Are a retailer's sales of municipally-mandated garbage bags and town-endorsed leaf bags subject to NY sales tax?

Plain-English summary

The petitioner is a grocery retailer that sells two kinds of bags for two New York towns: (1) town-mandated household garbage bags -- embossed with the town's name and logo, in town-specific colors, that residents must buy and use to dispose of garbage at the town's disposal facilities (the disposal fee is built into the bag price); and (2) town-endorsed leaf collection bags, whose use is encouraged but not required -- residents may use any similar bag. The retailer buys the embossed bags from the towns for resale and sells them at town-set prices, and the towns publicize the retailer (and other stores) as a source. The retailer asked whether its sales of either type are taxable.

The Office of Counsel split the answer:

• Mandated garbage bags -- exempt. Tax Law 1116(a)(1) exempts sales by the State or its political subdivisions of "property of a kind not ordinarily sold by private persons." The mandated bags qualify -- they're embossed with the town's logo, their purchase/use is required for disposal at town facilities, and the disposal fee is built in. A town's direct sales of these bags are exempt.
• The exemption follows the agency. That exemption extends to the retailer if it acts as the town's agent. Here, although there was no formal appointment, the towns' publicizing the retailer as a source and the retailer's selling at the towns' set prices under the program rules (giving up its right to set prices, adhering to town code) show a mutually consented agency relationship (Publication 765). So the retailer's sales of the mandated garbage bags are exempt.
• Leaf bags -- taxable. The town-endorsed leaf bags are different: because the towns allow any similar bag, leaf bags are "ordinarily sold by private persons," so they fall outside 1116(a)(1). The retailer's sales of leaf bags are taxable -- regardless of any agency (Publication 843 gives this exact example).

What this means for you

Retailers selling government-program products

Selling a government's product doesn't automatically make the sale exempt. Two things must line up: the item must be unique to the government ("not ordinarily sold by private persons" -- e.g., a mandatory, logo-embossed bag with a disposal fee built in), and you must genuinely act as the government's agent (sell at its set prices, follow its program, be recognized as its sales outlet). If the item is something anyone can sell (like ordinary leaf bags), it's taxable even if the town endorses it.

Municipalities

If you want retail sales of a program item to be tax-exempt, make the item genuinely unique and mandatory, and properly designate your retail agents (confirming you have legal authority to do so).

Common questions

Q: We sell the town's required, logo-embossed garbage bags -- taxable?
A: No. They're property not ordinarily sold by private persons, and as the town's agent your sales are exempt under 1116(a)(1).

Q: What about the town's leaf bags?
A: Taxable. Because the town lets residents use any similar bag, leaf bags are ordinarily sold by private persons and don't qualify.

Q: Do we need a formal agency appointment?
A: The towns should confirm they can appoint agents, but conduct can establish agency -- here, publicizing the retailer and the retailer's selling at town-set prices under the program sufficed.

Citations and references

• Tax Law section 1105(a) (sales tax on tangible personal property)
• Tax Law section 1116(a)(1) (exemption for governmental sales of property not ordinarily sold by private persons)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2011.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a11_19s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-11(19)S
Sales Tax
June 24, 2011

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

PETITION NO. S110413A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
name and address redacted. Petitioner asks whether receipts from the sales of municipallymandated household garbage bags and leaf collection bags are subject to State and local sales
and use taxes.
We conclude that Petitioner’s receipts from sales of municipally-mandated household
garbage bags as an agent of a political subdivision of the state are sales “of services or property
of a kind not ordinarily sold by private persons” and therefore exempt from sales and use tax
pursuant to Tax Law §1116(a)(1), but that receipts from sales of leaf collection bags do not
qualify for such exemption and are taxable.
Facts
The towns of name of town redacted (“Town A”) and name of town redacted (“Town B”)
require residents who self-haul their household garbage to town disposal facilities to purchase
town-mandated garbage bags for the disposal of their household garbage. In addition, Town A
requires those hiring a carting firm to haul their household garbage to purchase the townmandated garbage bags. Both towns’ mandated bags are embossed with the town’s name and
logo. The Town A’s bags are yellow; Town B’s are green. The fees for garbage disposal at town
disposal facilities are incorporated into the purchase price of the bags. Town A also encourages
the purchase and use of town-endorsed leaf collection bags for the disposal of leaves and brush,
although their purchase is not mandated and the use and purchase of similar bags is permitted.
The Town B’s garbage bag program is authorized by Town Code Chapter Town Code
Chapter redacted; the Town A’s by Town Code Chapter Town Code Chapter redacted. Both
towns’ codes specify that the town-mandated garbage bags are to be made available at locations
throughout the towns and provide penalties for the sale or issuance of duplicate or imitation town
garbage bags.
Petitioner is a grocery retailer that sells the mandated garbage bags and the recommended
leaf collection bags, which are also available from other retailers and directly from the
municipalities. The towns promote, in brochures and on their websites, the availability of the
garbage and leaf bags from petitioner, other retailers and themselves. Petitioner purchases the
embossed bags, which come in several sizes, for resale from the respective towns and sells them
at prices set by the towns that include a nominal profit for the retailer. The purchase and resale

