My company arranges trip leases with independent truckers and never directly employs the drivers. Am I still liable for New York's highway use tax and fuel use tax on those trucks?

Plain-English summary

Pembroke Transportation Corporation runs a trip-lease business: it contracts with independent haulers and drivers from other carrier companies to transport goods, for lease periods never exceeding thirty days. Pembroke said it never directly controlled any vehicle and never had an employer-employee relationship with any driver, and asked whether it is nonetheless responsible for New York's truck mileage tax (§ 503) and fuel use tax (§ 503-a).

Both taxes fall on the "carrier" — statutorily, the owner of the vehicle or any other person having control of or the right to control it (Tax Law § 501(5)) — and where the carrier isn't the owner, liability is joint and several between the two. A lessee like Pembroke is a "carrier" if it has direct control, which the regulations (20 NYCRR § 473.8) generally find where an employer-employee-type relationship exists between the lessee and the driver: does the lessee have the right to hire/fire the driver, pay the driver's wages and the associated payroll taxes, and supervise or direct how the driver operates the vehicle (physical exams, logs, routes, schedules, equipment inspection, etc.)?

Critically, the Department stressed that this employer-employee-type relationship can exist based on the lessee's contractual right to exercise that control — even if it never actually exercises it. Examining Pembroke's standard trip-lease contract, the Department found provisions giving Pembroke "exclusive possession, control, use and responsibility for the operation of the equipment" and the right to supervise and direct the driver. Since Pembroke offered no facts rebutting that control, the Department concluded Pembroke is a carrier under §§ 503 and 503-a, sharing joint and several liability with its independent haulers — and a contract clause requiring the vehicle owner to pay the tax doesn't let Pembroke off the hook; both remain liable until the tax is actually paid.

What this means for you

Trip-lease companies, freight brokers, and logistics intermediaries

Whether you're a "carrier" liable for highway use and fuel use tax turns on what your lease contract entitles you to do with the driver and vehicle, not on whether you actually exercise that control or on how you've labeled the relationship. Review your standard lease language for clauses granting "exclusive possession, control, use and responsibility" or supervisory rights over drivers — those can make you jointly liable regardless of a tax-shifting clause.

Independent owner-operators and small carrier companies leasing to larger firms

A contract term putting tax-payment responsibility on you doesn't necessarily protect the lessee from the state; both parties can remain jointly and severally liable to the Department even while sorting out payment responsibility between themselves privately.

Common questions

Q: If my lease contract says the vehicle owner pays the tax, am I off the hook?
A: Not necessarily. A private contractual allocation of tax responsibility doesn't defeat the statute's joint-and-several liability — the Department can still look to the carrier (the lessee) if it has the requisite control.

Q: Does it matter if I never actually supervised the driver?
A: Not by itself. An employer-employee-type relationship (and therefore "direct control") can exist based on the lessee's contractual right to supervise and direct the driver, even without actually exercising it.

Q: What specific things make a lessee a "carrier"?
A: Key indicators include the right to hire/discharge the driver, paying the driver's wages and payroll-related taxes, and the right to supervise/direct operations (physical exams, logs, expense reports, regulatory compliance, work hours, equipment inspection, shipment handling, schedules and routes, speed).

Q: Can I rely on this ruling for my own trip-lease arrangement?
A: No. This advisory opinion binds the Department only as to the petitioner and the specific facts described — have your own lease contract reviewed against these control factors.

Citations and references

Statutes and regulations:

• Tax Law § 503 (truck mileage/highway use tax; carrier and owner joint and several liability)
• Tax Law § 503-a (fuel use tax; carrier and owner joint and several liability)
• Tax Law § 501(5) (definition of "carrier": owner or any person with control/right to control)
• 20 NYCRR § 473.7 (carrier must apply for highway use permit for each vehicle)
• 20 NYCRR § 473.8(b), (d) (lessee with direct control is a carrier)
• 20 NYCRR § 473.8(e) (employer-employee relationship test factors)
• 20 NYCRR § 473.8(f) (supervision/direction indicia)
• 20 NYCRR § 473.8(h) (right to control suffices even if not exercised)

Case law cited in the opinion:

• Matter of Concrete Delivery v. State Tax Commission, 71 A.D.2d 330, 423 N.Y.S.2d 293 (1979)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/highway_use_ao.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/highway/a88_1m.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-88 (1) M
Highway Use
March 21, 1988

