Can a cleaning/restoration firm buy dehumidifiers and air movers tax-free for resale when it rents them to clients?
Plain-English summary
The petitioner runs a cleaning and restoration business -- it cleans buildings damaged by smoke, fire, or flood (no demolition/rebuilding). After cleaning, it offers clients optional dehumidifiers and air movers to dry the space, as a separate, second transaction (a daily-fee line item on the invoice, on which it collects sales tax). Clients can use their own fans, rent elsewhere, or just air-dry. The firm asked whether its purchases of that equipment qualify for the resale exclusion (tax-free because it rents the gear out).
The Office of Counsel concluded the purchases qualify only if four conditions are all met.
Because the firm doesn't permanently transfer the equipment, a resale is recognized only with a specific, separately stated rental charge (Niagara Lubricant), and the resale exclusion applies only if all of the following hold:
1. Intent to rent as such -- bought to rent, not to use as a component of services;
2. Separate charge -- a specific rental charge stated separately from service charges;
3. True option -- clients can buy the cleaning without renting the equipment, or rent the equipment without buying the cleaning (Coren, Jackson Welding; bundled components that can't be bought separately are taxed as one);
4. Exclusively for resale -- the firm never uses the equipment itself or as a component of its services (any own-use defeats the exclusion, Micheli Contracting).
Only if all four are met may the firm buy the equipment tax-free with a Form ST-120 resale certificate. And note: the rental to clients is itself a taxable sale (Tax Law 1101(b)(5)).
What this means for you
Service businesses that also rent equipment
Renting gear you also use in your own services is the classic trap. To buy it tax-free for resale, you must keep the rental genuinely separate -- separate, real charge; a true option for the customer to take one without the other; and never dip into that equipment for your own jobs. Mix any of those up (bundle it, or use the units yourself) and the purchases are taxable -- you're the consumer, not a reseller.
Documenting it
If you truly meet all four conditions, issue an ST-120 to your supplier and collect tax on the rentals you charge clients. If you can't honestly say you never use the equipment in your own services, pay tax on the purchase.
Common questions
Q: We separately charge clients to rent the dehumidifiers -- isn't that enough to buy them tax-free?
A: No. A separate charge is necessary but not sufficient. You also need a true option for clients to take the service or the rental independently, intent to rent (not use) the gear, and to never use it yourself.
Q: What happens if we sometimes use the equipment on our own jobs?
A: Then it isn't bought exclusively for resale, the resale exclusion fails (Micheli), and your purchases are taxable.
Q: Is the rental we charge clients taxable?
A: Yes. The rental is a "sale" under the Tax Law and is subject to sales tax.
Citations and references
- Tax Law section 1105(a) (sales tax on tangible personal property)
- Tax Law section 1101(b)(4)(i) (retail sale; resale exclusion)
- Tax Law section 1101(b)(5) (sale includes rental)
- 20 NYCRR 526.6(c) (resale exclusion) and 526.7 (rentals)
- Albany Calcium Light v State Tax Commn, 44 NY2d 987 (no separate charge = not for resale)
- Morton L. Coren PC, TSB-A-90(33)S (components must be separately purchasable)
- Micheli Contracting v Tax Commn, 109 AD2d 957 (owner's own use defeats resale)
Source
- Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2009.htm
- Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a09_43s.pdf
Original ruling text
New York State Department of Taxation and Finance
Office of Counsel
Advisory Opinion Unit
TSB-A-09(43)S
Sales Tax
September 22, 2009
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
PETITION NO. S090707D
On July 7, 2009, the Department of Taxation and Finance received a Petition for Advisory Opinion
from name and address redacted.
The issue raised by name redacted (“Petitioner”) is whether it must pay sales tax on its purchases of
dehumidifiers and air movers, which it provides to customers, or whether such purchases are exempt from
tax as purchases for resale. Petitioner operates a cleaning and restoration business and provides the
dehumidifiers and air movers to its clients as an optional value-added service, separate from the cleaning and
restoration.
We conclude that Petitioner’s purchases do not qualify for the resale exclusion from sales and use
tax unless it can show that: (1) the equipment is purchased with the intent to rent it as such and not to use it
as a component of any services provided; (2) a specific charge is made for the rental on the invoice, separate
from any charges for services performed; (3) clients have a true option to purchase the services without
renting the equipment, or to rent the equipment without purchasing the services; and (4) Petitioner never uses
the equipment for itself or as a component of services provided and thus the purchases are made exclusively
for resale.
Facts
Petitioner operates a cleaning and restoration business. Petitioner’s service is the complete cleaning
of buildings that have suffered damage from smoke, fire, or flood. Petitioner does not tear down or rebuild
any parts of the structure. After the cleaning is complete, Petitioner offers to provide various items to its
clients such as dehumidifiers and air movers to remove air moisture. The items are offered as a second
transaction, separate and distinct from the cleaning and restoration service. The items are optional. Clients
are free to use their own fans, rent or buy equipment elsewhere, or simply let the area air dry. If the client
chooses to obtain the equipment from Petitioner, the equipment is a separate line item on the invoice, at a
daily fee. Petitioner collects sales tax from its clients on the charges for the equipment.