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TSB-A-11(19)S
Sales Tax
June 24, 2011

prices of the bags vary depending upon the size of the bags, but each size retails for the price set
by the respective town regardless of whether sold by the Petitioner, another retailer or the town.
Analysis
All retail sales of tangible personal property are subject to sales tax pursuant to Tax Law
§1105(a), unless otherwise exempted. Tax Law §1116(a)(1) provides an exemption to “(t)he
State of New York, or any of its agencies, instrumentalities, public corporations … or political
subdivisions … where it is the vendor of services or property of a kind not ordinarily sold by
private persons.”
Section 1116(a)(1) exempts direct sales of the mandated garbage bags by Towns A and B
from the sales and use taxes. They are unique products, “not ordinarily sold by private persons,”
because the bags are embossed with the respective town’s name and logo; their purchase and use
is mandated for disposal of garbage at town disposal facilities and the fee for disposal of
household garbage at town disposal facilities is built into the price of the bags.
To the extent that the municipalities have the authority to designate sales agents, the
§1116(a)(1) exemption would extend to the Petitioner if considered an agent of the
municipalities for the sale of the bags for trash disposal. An agent/principal relationship between
the Petitioner and the towns could be established if the circumstances make clear that the towns
consented to Petitioner’s acting on their behalf and subject to their control, and that the Petitioner
consented to the relationship. New York Marine & General Insurance Company v. Tradeline
(L.L.C.), 266 F.3d 112,122 (2nd Cir. 2001); See also Publication 765, Sales and Fuel Excise Tax
Information For Properly Appointed Agents of New York Governmental Entities (5/05), p.3
Publication 765 assumes that governmental entities have the authority to designate agents, but
cautions that such entities must make that legal determination independently – a caution that
bears repeating here. The Publication enumerates conditions necessary for establishing agency
relationships for purposes of tax exempt purchases: the governmental agency must properly
appoint the agent; the agent’s actions must be within the scope of its authority; and the parties’
conduct must evidence an agency relationship.
Although no formal agreement confirming that the Petitioner was properly designated as
a town mandated garbage bag vendor by each of the towns has been produced by the Petitioner,
the towns’ publications substantiate that the parties are acting in recognition of an agency
relationship. The towns have evidenced that they consent to Petitioner’s acting on their behalf to
sell their garbage bags and bind the towns to accept those bags from purchasers for garbage
disposal at town disposal facilities by publicizing the bags’ availability from the Petitioner online
and in print. Petitioner, by relinquishing its right to set the prices for the bags, by selling the
bags at the garbage disposal fee-included prices set by the towns, and by otherwise adhering to
the program requirements specified in each towns’ code, has evidenced its consent to the agency
relationship and to be subject to the towns’ control with regard to this product. Thus, because the
requisite conditions for the agency relationship have been satisfied, Petitioner’s receipts from the

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TSB-A-11(19)S
Sales Tax
June 24, 2011

sales of the municipally-mandated household garbage bags are exempt from State and local sales
and use taxes.
The municipally endorsed leaf collection bags are a different matter. Regardless of
whether Petitioner is acting as the Town A’s agent, because the town authorizes the use of any
similar bag in addition to its own leaf collection bag, it is not a product “of a kind not ordinarily
sold by private persons.” Tax Law §1116(a)(1). As a result, Petitioner’s receipts from those
sales are subject to State and local sales and use taxes. Publication 843, A Guide to Sales Tax in
New York State for Exempt Organizations (12/09), p.8 (“Example: A New York municipality
sells leaf/recycling bags to its residents. Sales of the bags are subject to tax because leaf bags are
ordinarily sold by private persons.”).

DATED: June 24, 2011

NOTE:

/S/
DEBORAH LIEBMAN
Deputy 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.