operator allocate the price between an exempt cruise portion and a taxable meal portion?

Plain-English summary

Thomas A. Walter planned to run two-hour lake sightseeing cruises, some including a lunch or dinner. Cruises with a meal would be sold at one bundled price ($39.95) that couldn't be purchased without the meal option built in (though a rider could decline to actually eat), and customers could call ahead to select their meal from a menu. Walter proposed allocating the $39.95 as $17.00 for the cruise (which he argued should be tax-exempt, since sightseeing cruises by themselves aren't on New York's list of taxable services) and $22.95 for the meal (taxable as restaurant food), and asked whether that allocation — posted at the dock — would work, and whether it even needed to be displayed to customers.

The Department said no on both points. A cruise-with-meal charge is taxable in full under § 1105(d) (the restaurant/food-and-drink tax) UNLESS the food is merely "incidental" to the trip — meaning it's ancillary, doesn't involve significant time or expense to prepare or serve, and isn't separately charged. The Department's own prior rulings had found a simple box lunch on a yacht cruise to be incidental, but a real sit-down meal service with menu choices is a different matter. Because Walter's cruises offered genuine advance menu selection and a proper meal (not an ancillary box lunch), the Department found the food wasn't merely incidental — meaning Walter was effectively "operating a restaurant" for these cruises. That makes the ENTIRE charge for a cruise-with-meal package taxable under § 1105(d), even with a separately stated allocation between cruise and meal. Since the whole charge is taxable regardless, the second question (whether the allocation needs to be displayed to customers) became moot — there's no exempt cruise portion to disclose in the first place.

What this means for you

Sightseeing cruise, dinner cruise, and similar tour operators

If your cruise package genuinely can't be purchased without the food component and the food is a real meal (not an ancillary snack or box lunch), expect your ENTIRE charge to be taxed as restaurant food — splitting out a "cruise-only" price on paper doesn't create a tax-exempt slice, even if you post that allocation publicly.

Businesses trying to price-allocate between a taxable and nontaxable bundled service

This is a clean illustration that an internal cost allocation only matters if the untaxed component is genuinely incidental or genuinely separately purchasable. If customers can't opt out of the food and the food is substantial, the whole package is taxed under whichever enumerated tax category (here, restaurant/food-and-drink) governs the meal.

Accountants and tax professionals

The controlling test is the "incidental" doctrine: ancillary in nature, minimal time/expense in preparation or service, and no separate charge. Compare this ruling's real, advance-selectable menu against the earlier Klondike Cruises box-lunch precedent to gauge where a given fact pattern falls.

Common questions

Q: Can I avoid sales tax on a bundled cruise-and-meal charge by allocating part of the price to the (untaxed) cruise?
A: Not if the meal is more than merely incidental to the trip. Where customers can't purchase the cruise without the meal and the food involves real preparation and menu choices, the Department taxes the whole combined charge as restaurant food, regardless of any internal price allocation.

Q: What makes food "incidental" to a cruise so that it stays untaxed?
A: Food is incidental when it's ancillary to the main activity, doesn't require significant time or expense to prepare or serve, and isn't separately charged — the Department's example was a simple box lunch on a yacht cruise.

Q: Is a sightseeing cruise by itself (no food) taxable in New York?
A: No. A cruise that involves only sightseeing, with no food or beverage included, is an unenumerated service and isn't subject to sales tax.

Q: Can another cruise operator rely on this exact ruling?
A: No. This Advisory Opinion binds the Department only as to Thomas A. Walter and the facts he described. An operator offering a genuinely incidental snack, or one that lets customers buy the cruise and meal fully separately at their own discretion, could reach a different result.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(5) (definition of sale)
• Tax Law § 1105(c) (tax on enumerated services)
• Tax Law § 1105(d)(i) (tax on food and drink sold for consumption on premises, including by caterers)
• 20 NYCRR 527.8 (imposition; premises; consumption on premises)

Prior opinions cited:

• Matter of Hunts Point Palace, Inc., State Tax Commission, June 19, 1986, TSB-H-86(138)S
• Klondike Cruises, Inc., Adv Op Comm T&F, July 29, 1998, TSB-A-98(46)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2007.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a07_27s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-07(27)S
Sales Tax
October 19, 2007

Office of Tax Policy Analysis
Taxpayer Guidance Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S070213B

