Is providing a driver to drive the customer's own vehicle, with no vehicle supplied, a taxable transportation service?

Plain-English summary

The petitioner is a staffing company that offers driver (chauffeur) services: its employee drives the customer's own vehicle (or one the customer rents/leases from a third party). It provides no vehicle. Customers (individuals, companies, governments) reserve a driver in advance, pay an hourly rate (3-hour minimum), and carry primary insurance on the vehicle. No transportation or rental-car company owns the petitioner. It asked whether its driver-only service is a taxable transportation service.

The Office of Counsel concluded the driver-only service is not taxable.

• Transportation service requires a vehicle plus a driver. Tax Law 1105(c)(10) taxes "transportation service," defined (1101(b)(34)) as livery -- transporting a person by limousine, black car, or other motor vehicle, with a driver. The provider must furnish the vehicle.
• No vehicle = no taxable transportation. Because the petitioner supplies only a driver for the customer's own vehicle, its hourly driving/chauffeur charge isn't a taxable transportation service.
• Two cautions. The opinion relies on the facts that (a) no transportation/rental-car company owns the petitioner, and (b) it doesn't require customers to get a vehicle from a particular company. If it did steer customers to a specific vehicle company and inflated its "nontaxable" driving charge while sharing part with that company, the shared amount would be treated as taxable vehicle rental (and the vehicle company would owe the various rental taxes, including the special passenger-car and MCTD taxes).

What this means for you

Staffing firms and chauffeur/labor providers

Supplying labor only -- a driver for the customer's own car -- is not a taxable transportation service, because you don't furnish the vehicle. Keep it that way: don't bundle a vehicle, don't tie the customer to a specific vehicle company, and don't pad the driving charge to disguise a vehicle rental.

The taxable line: who provides the car

The moment a vehicle with a driver is provided (by you or via a steered, fee-shared arrangement), you're in taxable livery/rental territory. Separately stated, arm's-length driving vs. vehicle charges must be reasonable; sharing an inflated driving fee with a vehicle company invites recharacterization as taxable rental.

Common questions

Q: We only provide the driver, not the car -- is that taxable?
A: No. Taxable transportation service requires furnishing a vehicle with a driver. A driver-only service for the customer's own vehicle isn't taxable.

Q: When would our charge become taxable?
A: If you required customers to rent from a particular vehicle company and inflated your driving charge while sharing it with that company, the shared amount would be treated as taxable vehicle rental.

Citations and references

• Tax Law section 1105(c)(10) (sales tax on transportation service)
• Tax Law section 1101(b)(34) (definition of transportation service; livery = motor vehicle with driver)
• Tax Law section 1210(a)(1) (local sales tax authority)
• Tax Law section 1109 (MCTD taxes)

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_45s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-09(45)S
Sales Tax
October 8, 2009