Analysis
Generally, section 1105(a) of the Tax Law imposes a sales tax on receipts from every retail sale of
tangible personal property unless otherwise excluded or exempted. Section 1101(b)(4)(i) defines “retail
sale” as “a sale of tangible personal property to any person for any purpose, other than (A) for resale as
such…”. The effect of this provision is to remove property purchased for resale from the application of the
sales tax imposed under Section 1105(a) of the Tax Law.
Section 1101(b)(5) of the Tax Law defines “sale” as “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....” Therefore, the term “sale” includes a rental for purposes of the
Tax Law. The terms “selling” and “purchase” also include rentals. See Section 526.7 of the Sales and Use
Tax Regulations.
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Sales Tax
September 22, 2009
Section 526.6(c) of the Sales and Use Tax Regulations provides, in part:
Resale exclusion. (1) Where a person, in the course of his business operations, purchases tangible
personal property or services which he intends to sell, either in the form in which purchased, or as a
component part of other property or services, the property or services which he has purchased will be
considered as purchased for resale and therefore not subject to tax until he has transferred the property to his
customer. 20 NYCRR § 526.6(c).
To qualify as a purchase for resale, the tangible personal property must be purchased with the intent
to resell it as such and not to use it as a component of any services performed. It is well settled that tangible
personal property purchased by a vendor and supplied to customers as a component part of the services the
vendor sells to its customers, is not property purchased for resale within the meaning of section 1101(b)(4)
of the Tax Law, unless the tangible personal property is actually (i.e., permanently) transferred to the
customer in conjunction with a taxable service. See Accurate Disposal, Inc., Adv Op Comm T&F,
November 30, 2006, TSB-A-06(28)S; Jackson Welding Co., Adv Op St Tx Comm T&F, December 1, 1986,
TSB-A-86(46)S. Thus, it has been held that gas cylinders were not “purchased for resale” where the seller of
the gas did not impose a separate charge for use of its cylinders, but rather treated the cost as a cost of selling
the gas itself. Albany Calcium Light, Inc. v. State Tax Comm’n, 44 NY2d 987 (1978); see also U-Need-ARolloff Corp. v. State Tax Comm’n, January 20, 1984, TSB-H-84(16)S; aff'd 67 NY2d 690 (1986). In the
present case, Petitioner does not permanently transfer the equipment (dehumidifiers and air movers) to its
customers. Accordingly, a resale will be deemed to occur only where a specific, separately stated charge is
made for the rental of the tangible personal property in question. See Niagara Lubricant Company, Inc. v.
State Tax Comm’n, 120 AD2d 885 (1986). Here, Petitioner lists the rental of the equipment as its own line
item on the invoice at a daily rental fee, separate and distinct from any charges for cleaning and restoration
services performed.
However, the mere separate statement on the invoice of charges for the rental equipment will not by
itself qualify Petitioner’s purchases of the equipment for the resale exclusion. In addition, the rental items
must be offered for resale independent of any other items or services offered for sale. For example, in
Morton L. Coren, P.C., Adv Op Comm T&F, June 29, 1990, TSB-A-90(33)S, it was concluded that even
though the components of a particular sale could be separately stated, calculated or estimated, if such
components could not be separately purchased, the combination of items must be considered as one and,
thus, subject to sales tax as a single purchase. See also Penfold v. State Tax Comm’n, 114 AD 2d 696 (1985).
Thus, to qualify as a resale, the substance of the transaction must be such that the customer has a true option
to rent the tangible personal property without also purchasing the services, or to purchase the services
without also renting the tangible personal property. Jackson Welding Co., supra. Petitioner states that its
rentals of dehumidifiers and air movers to clients are optional and that Petitioner’s clients are free to use their
own fans, rent or buy equipment elsewhere or simply let the area air dry.
Further, to qualify as a purchase for resale, a purchase must be exclusively for resale. The use of
rental equipment by its owner defeats the qualification of such equipment as equipment purchased
exclusively for resale. See Micheli Contracting Corp. v. New York State Tax Comm’n, 109 AD2d 957
(1985). Petitioner must be able to show that it has never used the dehumidifiers or air movers on its own
behalf or as a component of any services performed for its clients and that accordingly, the purchases are
made for the exclusive purpose of "reselling," i.e. renting, the equipment to others, and with no intent to use
it either for Petitioner’s own use or as a component of the cleaning and restoration services it provides.
In sum, Petitioner’s purchases do not qualify for the resale exclusion from sales and use tax unless it
can show that: (1) the equipment is purchased with the intent to rent it as such and not to use it as a
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September 22, 2009
component of any services provided; (2) a specific charge is made for the rental on the invoice, separate from
any charges for services performed; (3) clients have a true option to purchase the services from Petitioner
without renting the equipment, or to rent the equipment from Petitioner without purchasing the services; and
(4) Petitioner never uses the equipment for itself or as a component of services provided and thus the
purchases are made exclusively for resale. Only if all of these requirements are met will Petitioner’s
purchases of dehumidifiers and air movers qualify as purchases for resale. In that case, the purchases may be
made without paying sales and use tax. This is accomplished by presenting a properly completed Form
ST-120, Resale Certificate, to the supplier when purchasing the dehumidifiers and air movers. It should also
be noted that the rental of the equipment from Petitioner to its clients is a “sale” within the meaning of the
Tax Law, which is subject to sales tax.
DATED: September 22, 2009
NOTE:
/S/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel
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.