On February 13, 2007, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Thomas A. Walter, c/o Eldredge, Fox & Porretti, LLP, 25 North Street,
Canandaigua, NY 14424-1023.
The issues raised by Petitioner, Thomas A. Walter, are:
(1) Whether an allocation of the price for a sightseeing cruise between the price of the
cruise and the price of a meal would allow the cruise portion to be exempt from sales tax
and would subject the meal portion to sales tax.
(2) Whether the allocation of the price between the price of the cruise and the price of the
meal must be displayed to customers in order for the cruise portion to be exempt from
tax.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner intends to provide lake cruises of approximately two hours in duration. On
some cruises, lunch or dinner meals will be provided. Cruises that include meals will be sold for
one price that entitles the customer to the sightseeing cruise and the meal. These cruises cannot
be purchased without the meal, although the customer can forego the meal. In addition, those
customers who wish to partake of a meal may call ahead and select their meal choices from the
menu provided.
Petitioner would allocate the $39.95 cruise price as $22.95 for the meal and $17.00 for
the cruise. Petitioner is willing to post the allocation of the price between the cruise and the meal
in a separate location on the dock or on the ship for the customer to view. Petitioner does not
intend to provide the customers with actual cruise tickets.
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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*

*

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TSB-A-07(27)S
Sales Tax
October 19, 2007

(5) Sale, selling or purchase. Any transfer of title or possession or both, exchange
or barter, rental, lease or license to use or consume . . . for a consideration, or any
agreement therefore, including the rendering of any service, taxable under this article, for
a consideration or any agreement therefor.
Section 1105(c) of the Tax Law imposes sales tax upon the receipts from every sale,
except for resale, of certain enumerated services.
Section 1105(d)(i) of the Tax Law imposes sales tax on:
The receipts from every sale of beer, wine or other alcoholic beverages or any
other drink of any nature, or from every sale of food and drink of any nature or of food
alone, when sold in or by restaurants, taverns or other establishments in this state, or by
caterers, including in the amount of such receipts any cover, minimum, entertainment or
other charge made to patrons or customers (except those receipts taxed pursuant to
subdivision (f) of this section):
(1) in all instances where the sale is for consumption on the premises where sold;
Section 527.8 of the Sales and Use Tax Regulations provides, in part:
(a) Imposition. Sales tax is imposed on the receipts, including any cover,
minimum, entertainment or other charge, from every sale of beer, wine or other alcoholic
beverages and food or drink of any nature sold in or by restaurants, taverns or other
establishments in this State or by caterers:
(1) in all instances where the sale is for consumption on the premises where sold;
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(c) Premises. The term premises shall mean the total space and facilities in or on
which the vendor conducts his business, including but not limited to... counter space,
indoor or outdoor tables, chairs, benches and similar conveniences.
(d) Consumption on premises. The phrase for consumption on the premises shall
mean that the food or drink sold may be consumed on the premises where the vendor
conducts his business.
Opinion
Petitioner provides sightseeing cruises, with meals included on certain cruises. For the
cruises that merely entail sightseeing activities with no food or beverage included, the charge is
for an unenumerated service and, therefore, is not subject to sales tax. However, Petitioner sells

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Sales Tax
October 19, 2007

some cruises that include a meal. These cruises cannot be purchased without the meal. Unless
food and drink is merely incidental to a cruise or the purchase of food and drink is optional, the
charge for a cruise that includes a meal is subject to sales tax under section 1105(d) of the Tax
Law even if the charges for the cruise and the food and drink are separately stated (see Matter of
Hunts Point Palace, Inc., State Tax Commission, June 19, 1986, TSB-H-86(138)S). Food and
drink provided in connection with a cruise are incidental when they are ancillary to the cruise
itself, where significant time and/or expense is not devoted to the preparation or serving of the
food or drink, and no separate charge is made for the food and drink. (See Klondike Cruises,
Inc., Adv Op Comm T&F, July 29, 1998, TSB-A-98(46)S, which indicated that a simple box
lunch was incidental to a yacht cruise.) Separately stated charges for food and drink to be
consumed on the boat are subject to sales tax under section 1105(d) of the Tax Law.
Based on the facts in this Opinion, the meals provided by Petitioner are more than merely
incidental to the cruise. Therefore, Petitioner's lunch and dinner cruises fall within the purview
of the tax imposed by section 1105(d) of the Tax Law. Petitioner is operating a restaurant,
tavern or similar establishment engaged in selling food and drink for consumption on the
premises. Therefore, Petitioner's entire charge for its lunch and dinner cruises is subject to tax
under section 1105(d) of the Tax Law. Therefore, any allocation of the price between the meal
and the cruise is irrelevant. The total charge is taxable. Therefore, Issue 2 is moot.

DATED: October 19, 2007

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Taxpayer Guidance Division

NOTE: An Advisory Opinion is issued at the request of a person or entity. It is limited
to the facts set forth therein and is binding on the Department only with respect
to the person or entity to whom it is issued and only if the person or entity fully
and accurately describes all relevant facts. An Advisory Opinion is based on the
law, regulations, and Department policies in effect as of the date the Opinion is
issued or for the specific time period at issue in the Opinion.