Are charges for renting inflatable amusement devices and equipment -- with the company's safety staff on site -- subject to NY sales tax?

Plain-English summary

The petitioner provides inflatable devices (a bungee run, four-way bungee, wrecking ball, giant slide, sticky wall, obstacle course) and other amusement equipment (jousting, boxing, sumo gear, Segway racers) for parties and social events. It delivers, sets up, and staffs each device with employees who enforce height/weight rules, secure harnesses, and stop unsafe use; some employees are licensed and a lead supervises the site. The single base fee (set by device and time, standard four hours) includes setup and the on-site safety staff -- there's no separate charge for them. The customer picks the devices and location, decides who uses them and when (subject to safety limits), and owes the full fee even if rain prevents use. It asked whether its receipts are taxable.

The Office of Counsel concluded the receipts are a taxable lease:

• It's a lease of tangible personal property. A "sale" includes a rental, lease, or license to use tangible personal property for consideration (Tax Law 1101(b)(5); 20 NYCRR 526.7(c)(1)), and such receipts are taxable under 1105(a). Transfer of possession occurs when the customer has the right to use, control, or direct the use of the property (526.7(e)(4)).
• The customer has possession here. The customer selects the specific devices, selects the location, and decides who uses the devices and when -- compelling indications that the customer has possession and control.
• On-site operators don't change it. When a lease includes an operator, possession is still transferred if the lessee has the right to direct and control the use of the equipment (526.7(e)(6)). The petitioner's employees merely enforce safety rules and assist -- they don't have possession/control. A customer's obligation to follow safety rules does not negate its control over the leased property (TSB-A-11(30)S; 07(02)S).
• The whole fee is taxable. Because setup and the safety staff are part of the base fee, the entire charge is a taxable lease receipt.

What this means for you

Party-rental, inflatable, and amusement-equipment operators

Even a fully staffed, "we run it for you" inflatable or amusement setup is a taxable rental when the customer chooses the gear, the place, and who plays and when. Bundling delivery, setup, and trained safety attendants into one fee doesn't convert it into a nontaxable service -- the whole fee is taxable. Enforcing manufacturer/safety rules is not the same as keeping possession and control; the customer still controls the equipment. Charge sales tax on the full amount.

When does providing an operator avoid a taxable lease?

Only when the provider -- not the customer -- directs and controls how the equipment is used. If the customer decides what's used, where, and by whom, it's a lease regardless of who pushes the buttons or holds the ropes.

Common questions

Q: We supply our own staff to run and supervise the inflatables -- isn't that a service, not a rental? A: No. The customer chooses the devices, the location, and who uses them and when, so possession is transferred and it's a taxable lease, even with your operators on site.

Q: Does enforcing safety rules mean we keep control of the equipment? A: No. Enforcing safety rules and assisting users doesn't negate the customer's control; it's still a lease to the customer.

Q: Can we treat the setup and staffing charges as nontaxable? A: No. They're part of the base fee for a taxable lease, so the entire charge is taxable.

Citations and references

• Tax Law section 1105(a) (tax on receipts from sales/rentals of tangible personal property)
• Tax Law section 1101(b)(5) (definition of sale; rental/lease/license to use)
• 20 NYCRR section 526.7(c)(1) (rental/lease/license to use)
• 20 NYCRR section 526.7(e)(4) (transfer of possession; right to use/control/direct)
• 20 NYCRR section 526.7(e)(6) (lease with operator; possession if lessee directs/controls)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2012.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a12_12s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-12(12)S
Sales Tax
June 12, 2012

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

PETITION NO. S100805A

The Department of Taxation and Finance received a Petition for Advisory Opinion from name and address redacted. Petitioner asks whether its receipts for the use of amusement devices and equipment are subject to sales and use tax. We conclude that the transactions constitute the lease of tangible personal property for purposes of sales and use tax; therefore, receipts from the leases are subject to sales and use tax under Tax Law section 1105(a). This conclusion applies even if Petitioner provides supervisory personnel who assist customers in the use of the devices and equipment. Facts Petitioner provides inflatable devices and non-inflatable amusement equipment for use by its customers at parties and similar social events. The inflatable devices include a bungee run, four way bungee, wrecking ball, giant slide, sticky wall, and an obstacle course. Non-inflatable amusement equipment includes property used to joust, box, and sumo wrestle. The jousting equipment includes helmets, pummel sticks and a mat. The boxing equipment consists of helmets, oversize gloves, and mat. The sumo wrestling equipment consists of inflatable suits, helmets and mat. Petitioner also offers the use of Segway racers. Petitioner delivers the devices and equipment to the customer’s location and sets up the property. Each inflatable device is supervised by at least one employee of the Petitioner. Some devices require two or three employees to assist the persons in using the device. For example, the inflatable climbing wall requires two employees to handle the ropes that assist the user in climbing the wall and in preventing the user from falling. In some cases, the employee will be responsible for assisting the user in putting on equipment such as a harness that is necessary to use the device. The employee or employees assigned to a device are responsible for ensuring the safe use of the device and equipment. For example, an employee will enforce height and weight requirements for use of devices that are set by manufacturer specifications and government regulation. Another example would be ensuring that a user is properly secured to a harness. Employees also monitor the participants’ use of devices to ensure safety. For example, an employee may admonish a participant who uses a device in an unsafe manner and may order the participant to cease using the device if he or she persists in the unsafe use. All of Petitioner’s employees who work with devices receive written and oral instruction from Petitioner as to the safety rules for the devices. For example, the Petitioner will instruct an

