Are monthly clothing-rental subscription fees exempt under New York's clothing exemption?

Plain-English summary

A clothing-rental business offers monthly subscriptions that let a customer hold a set number of garments at a time (plans for 1, 2, 3, 5, 7, or 10 garments, priced from $35 to $159 per month). The fee covers rental, cleaning, and two-way shipping, with unlimited exchanges. It rents everyday clothing (shirts, dresses, skirts), not formal wear, costumes, or accessories. It asked whether the subscription fees qualify for the clothing exemption.

The Office of Counsel concluded the plans are exempt. A rental is a "sale," and Tax Law § 1115(a)(30) exempts clothing and footwear sold for less than $110 per item. The only issue was applying the per-item threshold to a monthly subscription. Plans under $110/month are clearly exempt; and the higher plans (7 or 10 garments) are also exempt because the per-garment price ($35 for a single garment, and an even lower average for the larger plans) stays under $110, following the rule that a bundle over $110 qualifies when its components individually rent for less than $110. So no State sales tax applies; local tax applies only when garments are delivered to a locality that has not adopted the clothing exemption.

What this means for you

Clothing-rental and subscription businesses

Apply the $110 threshold per garment, not to the total monthly fee. Everyday clothing rentals under $110 per item are exempt from State tax even if the monthly subscription tops $110. Don't rent formal wear or costumes expecting this exemption, those are specifically excluded.

Customers

Subscription clothing rentals of ordinary clothing shouldn't carry State sales tax; you may still see local tax depending on your delivery locality.

Accountants and tax professionals

Key points: rental = sale (§ 1101(b)(5)); per-item $110 test; bundle rule (TSB-A-14(9)S); local adoption of the clothing exemption varies (Tax Law § 1210(a); Publication 718-C; 20 NYCRR 525.2(a)(3)). "Clothing" excludes costumes and rented formal wear (§ 1101(b)(15)).

Common questions

Q: My plan costs more than $110 a month, is it taxable?
A: No, if the per-garment rental price is under $110. The threshold applies per item, not to the whole monthly fee.

Q: Does formal wear rental qualify?
A: No. Rented formal wear and costumes are excluded from the clothing exemption.

Q: Is local sales tax owed?
A: Only where the garment is delivered to a locality that hasn't adopted the clothing exemption.

Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner. Use it as guidance and confirm your own facts.

Citations and references

Statutes and guidance:
- Tax Law § 1105(a); § 1101(b)(5); § 1115(a)(30); § 1101(b)(15); § 1210(a)
- 20 NYCRR 525.2(a)(3); Publication 718-C; TSB-A-14(9)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales-ao-2020.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a20-26s.pdf

Original ruling text

New York State Department of Taxation and Finance
Office of Counsel

TSB-A-20(26)S
Sales Tax
June 30, 2020

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
The Department of Taxation and Finance received a Petition for Advisory Opinion from
[ REDACTED ] (“Petitioner”). Petitioner asks whether its monthly subscription fees for its
various clothing rental plans are exempt from sales tax pursuant to Tax Law § 1115(a)(30). We
conclude that the subscription plans described in the petition are exempt from the State sales tax
and from the local sales tax to the extent that the garments are delivered to a customer in a
locality that has elected to adopt the clothing exemption.
Facts
Petitioner operates a clothing rental business. Rental subscriptions are set up on a
monthly basis, with the monthly charge based on the number of garments a customer can have in
his or her possession at a time. There are rental plans for 1, 2, 3, 5, 7 and 10 garments at a time.
The monthly subscription fees for the plans are as follows: one garment at a time for $35; two
garments at a time for $59; three garments at a time for $79; five garments at a time for $99;
seven garments at a time for $129; and ten garments at $159. The monthly subscription fee
includes garment rental, cleaning costs, shipping to the customer, and return shipping. The
monthly subscription allows unlimited returns and exchanges, and the majority of customers
exchange their garments at least once per monthly billing cycle. Exchanges are permitted to take
place on a per-garment basis (i.e., customers can mail back garments one at a time as they wear
them).
Petitioner offers a wide range of styles, including casual shirts, jersey cardigans, cotton
sundresses, office-appropriate pencil skirts, and cocktail-ready shift dresses. Petitioner does not
offer accessories (e.g., handbags), or “formal wear” such as tuxedos, ball gowns, and prom
dresses. All rental plans give subscribers access to the same catalog of clothing.
Analysis
Tax Law § 1105(a) imposes sales tax on the “receipts from every retail sale of tangible
personal property, except as otherwise provided in this article.” “Rental” is included within the
definition of “retail sale.” See Tax Law § 1101(b)(5). Tax Law § 1115(a)(30) exempts from
State sales tax clothing, footwear and items used to make or repair exempt clothing that are sold
for less than $110 per item or pair of shoes. See Publication 718-C. The term “clothing and
footwear” is defined as “[c]lothing and footware to be worn by humans beings, but not to include
costumes or rented formal wear… .” See Tax Law § 1101(b)(15). Localities may choose to
exempt clothing from their locally-enacted sales tax. See Tax Law § 1210(a)(1),(4).

-2-

TSB-A-20(26)S
Sales Tax
June 30, 2020

Petitioner does not rent formal clothing or costumes, so the only issue is how to apply the
exemption’s monetary threshold of $110 per article of clothing to Petitioner’s subscription plans.
The subscription plans with a monthly subscription charge under $110 per month are exempt
because the subscription amount is under the exemption threshold. The subscription plans with a
monthly subscription charge over $110 (i.e., the 7 or 10 garment plans) also are exempt because
the price to rent a single garment- $35- is under the exemption threshold. See TSB-A-14(9)S (“a
bundle of clothing sold for more than $110 qualifies for the clothing exemption when the
components of such bundle are sold individually for less than $110.”). Moreover, the average
fee per garment for the 7 and 10 garment plans, respectively $18.43 and $15.90 when the
customer has the maximum number of garments outstanding, is less than the per garment cost of
subscribing to the 1 garment plan. Therefore, the clothing exemption applies to all of
Petitioner’s subscription plans. Petitioner is not required to collect State sales tax on its
subscriptions, but must collect the local sales tax when garments are delivered to a customer in a
locality that has not elected to adopt the clothing exemption. See Tax Law § 1101(b)(15); 20
NYCRR 525.2(a)(3); see also Publication 718-C.
DATED: June 30, 2020
/S/
DEBORAH R. LIEBMAN
Deputy Counsel
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. The information provided in this
document does not cover every situation and is not intended to replace the law or
change its meaning.