When a taxicab is leased with its city license, can the separately stated charge for the license be left out of sales tax?

Plain-English summary

The Metropolitan Taxicab Board of Trade, Inc. represents lessors who own NYC-licensed taxicabs and lease them to licensed drivers — usually for a 12-hour shift, a week, or a month (about 95% are 12-hour leases). In the rental agreement (which doubles as the bill), the charge for the taxicab license is stated separately from the auto rental charge. New York City auto lessors may, under certain conditions, exclude 10% of total rental receipts from tax. The Board argued the license charge should also be exempt, as a fee for the intangible right to operate as a taxicab, citing Joseph C. Endres, TSB-H-83(124)S, where a franchise fee in a bulk sale was held exempt. The question: is the separately stated taxicab-license charge a non-taxable receipt?

The Department said the license charge is a registration fee — taxable within the 90%/10% rental rule, not separately exempt.

• Renting a cab is a taxable sale. Section 1105(a) taxes the receipts from every retail sale, and a "sale" includes rentals, leases or licenses to use tangible personal property (20 NYCRR 526.7(a)(2)). A "receipt" is the sale price with no deduction for expenses (§ 1101(a)(3)).
• But a special NYC rule applies. Under 20 NYCRR 530.4(c), if the lessor pays all registration fees and all insurance charges, the tax on a New York City vehicle rental may be computed on 90% of the total charge, in lieu of separately stating nontaxable items.
• A taxicab license is a "vehicle license." The NYC Charter (Chapter 65) defines it that way; the owner gets yearly renewal (subject to inspection), and transfers need Taxi and Limousine Commission approval. So the license charge is a registration fee within § 530.4(c).
• Two ways to handle it. If the lessor computes tax on 90% of the entire periodic rental charge, the taxicab-license fee is treated as part of the non-taxable 10%. Alternatively, the lessor may separately state the registration fees, insurance charges and other nontaxable charges (charges not for the sale or servicing of tangible personal property) and collect tax on the difference between those exempt charges and the total bill.
• The excluded amounts must be the lessor's own costs. They must be expenses paid by the lessor, apportioned to recover cost without markup. If the nontaxable charges (other than for chauffeurs or helpers) are not paid by the lessor, tax is due on 100% of the rental. (See Publication 702.)

So the Board's argument that the license charge is a wholly separate, exempt intangible was rejected; the charge is folded into the vehicle-rental computation as a registration fee.

What this means for you

Labeling a rental component an "intangible right" won't make it tax-free. New York treated the taxicab medallion/license charge as part of the taxable vehicle rental — specifically as a registration fee — not as a separate, exempt payment for an intangible.

Use New York City's 90%/10% method or itemize — but not both loosely. If you pay all registration and insurance, you can tax 90% of the rental and let the license and similar fees ride in the exempt 10%. Or you can separately state your genuine nontaxable, at-cost charges and tax the remainder. Pick a method and apply it consistently.

"At cost, no markup," and you must actually pay the charges. The amounts you exclude have to be your real out-of-pocket expenses passed through without markup. If you don't actually pay the registration and insurance, you lose the exclusion and owe tax on the full rental.

Common questions

Q: We list the taxicab license charge separately. Isn't it exempt as an intangible right?
A: No. The Department treats a NYC taxicab license as a "vehicle license," making the charge a registration fee within the vehicle-rental rule — not a separately exempt intangible.

Q: How do we exclude the license fee from tax then?
A: Two ways: compute tax on 90% of the total rental (the license fee rides in the exempt 10%), or separately state your registration fees, insurance and other genuine nontaxable charges and tax the difference.

Q: What if we don't pay the registration and insurance ourselves?
A: Then the exclusion is unavailable and tax is due on 100% of the rental charge (other than charges for chauffeurs or helpers, which are treated separately).

Q: Can we mark up the pass-through fees?
A: No. The excluded amounts must recover the lessor's cost without markup for each vehicle over the applicable period.

