If a recording studio leases sound and recording equipment from a supplier and then re-rents it to studio customers, does the studio owe sales tax on the equipment lease it pays to the supplier?

Plain-English summary

Howard Schwartz Recording, Inc., operates a recording studio with rooms outfitted with recording and sound equipment, which it acquires by purchase or under long-term leases. It rents the rooms — with the equipment — to customers who pay an hourly rental fee, with no allocation between the room and the equipment, and it collects sales tax from those customers on the entire rental charge. It asked whether the charge its equipment lessor bills it is itself subject to sales tax.

The Department held the equipment lease from the supplier is not taxable — it is a purchase for resale.

• The tax. Section § 1105(a) taxes the receipts from every retail sale of tangible personal property.
• "Retail sale" excludes resale. Under § 1101(b)(4), a "retail sale" is a sale for any purpose other than resale (as such or as a component part).
• A rental is a sale. Section § 1101(b)(5) defines "sale, selling or purchase" to include any "rental, lease or license to use or consume … for a consideration."
• Result. Because the studio subsequently re-rents the same sound and recording equipment to its customers "for a consideration," the leases between the studio and its supplier are not retail sales but sales for re-sale (viz., rental) — and are not subject to tax. To claim the exclusion, the studio must furnish its lessor a properly completed Resale Certificate (Form ST-120).

What this means for you

In New York, a rental is a sale. If you lease equipment and then re-rent that same equipment to your customers for a consideration, your upstream lease is a purchase for resale, not a taxable retail purchase.

Document it with Form ST-120. The resale exclusion is not automatic — you must give your lessor a properly completed Resale Certificate (Form ST-120) to buy (or lease) the equipment without tax.

You still collect tax downstream. The exclusion applies to what you pay your supplier. You remain responsible for collecting sales tax from your own customers — here, on the full hourly room-and-equipment rental.

Common questions

Q: I lease equipment and then rent it out to my customers. Do I pay tax on my own lease?
A: No — that lease is a purchase for resale. Give your lessor a Resale Certificate (Form ST-120). But you must collect tax on what you charge your customers.

Q: Does it matter that I don't split the room charge from the equipment charge?
A: The opinion didn't require an allocation; the studio taxed the entire hourly charge to its customers. The resale treatment of the upstream lease turns on the equipment being re-rented to customers for consideration.

Q: What form claims the resale exclusion?
A: The Resale Certificate, Form ST-120, given to your equipment lessor.

Citations and references

Statutes:

• Tax Law § 1105(a) — tax on receipts from retail sales of tangible personal property
• Tax Law § 1101(b)(4) — "retail sale" excludes sales for resale
• Tax Law § 1101(b)(5) — "sale/purchase" includes any rental, lease or license to use for a consideration

Forms:

• Form ST-120 — Resale Certificate (given to the equipment lessor to claim the resale exclusion)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1982.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a82_26s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-82(26)S
Sales Tax
August 16, 1982

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S820311B

On March 11, 1982 a Petition for Advisory Opinion was received from Howard Schwartz
Recording, Inc., 420 Lexington Avenue, New York, New York 10170.
The issue herein raised is whether the charge by a lessor for recording equipment leased to
Petitioner for use in recording studios, where such equipment is rented to its customers, is subject
to sales tax.
Petitioner operates a recording studio containing rooms outfitted with recording and sound
equipment. Petitioner acquires such equipment by purchase or under long-term leases. The rooms,
with the equipment, are rented to customers who pay an hourly rental fee, with no allocation between
rental of the room and the equipment. Petitioner collects tax from its customers on the entire rental
charge.
Section 1105(a) of the Tax Law imposes a tax on "the receipts from every retail sale of
tangible personal property, except as otherwise provided in this article."
Section 1101(b)(4) of the Tax Law defines the term "retail sale," in relevant part, as: "A sale
of tangible personal property to any person for any purpose other than (A) for resale as such or as
a component part of tangible personal property . . . ."
Section 1101(b)(5) of the Tax Law defines the terms "sale, selling or purchase" as "any
transfer of title or possession or both, exchange or barter, rental, lease or license to use or consume,
conditional or otherwise, in any manner or by any means whatsoever for a consideration, or any
agreement therefor, including the rendering of any service, taxable under this article, for a consi­
deration or any agreement therefor."
The sound and recording equipment leased by Petitioner is subsequently rented to its
customers "for a consideration". Accordingly, the equipment leases between Petitioner and its
supplier do not constitute retail sales, but rather sales for re-sale (viz., rental), which are not subject
to sales tax. Petitioner must furnish the lessor of the equipment with a properly completed Resale
Certificate (Form ST-120), in order to avail itself of such exclusion from tax.

DATED: July 22, 1982

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR