Are fees to store dogs in climate-controlled lockers, plus the membership and unit rentals, subject to New York sales tax?

Plain-English summary

A company places climate-controlled "doghouse" lockers around Brooklyn so dog owners can stow their dog while running errands. Members pay an annual membership fee for access, plus a per-minute charge for the time a dog is in a unit (reserved and unlocked via a phone app, with interior webcams). The company also rents the units to business owners for a monthly fee to place outside their stores. It asked whether these charges are taxable.

The Office of Counsel concluded all three are taxable. Sales tax applies to "storing all tangible personal property not held for sale" (Tax Law § 1105(c)(4)), and dogs are tangible personal property for sales tax purposes (20 NYCRR 526.8(a)(4)). Short-term storage counts (per American Locker, "storing" isn't limited to long-term custody), so the per-minute charge is taxable storage. The annual membership fee is a prepayment for access to that storage, so it's taxable too. And renting the units to business owners is a taxable rental of tangible personal property under § 1105(a).

What this means for you

Storage and locker businesses

Short-term storage of customers' property, including unusual property like pets, is taxable storage. Membership or access fees that are really prepayments for the storage are taxable as well.

Equipment-rental arrangements

Renting your equipment (here, the lockers) to other businesses is a taxable rental of tangible personal property.

Accountants and tax professionals

Two hooks: § 1105(c)(4) storage (with animals as TPP, 526.8(a)(4)) and § 1105(a) rental (§ 1101(b)(5)). Note the membership-fee-as-prepayment theory (TSB-A-92(66)S Costco; TSB-A-81(20.1)S) and the short-term-storage holding in American Locker Co. v. Gallman.

Common questions

Q: How can storing a dog be a taxable storage service?
A: For sales tax, dogs are tangible personal property, and storing tangible personal property is taxable, even for short periods.

Q: Why is the membership fee taxable if it's separate from usage?
A: It's a prepayment for access to the taxable storage service, so it's taxed too.

Q: Are the units' rentals to shops taxable?
A: Yes, renting the units to business owners is a taxable rental of tangible personal property.

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); § 1105(c)(4); § 1101(b)(5), (6)
- 20 NYCRR 526.8(a)(4); American Locker Co. v. Gallman, 38 A.D.2d 105 (1972); TSB-A-92(66)S; TSB-A-81(20.1)S; TSB-A-08(17)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/a20-29s.pdf

Original ruling text

New York State Department of Taxation and Finance
Office of Counsel

TSB-A-20(29)S
Sales Tax
July 14, 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 per minute charge and the annual
membership fee are subject to New York State and/or local sales tax under Articles 28 and 29 of
the New York Tax Law. We conclude that both the Petitioner’s annual membership fee and per
minute charges are subject to tax. The Petitioner also asks whether the rental fees paid by
business owners to Petitioner are subject to New York State and/or local sales tax under Articles
28 and 29 of the New York Tax Law. We conclude that the rental fees are subject to sales tax.
Facts
Petitioner provides safe and secure climate-controlled doghouses (“units”) at varying
locations throughout Brooklyn for dog owners to store their dogs while running errands.
Petitioner rents the units for a monthly fee to business owners to place outside their store location
for the convenience of store customers that have a membership with Petitioner. For an annual
membership fee, dog owners (“members”) have access to the units. Members can locate and
reserve a unit on their phones using the Petitioner’s mobile app. Once the dog goes inside the
unit, the door closes and locks automatically. The member then is free to run errands while the
dog is stored in the climate-controlled unit. The units are connected to the Internet with interior
webcams so members can remotely view their dogs on their smartphones.
Members can use the units as often or as infrequently as they want once they have paid
the annual membership fee. Members also are charged a per minute fee for every minute their
dog is in the unit. The units can be reserved in advance or, if available, used spontaneously.
Analysis
Petitioner asks whether the per minute charges for the use of the units are subject to sales
tax. Sales tax is imposed on the receipts from every retail sale of tangible personal property,
with certain enumerated exceptions. See Tax Law § 1105(a). Sales tax is further imposed on
“storing all tangible personal property not held for sale in the regular course of business and the
rental of safe deposit boxes or similar space.” Tax Law § 1105(c)(4). Under Tax Law §
1101(b)(6), tangible personal property is defined as “corporeal personal property of any
nature.” Dogs are considered tangible personal property for sales tax purposes. See 20 NYCRR
526.8(a)(4); TSB-A-08(17)S. In American Locker Co. v. Gallman, 38 A.D.2d 105 (1972), the
court determined that the term “storing” encompasses the rental of lockers to store baggage for
up to 24 hours, holding that “there is no reason to limit its application to long-term custody.”

TSB-A-20(29)S
Sales Tax
July 14, 2020

-2-

Here, Petitioner states that members may store their dogs in the units for up to ninety consecutive
minutes and up to three hours in a 24 hour period. Accordingly, the cents-per-minute charge for
storing dogs is taxable under § 1105(c)(4).
Tax Law § 1105(a) imposes sales tax on the “receipts from every retail sale of tangible
personal property, except as otherwise provided.” In Costco Wholesale Corporation, the
Department determined that an annual membership fee “paid by members for access to its
warehouse sales facilities is subject to sales tax pursuant to Section 1105(a) of the Tax Law,
since in substance, the membership fee is a prepayment for the merchandise sold by Petitioner.”
TSB-A-92(66)S. Similarly, in Norman Eiger, the Tax Department found that membership fees
that entitled members to reduced rental charges were subject to sales tax. TSB-A-81(20.1)S.
Petitioner’s annual membership fee is similarly a prepayment for access to Petitioner’s units for
storing dogs and is taxable under § 1105(c)(4) as a sale of storage services.
Finally, the Petitioner asked about the taxability of the rental of the units to business
owners. Tax Law § 1105(a) imposes tax on “the receipts from every retail sale of tangible
personal property.” Under § 1101(b)(5), the rental of the unit constitutes a sale. Petitioner rents
the units to business owners for a monthly fee. Therefore, under Tax Law § 1105(a), sales tax is
due on the monthly fees paid by business owners for the rental of tangible personal property.
DATED: July 14, 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.