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S090720A

The Department received a petition for an advisory opinion from Petitioner name and address
redcated, on July 20, 2009. Petitioner asks whether its service of providing a driver to drive a customer’s
vehicle, without providing any vehicle, constitutes a transportation service subject to sales tax. Since
Petitioner does not provide any vehicle when it provides its driving service to its customers, Petitioner’s
driving service does not constitute a transportation service, and Petitioner’s charge for such a driving service
is not subject to New York State and local sales taxes.
Facts
Petitioner provided the following facts in support of its petition: Petitioner is a staffing company that
offers driving (chauffeur) services to the public. Petitioner does not provide any vehicle when it provides its
driving service to a customer. Rather, Petitioner’s employee drives the customer’s vehicle. The customer
may own or lease or rent the vehicle driven by Petitioner’s employee. Petitioner’s customers may be
individuals or companies or other entities, including governmental entities. Petitioner pays worker’s
compensation insurance and employer payroll taxes with respect to its employees.
When a customer wants to purchase Petitioner’s driving service, the customer either makes a
reservation request through a toll-free telephone number that is managed centrally by Petitioner or makes a
reservation on-line. Reservations must be made at least 24 hours in advance of Petitioner providing the
driver. There is a 3-hour minimum for driving service. Petitioner charges for its driving service at an hourly
rate. The customer must make the reservation directly with Petitioner, regardless of whether Petitioner’s
employee will drive the customer’s own vehicle or a vehicle that the customer rents or leases from a third
party. Each customer must establish an account with Petitioner. Petitioner assigns each customer an account
number and uses the account number to track the customer. In order to open an account, a potential customer
must review Petitioner’s “Driving Agreement” and “Terms of Service” and agree to those terms. Petitioner
provided copies of those documents with its petition. Petitioner also furnished sample account setup and
reservation web pages as further documentation supporting the facts in the Petition. Petitioner’s Driving
Agreement requires each customer to carry vehicle insurance on the vehicle to be driven by Petitioner’s
employee. The customer’s vehicle insurance is primary.
The “Reservation Request” makes clear that the customer is reserving a driver for the customer’s car.
Likewise, the “Driving Agreement” provides that Petitioner will provide a chauffeur to drive “Client’s”
automobile as requested by Client; and the client “so authorizes such chauffeur.”
The customer pays Petitioner for the driving service separate and apart from any payment the
customer may make to a third party to purchase, rent, or lease a vehicle. Individuals pay Petitioner for its
driving service by credit card. Petitioner sends an invoice to its corporate customers, who then typically pay
by check. Companies other than Petitioner do not collect money for Petitioner’s driving services.
No transportation company or rental car company has an ownership interest in Petitioner. At this
time, Petitioner is privately owned.

TSB-A-09(45)S
Sales Tax
October 8, 2009

-2Analysis

Tax Law Section 1105(c)(10) imposes the State’s 4% sales tax on receipts from every sale, other
than for resale, of transportation service. Section 1210(a)(1) of Article 29 of the Tax Law authorizes
counties and cities to impose general sales and compensating use taxes similar to the State’s taxes, including
the sales tax on transportation service. As relevant here, section 1101(b)(34) defines “transportation service”
as the “service of transporting, carrying or conveying a person or persons by livery service; whether to a
single destination or to multiple destinations; and whether the compensation paid by or on behalf of the
passenger is based on mileage, trip, time consumed or any other basis…. Livery service means service
provided by limousine, black car or other motor vehicle, with a driver, but excluding a taxicab and a bus, and
excluding any scheduled public service.” Thus, for a service to be a transportation service, the
seller/provider of the service must provide that service by means of a vehicle with a driver.
Because Petitioner does not provide any vehicle with its driving service, its driving service does not
constitute a transportation service for purposes of New York State and local sales taxes, and its charge for its
driving/chauffeur service, as described in the facts above, is not subject to the sales taxes imposed by section
1105(c)(10) and pursuant to the authority of section 1210(a)(1) of the Tax Law. We note that Petitioner
states that no transportation company or rental car company has an ownership interest in Petitioner. We also
note that Petitioner does not require its driving service customer to obtain a vehicle from a particular
company. If Petitioner required its customer to obtain a vehicle from a particular company, the Tax
Department would consider whether the separate charges made by Petitioner for its driving service and by
the vehicle company for its vehicle were reasonable in light of all the facts and circumstances and what
relationship existed between Petitioner and the vehicle company. For example, if Petitioner overstated its
non-taxable driving service charge to its customer and shared a portion of that charge with the vehicle
company, that amount shared by Petitioner with the vehicle company would likely be considered to be for
the rental of the vehicle and would be subject to applicable State and local sales taxes, payable by Petitioner
to the vehicle company. Likewise, the vehicle company would have to separately state and collect State and
local sales taxes on its charge to rent the vehicle to the customer. In both cases, the applicable State and local
sales taxes on the vehicle rental would include the State’s 4% sales tax, the local county and/or city sales tax,
and the special State 6% tax on passenger car rentals and, if the rental is in the MCTD, the section 1109
MCTD 3/8% sales tax and the special supplemental 5% MCTD passenger car rental tax.

DATED: October 8, 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.