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TSB-A-12(12)S
Sales Tax
June 12, 2012

employee with respect to the height, weight, or age restrictions that may pertain to the use of a device. Safety training of employees is required by Petitioner’s liability insurance carrier, as well as by government regulation. Some of petitioner’s employees are licensed by government entities in the set up and operation of the devices and equipment in question. The licensees must attend classroom instruction organized by the licensing agency and pass a final exam. These licenses must be renewed periodically. Some states require that a licensed person supervise the installation of an inflatable device and be present while the device is used. Petitioner will always designate one employee to supervise all other employees at a customer location. This person is responsible for ensuring that all inflatable devices and other equipment is properly installed and is responsible for monitoring the performance of other employees. This employee usually will be also responsible for a specific inflatable device or piece of equipment at the customer location. This employee will usually be licensed. None of Petitioner’s employees will act as a master of ceremonies or in a similar capacity at the customer location. Petitioner sets fees for the use of each device. The fee varies based on the length of time the device will be used at the customer’s location. The standard time period is four hours. Customers have to pay an additional fee if the device is used beyond the allotted time. Petitioner does not bill separate charges for installation of a device or for providing personnel on-site who perform the safety and related functions described above; i.e. these expenses are part of the base fee. Customers select the devices they want to use and the location where the devices are to be installed for an event. Subject to the safety restrictions imposed by Petitioner, the customer has the right to decide who may use the devices or equipment and when the devices or equipment are used. If the devices cannot be used because of rain or other inclement weather, Petitioner’s customer is still liable for the full fee. Analysis Section 1101(b)(5) of the Tax Law defines “sale” as any transfer of title or possession or both, rental, lease or license to use or consume, conditional or otherwise, in any manner or by any means whatsoever for a consideration. The terms “rental”, “lease” and “license to use” refer to all transactions in which there is a transfer for a consideration of possession of tangible personal property without transfer of title to the property. 20 NYCRR§ 526.7(c)(1) “Transfer of possession” with respect to a rental, lease or license to use is defined in the sales tax regulations as meaning that one of the following attributes of property ownership has been transferred: (i) custody or possession of the tangible personal property, actual or constructive; (ii) the right to custody or possession of the tangible personal property; (iii) the right to use or control or direct the use of tangible personal property.

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TSB-A-12(12)S
Sales Tax
June 12, 2012

20 NYCRR § 526.7(e)(4). Subsection (e)(6) of this sales tax regulation provides that when a lease of equipment includes the services of an operator, possession is deemed to be transferred if the lessee has the right to direct and control the use of the equipment. Petitioner transfers possession of its inflatable devices and non-inflatable equipment listed above to its customers. One indication of the transfer of position is that the customers select the specific devices they wants to use. Another indication of possession being transferred is that the customer selects the location where the devices and equipment are to be furnished. While this direction as to the situs of the tangible personal property is not by itself conclusive of a transfer of possession, it is consistent with the customer having exclusive control over the tangible personal property. Finally, the customer’s right to select the persons who will use property and decide when the property are used are compelling indications that the customer has possession of the devices. Petitioner’s employees do not have possession or control of the devices and equipment while the property is at the customer’s location. The employees merely enforce safety rules and assist the customer and guests in the use of the property. A customer’s obligation to comply with safety rules pertaining to the use of leased tangible personal property does not negate the customer’s control over the property. Cf. TSB-A-11(30)S; TSB-A-07(02)S.

DATED: June 12, 2012

NOTE:

/S/
DEBORAH R. 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. The information provided in this document does not cover every situation and is not intended to replace the law or change its meaning.