Citations and references

Statute:

• Tax Law § 1105(a) — taxes receipts from every retail sale, including rentals and leases of tangible personal property
• Tax Law § 1101(a)(3) — defines "receipt" as the sale price, with no deduction for expenses

Regulations:

• 20 NYCRR 530.4(c) — New York City vehicle rentals: if the lessor pays all registration and insurance, tax may be computed on 90% of the total charge, or nontaxable items may be separately stated
• 20 NYCRR 526.7(a)(2) — "sale" includes rentals, leases and licenses to use tangible personal property

Other authority referenced:

• New York City Charter, Chapter 65 — defines a taxicab license as a "vehicle license"
• Joseph C. Endres, TSB-H-83(124)S — franchise fee in a bulk sale (cited by the petitioner; distinguished)
• Publication 702 — instructions for computing sales tax by motor-vehicle lessors

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a86_2s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86(2)S
Sales Tax
December 19, 1985

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S850812A

On August 12, 1985, a Petition for Advisory Opinion was received from Metropolitan
Taxicab Board of Trade, Inc., 24-16 Bridge Plaza South, Long Island City, New York 11101.
The issue raised is whether the charge for the lease of a taxicab license, which is included
in the total periodic payment for the short term lease of a taxicab, is a non-taxable receipt.
Petitioner's members (the "lessors") are owners of automobiles equipped as taxicabs and
licensed to transport passengers within New York City. These taxicabs are available for lease to
licensed drivers in the metropolitan area. Lease periods usually are limited to either a 12 hour shift,
a week, or a month. No lease extends over a period of more than six months and about 95 percent
of all leases are entered into for a 12 hour period.
In the rental agreement, which doubles as a billing, the charge for the lease of the taxicab
license is stated separately from the automobile rental charge. With regard to the latter charge,
Petitioner points out that, under certain conditions, the Sales and Use Tax Regulations allow lessors
of automobiles subject to New York City sales tax to exclude from tax 10 percent of the total rental
receipts. Petitioner contends that, in addition, the charge for the taxicab license should be exempt
from tax as a fee paid for the intangible right to operate an automobile as a taxicab. Petitioner cites
Joseph C. Endres, Decision of the State Tax Commission, May 20, 1983, TSB-H-83(124)S, where,
in a bulk sales transaction, assets representing a franchise fee were held exempt from sales tax.
Section 1105(a) of the Tax Law imposes a tax on the receipts from every retail sale, except
for resale, of tangible personal property. According to Regulation Section 526.7(a)(2) the term sale
includes rentals, leases or licenses to use or consume tangible personal property.
Section 1101(a)(3) of the Tax Law, in relevant part, defines the term receipt as "the amount
of the sale price of any property. . . taxable under this article, . . . without any deduction for expenses
. . . ." However, Regulation Section 530.4(c) contains special provisions with regard to receipts from
the rental or lease of motor vehicles in New York City, which read as follows:
"Provided all registration fees and all insurance charges are paid by the
lessor, the amount of tax to be collected on charges for the rental or lease of motor
vehicles subject to the eight and one-quarter percent sales or use tax rate effective in
New York City may be computed on 90 percent of the total rental or lease charge,

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-86(2)S
Sales Tax
December 19, 1985

and such method of computation shall be in lieu of separately stating a charge for
these or other nontaxable items (including any amounts separately stated on billings,
other than charges for chauffeurs and helpers)." (Emphasis added).
Chapter 65 of the New York City Charter defines a taxicab license as a "vehicle license".
The owner of the license is entitled to its yearly renewal, provided the taxicab passes inspection once
every four months. The transfer of a license from one vehicle to another must be approved by the
New York City Taxi and Limousine Commission.
Accordingly, the charge for a taxicab license is a registration fee within the meaning and
intent of Regulation Section 530.4(c). If the lessor chooses to compute the sales tax on 90 percent
of the entire periodic rental charge, the taxicab license fee is deemed to be part of the non-taxable
10 percent of the total receipt.
In the alternative, the lessor may state separately on the rental billing the registration fees,
insurance charges and other non-taxable charges (i.e., charges not representing the sale or servicing
of tangible personal property) and may collect tax on the difference between the sum of the exempt
charges and the total amount of the billing.
The amounts excluded from tax must be expenses paid by the lessor, which should be
apportioned to the rental billing by a method that allows the lessor to recover its cost (without mark­
up) of the registration fee, insurance charge, etc., for each vehicle within the period to which such
fee, premium or other expense is applicable.
If all non-taxable charges, other than those for chauffeurs or helpers, connected with the
rental or lease are not paid by the lessor, the sales tax due must be computed on 100 percent of the
total rental or lease charge.
Publication 702 (12/84) of the Department of Taxation and Finance contains detailed
instructions for the computation of sales tax by lessors of motor vehicles.

DATED: December 19, 1985

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth herein.