Are charges to a bank for repossessing vehicles a taxable service, and how are the repossessor's expenses and storage treated?

Plain-English summary

Key Bank, N.A. hired outside vendors to recover and repossess vehicles from customers who defaulted on their car leases or loans, and asked whether those charges are subject to sales tax. In doing the work, the recovery services incur costs such as towing, mileage, obtaining keys, ignition work, and storage, and usually deliver the vehicle to an auction for resale on the bank's behalf.

The Department held the charges to the bank are not taxable:

• Repossession isn't an enumerated service. New York taxes services only if they fall within the five categories in Tax Law § 1105(c) — furnishing information; producing/fabricating/processing property; installing, servicing, or repairing property; storing property not held for sale; and servicing/repairing real property. Repossession fits none of them, so the receipts are not taxable.
• The repossessor's expenses ride along, untaxed. Towing, mileage, keys, ignition work, and third-party storage are part of the total receipt for the (non-taxable) repossession service and aren't deducted (20 NYCRR § 526.5(e)) — but since the whole receipt is non-taxable, they aren't taxed.
• Storing the vehicle is also excluded. When the recovery service stores the repossessed vehicle at its own facilities, that charge is excluded — either as an expense within the non-taxable receipt, or as storage of property held for sale by the bank in the regular course of business.
• But the repossessor owes tax on its own inputs. The recovery service is the consumer of any taxable New York services it buys to do the job — towing, repairs, third-party storage — and is liable for the sales tax on those purchases.

What this means for you

Only the five § 1105(c) services are taxable

New York doesn't tax services in general; it taxes a closed list of five. A service that doesn't fit any of them — like repossession — isn't taxable no matter how it's billed. When you're unsure whether a service is taxable, the first question is whether it lands in one of the § 1105(c) categories.

Expenses folded into a non-taxable service don't create tax

Passing through costs like towing, mileage, and storage doesn't make a non-taxable service taxable. Those expenses are part of the receipt, but if the underlying service isn't enumerated, the whole charge stays untaxed.

The service provider still pays tax on what it buys

The flip side: the repossessor is the end consumer of the taxable services it purchases to perform the job, so it owes New York sales tax on its own towing, repair, and storage purchases. Not being able to tax the customer doesn't exempt the provider's own inputs.

Common questions

Q: Do we (the bank) owe sales tax on our repossession vendor's invoices?
A: No. Repossession isn't one of the five enumerated services under § 1105(c), so the charges to you aren't taxable — including the towing, keys, and storage expenses folded into them.

Q: What about storage of the repossessed car?
A: Also excluded — either as an expense within the non-taxable charge or as storage of property held for sale by the bank in the regular course of business.

Q: So no one pays sales tax here?
A: The recovery service does, on its own taxable purchases (towing, repairs, third-party storage) — it's the consumer of those services.

Citations and references

Statutes and regulations:

• Tax Law § 1105(c) — the five enumerated taxable services (information; producing/processing; installing/servicing/repairing property; storage of property not held for sale; servicing/repairing real property)
• 20 NYCRR § 526.5(e) — expenses incurred by a vendor in making a sale are not deductible from the receipts

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1989.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a89_40s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-89 (40)S
Sales Tax
November 6, 1989

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S890707A

On July 7, 1989 a Petition for Advisory Opinion was received from Key Bank, N.A., 60 State
Street, Albany, New York 12201.
The issue raised is whether charges to Petitioner, Key Bank, N.A., by certain vendors for
performing the services of recovering motor vehicles within and outside New York State, for the
purpose of repossessing such vehicles on behalf of Petitioner, are subject to New York State and
Local Sales Tax.
Petitioner has customers who have leased motor vehicles under leasing agreements entered
into with Petitioner or who have purchased motor vehicles with loan proceeds obtained from
Petitioner. When customers default on lease payments or loan payments, Petitioner contracts with
vendors who provide motor vehicle recovery services.
While performing such repossession services, the vendors may incur expenses such as towing
charges, mileage, charges for repairs or maintenance of the vehicle such as removal and replacement
of the ignition or obtaining keys for the door and trunk, and storage charges for storing vehicle at a
third party location. In some instances the recovery service may store the vehicle at the recovery
service's own facilities.
Upon repossession, vehicles are generally delivered to the closest automobile auction site
available for the purpose of being resold on behalf of Petitioner. Occasionally, Petitioner may resell
a repossessed vehicle directly to a customer.
Section 1105(c) of the Tax Law imposes tax on the receipts from five enumerated categories
of service. These include: the furnishing of information (with certain exceptions); producing,
fabricating, processing, printing or imprinting tangible personal property; installing or maintaining,
servicing or repairing tangible personal property; storing tangible personal property not held for sale
in the regular course of business; and maintaining, servicing, or repairing real property. Inasmuch
as the service in question does not come within the scope of any of the enumerated services in
Section 1105(c) of the Tax Law, the charges to Petitioner for the repossession services are not
subject to the tax imposed thereunder.
Section 526.5 of the Sales and Use Tax Regulations states, in relevant part:
Receipt [Tax Law, §1101(b)(3)] (a) Definition. The word receipt
means the amount of the sale price of any property and the charge for
any service taxable under articles 28 and 29 of the Tax Law, valued
in money, whether received in money or otherwise...
*
*
*

-2­
TSB-A-89 (40)S
Sales Tax
November 6, 1989

(e) Expenses. All expenses including telephone and telegraph and
other service charges incurred by a vendor in making a sale,
regardless of their taxable status and regardless of whether they are
billed to a customer are not deductible from the receipts.
Example 1:

A photographer contracts with a customer to furnish
photographs at $50 each in addition to expenses.
The customer is billed as follows:
Photographs (2)
$100.00
Model fees
60.00
Meals
10.00
Travel
25.00
Props (flowers)
5.00
Total Due
$200.00
Receipt subject to tax is $200.00

In the instant case, the expenses (e.g. towing charges, mileage, charges for repairs or
maintenance of the vehicles, third party storage charges, etc.) incurred by the recovery services in
performing repossession services for Petitioner are considered to be part of the total receipts for such
repossession services. Inasmuch as the repossession services are not within the scope of any of the
enumerated services under Section 1105(c) of the Tax Law, the receipts from the charges to
Petitioner are not subject to New York State or Local Sales Tax.
In those instances where the recovery services bill Petitioner for storing the vehicles at the
recovery service's facilities, the receipts from such charges to Petitioner will be excluded from tax
either as expenses included in non-taxable receipts or under the provisions of Section 1105(c) of the
Tax Law as receipts from the storage of tangible personal property held for sale by Petitioner in the
regular course of business.
It is noted that in those instances where a recovery service incurs expenses within New York
State which are subject to state and local sales tax (e.g., purchases of towing services, repair and
maintenance services, third party storage services), the recovery service will be liable for paying the
sales tax due on the purchase of such services.

DATED: November 6, 1989

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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