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M871214A

On December 14, 1987, a Petition for Advisory Opinion was received from Pembroke
Transportation Corporation, P.O. Box 451 Massena, New York 13662.
At issue is the status of the Petitioner as a lessee, carrier, or owner and its responsibility for
payment of the truck mileage tax and fuel use tax imposed by Tax Law sections 503 and 503-a and
the Regulations promulgated thereunder.
Petitioner states that it is a New York corporation in the trip lease business which contracts
with independent haulers and/or individuals from other carrier companies to transport goods.
Petitioner states that it has never had direct control of a motor vehicle or had an employer-employee
relationship with the driver of the vehicle. Petitioner also states that it has never had a trip lease
contract with any hauler for more than thirty days.
Section 503 of the Tax Law states, in part, that there shall be imposed
a highway use tax for the privilege of operating any vehicular unit upon the public
highways of this state. Such tax shall be upon the carrier except that where the carrier
is not the owner of such vehicular unit, the tax shall be a joint and several liability
upon both.
Section 503-a of the Tax Law states, in part, that there shall be imposed
an additional tax on highway use [the fuel use tax] for the privilege of operating any
vehicular unit...upon the public highways of this state .... Such tax shall be upon the
carrier except that where the carrier is not the owner of such vehicular unit, the tax
shall be a joint and several liability upon both.
An application for a highway use permit should be made by the carrier for every motor
vehicle operated or to be operated by him in this State. (20 NYCRR §473.7). A carrier is defined by
statute as the owner or any other person having control of or the right to control the motor vehicle.
(Tax Law §501(5)).
Every lessee having direct control of a motor vehicle is a carrier and may need to obtain a
permit. A lessee is deemed to have direct control of a motor vehicle if he is actually in control of the
operation of the vehicle. A lessee is generally in control of the operations where an employer­
employee relationship exists between the lessee and the driver of the vehicle. (20 NYCRR
§473.8(b),(d)).

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

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

-2­
TSB-A-88 (1) M
Highway Use
March 21, 1988

The regulations also set forth tests for determining whether an employer-employee
relationship exists. When making a determination one must look to whether:
1.

The lessee has the right to hire and discharge the driver.

2.

The lessee pays the driver's wages and further pays all State and Federal
unemployment insurance taxes, old age pensions, social security taxes, and provides
workers' compensation coverage.

3.

The lessee has the right to supervise the driver and direct the manner of his operation
of the motor vehicle. (20 NYCRR 473.8(e)).

Such supervision and direction over the driver exists where the lessee has the right to control
the driver in some or all of the following respects:
1.

requiring physical examination of the driver;

2.

requiring the driver to keep logs and file daily reports;

3.

requiring the driver to submit explanations of delay and details of expense;

4.

requiring the driver to observe the statutes and regulations of the various
commissions, such as the Interstate Commerce Commission and the State
Department of Transportation;

5.

supervision over the hours of work;

6.

inspection and maintenance of equipment;

7.

supervision over the methods of handling shipments, if any;

8.

checking the time of the driver; and/or

9.

prescribing schedules and routes to be followed and the speed at which the motor
vehicle is to be driven. (20 NYCRR 473.8(f)).

It must be emphasized that an employer-employee relationship may exist where the lessee
has the right to exercise supervision and direction over the driver of the motor vehicle, even though
he may not exercise that right. (20 NYCRR §473.8(h)). The agreement between the parties should
be examined to determine what rights are legally vested in the parties. Matter of Concrete Delivery
v. State Tax Commission, 71A.D.2d 330, 423 N.Y.S. 2d 293 (1979). An examination of the standard
trip lease contract supplied by Petitioner reveals a number of provisions which indicate that
Petitioner retains "exclusive possession, control, use and responsibility for the operation of the
equipment" and that Petitioner retains the right to exercise supervision and direction over the driver
of the motor vehicle. Petitioner submitted no additional information, other than conclusions

-3­
TSB-A-88 (1) M
Highway Use
March 21, 1988

regarding the ultimate questions here at issue, which would indicate that Petitioner does not retain
the right of control over the motor vehicle and the driver of the motor vehicle.
Accordingly, in the absence of any facts indicating that Petitioner did not have control of the
motor vehicle and its driver, it is concluded that Petitioner is a carrier within the meaning of sections
503 and 503-a of the Tax Law and shares joint and several liability with its independent haulers
and/or individuals from other carrier companies.
Parenthetically, it is noted that sections 503 and 503-a of the Tax Law imposes joint and
several liability on the owner of a vehicle and upon the carrier. Where Petitioner is found to be a
carrier with respect to a motor vehicle, it cannot avoid liability for tax under such sections merely
by means of a provision in the standard trip lease contract requiring payment of the tax by the owner.
Both remain liable for the tax until it is paid.

DATED: March 21, 1988

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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