Are a foundry's charges for storing customers' pattern equipment a taxable storage service, or a nontaxable lease of real property?

Plain-English summary

Pohlman Foundry Company, Inc. is a jobbing foundry. Its customers provide their own pattern and corebox equipment, which the foundry uses to make castings. The foundry acquired an adjacent building as a pattern storage warehouse and charges customers a flat fee to store their patterns there. Each customer is assigned a specific area, may supply its own racks, and has unlimited daytime access — but night access requires prior notice, and the foundry keeps full access and may withdraw a customer's patterns for use in production. Pohlman asked whether the storage charge is taxable under § 1105(c)(4).

The Department held the charge is a taxable storage service.

• Storage of goods is a taxable service. Section § 1105(c)(4) taxes receipts from "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." Under § 527.6, storage is "the provision of a place for the safekeeping of goods," regardless of how it's paid for or how long it lasts.
• A real-property lease would be different — but this isn't one. The regulation says the taxable storage service is not imposed on a lease of real property. A lease is distinguished by three things: the tenant contracts for a certain amount of footage in a specific location, the tenant has unlimited control of access to the space, and the tenant may supply its own racks and facilities.
• The customers lack the control a lease requires. Although customers here get a specific assigned area and can bring their own racks, they do not have unlimited control of access — they must give prior notice for night access, and the foundry retains full access and may withdraw patterns from a customer's space for production. (Regulation Example 3 treats goods stored in an assigned space, with the charges, as taxable storage.)
• Result: taxable. Pohlman supplies the service of storage, and its charges are subject to tax under § 1105(c)(4).

What this means for you

Storage of someone else's goods is a taxable service in New York. Charging to keep a customer's property safe — whatever you call it and however you bill it — is generally taxable under § 1105(c)(4), unless the arrangement is really a lease of real property.

Exclusive, tenant-controlled space is the line between a lease and taxable storage. A true real-property lease gives the tenant unlimited control of access to a defined space. If you keep keys, control after-hours entry, or reach into the space yourself, you're providing storage — a taxable service — not leasing real estate.

An assigned area alone doesn't make it a lease. Even a specific spot the customer stocks with its own racks was taxable storage here, because the customer's access was limited and the foundry retained control. Look at who really controls entry to the space.

Common questions

Q: I charge customers to store their equipment. Is that taxable?
A: Generally yes. Storing tangible personal property not held for sale is a taxable service under § 1105(c)(4), unless the arrangement is truly a lease of real property.

Q: What makes it a nontaxable real-property lease instead?
A: The customer must contract for a specific amount of footage, have unlimited control of access to it, and be able to supply its own racks. Missing the unlimited-access element (as here) makes it taxable storage.

Q: My customers get their own assigned area — isn't that a lease?
A: Not by itself. Here customers had assigned areas and their own racks, but the foundry controlled night access and kept full access to withdraw patterns, so it was taxable storage, not a lease.

Citations and references

Statute and regulation:

• Tax Law § 1105(c)(4) — tax on storing tangible personal property not held for sale, and on renting safe deposit boxes or similar space
• Sales and Use Tax Regulations § 527.6 — storage defined as providing a place for the safekeeping of goods; distinguishes a lease of real property (tenant contracts for specific footage, has unlimited control of access, and may supply its own racks); Example 3 (goods in an assigned space are taxable storage)

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_51s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-82(51)S
Sales Tax
December 31, 1982

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S820107A

On January 7, 1982 a Petition for Advisory Opinion was received from Pohlman Foundry
Company, Inc., 205 Baitz Avenue, Buffalo, New York 14206.
The issue raised is whether Petitioner's charges to its customers for pattern storage are subject
to tax under section 1105(c)(4) of the Tax Law.
Petitioner is in the jobbing foundry business. Petitioner's customers provide their own pattern
equipment and corebox equipment, which Petitioner uses to make finished jobbing castings.
Petitioner formerly provided for the storage of its customers' pattern equipment at the foundry facility
itself. Approximately five years ago, however, Petitioner acquired a building adjacent to its foundry
facility for use as a pattern storage warehouse. At that time Petitioner contacted its customers and
gave them the option of either renting a given space in Petitioner's pattern storage warehouse, having
the pattern and corebox equipment returned or having Petitioner destroy the pattern equipment where
it was determined to be obsolete.
The pattern storage building has its own entrance and exit areas. Petitioner's customers have
access to the building, for both delivery and removal of their own pattern equipment. During daytime
hours Petitioner's customers have unlimited access to the pattern storage warehouses. During the
night, however, the customers are required to give prior notice to Petitioner in order to gain access
to the pattern storage warehouse.
There is no prescribed amount of pattern equipment or coreboxes that must be placed within
a customer's storage area. The pattern equipment or coreboxes must be retained within the specific
area assigned to the customer. Each customer may use only the area specifically assigned to him. A
customer may store other items in his area, provided the items being stored comply with the
insurance codes applicable to the facility. Customers may provide their own racks or holding devices
for use in storing their equipment. The fee charged by Petitioner is a flat amount, and is not based
on the number or nature of the items stored.
Petitioner has full access to the pattern storage area and, pursuant to authorization by a
customer, may withdraw patterns from a customer's assigned space for use in production.
Section 1105(c)(4) of the Tax Law imposes a tax on receipts from the following service:

ROBERT W. BOUCHARD, ACTING COMMISSIONER
GABRIEL B. DiCERBO , DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (8/82)

-2­
TSB-A-82(51)S
Sales Tax
December 31, 1982

"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."
Section 527.6 of the Sales and Use Tax Regulations provides, in part, as follows:
"(a) Definition. Storage is the provision of a place for the safekeeping of
goods, without regard to the manner of payment or length of time of the service.
(b) Imposition. (1) The tax is imposed on the sale, except for resale, of the
service of storing tangible personal property, and the rental of safe deposit boxes and
similar space.
(2) While the tax is imposed on the service of providing storage space, it is
not imposed on the lease of real property for storage. A lease can be distinguished
from the provision of storage space, in that under a lease, the tenant contracts for a
certain amount of footage in a specific location, the tenant has unlimited control of
access to the space, and may supply his own racks, cabinets and other physical
facilities.

Example 3: A person stores his goods in a specific space in a building, and
no other person has access to the space assigned. This is storage of tangible personal
property and the charges are taxable." 20 NYCRR 527.6.
Accordingly, upon a consideration of the facts presented by Petitioner, and in light of the
above-quoted statutory and regulation provisions, it is hereby determined that Petitioner supplies the
service of storage to its customers and that its charges therefor are subject to tax under section
1105(c)(4) of the Tax Law.

DATED: December 23, 1982

s/FRANK J. PUCCIA
Director
Technical Services Bureau