Is renting out a crane with an operator a taxable rental of tangible personal property, and are the operator's wages excludable?

Plain-English summary

Northeast Timber Erectors, Inc. planned to offer a crane rental service with an operator — placing modular homes on foundations, hoisting laminated beams and structural steel, and setting roof trusses. In a typical job, Northeast contracts with a mobile-home sales company, transports the crane to the site, and its crew rigs the cables; the crane operator lifts a home section into place while the customer's own set-up crew directs the operator on exactly where it goes. Northeast asked whether receipts from crane rentals with an operator are subject to sales or use tax.

The Department held these receipts are taxable rentals of tangible personal property.

• Equipment plus operator can still be a taxable rental. A "sale" under § 1101(b)(5) includes any rental or license to use tangible personal property. Under 20 NYCRR § 526.7(e)(6), when a lease of equipment includes an operator, possession is deemed transferred to the customer wherever the customer has the right to direct and control the equipment's use — and the operator's wages, when separately stated and reflecting prevailing wage rates, are excludable from the receipt. The regulation's Example 15 (a crane leased with an operator who takes instructions from the customer's foreman) is exactly this situation.
• Here the customer controls the crane. Because the mobile-home company's set-up crew directs and controls the placement of each section, the right to direct the crane belongs to the customer, so the rental is a taxable sale under § 1105(a) (see Maplecrest Sausage Co. v. Tully, 67 AD2d 329; Ormsby Haulers, Inc. v. Tully, 72 AD2d 845).
• This rule applies to all such jobs. In any of Northeast's crane rentals where the customer directs or has the right to direct the equipment, the receipts are taxable — with the separately stated operator wages (at prevailing rates) excluded.

What this means for you

"We supply an operator" doesn't make it a nontaxable service

The key question New York asks is who controls the machine. If your customer (or their crew or foreman) directs and controls how the equipment is used, you've transferred possession — and renting the equipment is a taxable rental of tangible personal property, operator or not.

Separately state the operator's wages to keep them out of the tax base

The operator's wages are excludable only if you state them separately on the invoice and they reflect prevailing wage rates. Bundle them into one lump "crane service" charge and the whole amount is exposed to tax.

If you kept full control, the answer could differ

This opinion turns on the customer directing the crane. A job where you retain complete control over how the equipment operates — performing a result rather than handing over the machine — presents a different question and should be analyzed on its own facts.

Common questions

Q: We rent a crane and send an operator — is that a taxable rental?
A: Yes, if the customer has the right to direct and control the crane's use, which transfers possession under 20 NYCRR § 526.7(e)(6). The rental is taxable under §§ 1105(a) and 1101(b)(5).

Q: Can we keep the operator's pay out of the tax?
A: Yes — if the operator's wages are separately stated and reflect prevailing wage rates, they're excludable from the taxable receipt.

Q: What if the customer's crew directs where we place the load?
A: That's exactly what makes it taxable here — the customer directing placement means the customer controls the equipment.

Citations and references

Statutes and regulations:

• Tax Law § 1105(a) — tax on retail sales of tangible personal property
• Tax Law § 1101(b)(5) — "sale" includes any rental, lease, or license to use tangible personal property
• 20 NYCRR § 526.7(c)(1), (e)(4), (e)(6) — transfer of possession; leased equipment with operator; exclusion of separately stated operator wages at prevailing rates (Example 15)

Cited authority:

• Maplecrest Sausage Co., Inc. v. Tully, 67 AD2d 329
• Ormsby Haulers, Inc. et al v. Tully, 72 AD2d 845

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a90_17s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-90(17)S
Sales Tax
April 16, 1990

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S900109A

On January 9, 1990 a Petition for Advisory Opinion was received from Northeast Timber
Erectors, Inc., P.O. Box 340, Pruyn Street, Bainbridge, New York 13733.
The issue raised by Petitioner, Northeast Timber Erectors, Inc., is whether receipts received
from crane rentals, with operator, are subject to New York State and Local Sales or Use Tax.
Petitioner is considering providing a crane rental service, with operator. Petitioner's crane
service will perform such jobs as the placement of modular homes onto foundations or slabs, the
hoisting and setting into place of laminated wood beams, structural steel, wooden roof trusses, etc.
Petitioner will provide the services of an individual to operate the crane.
In a typical transaction Petitioner will contract with a mobile home sales company to set
modular home sections in place on either a foundation or slab belonging to the customer of the
company. In the performance of this contract, Petitioner will transport the crane to the job site.
Subsequent to the crane being made operational by Petitioner's crane crew, the crane crew will fasten
cables to one section of the modular home. The crane operator will cause the crane to lift and
maneuver the modular home section to a point located immediately above the foundation or slab.
A set-up crew (employed or sub-contracted by the mobile home sales company) will direct the crane
operator as to the exact placement of the modular home section on the foundation or slab. The crane
crew will then remove the cables. The other modular home sections will be set in place in like
manner.
Pursuant to Section 1105(a) of the Tax Law, sales tax is imposed on "[t]he receipts from
every retail sale of tangible personal property, except as otherwise provided in this article."
Section 1101(b)(5) of the Tax Law defines "sale, selling or purchase" as follows:
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 therefore....

TP-9 (9/88)

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TSB-A-90(17)S
Sales Tax
April 16, 1990

Section 526.7(c)(1) of the Sales and Use Tax Regulations provides in part that:
The terms 'rental, lease, license to use' refer to all transactions in which there
is a transfer of possession of tangible personal property without a transfer of title to
the property....
Section 526.7(e)(4) of the Sales and Use Tax Regulations further provides that:
Transfer of possession with respect to a rental, lease or license to use, means
that one of the following attributes of property ownership has been transferred:
(i)

custody or possession of the tangible personal property, actual
or constructive;

(ii)

the right to custody or possession of the tangible personal
property;

(iii)

the right to use, or control or direct the use of, tangible personal
property.

Lastly, Section 526.7(e)(6) of the Sales and Use Tax Regulations provides in part as follows:
When a lease of equipment includes the services of an operator, possession
is deemed to be transferred where the lessee has the right to direct and control the use
of the equipment. The operator's wages, when separately stated, are excludible from
the receipt of the lease, provided they reflect prevailing wage rates.
Example 15:

A company enters intoan agreement to lease a crane, together
with the services of the operator of the crane. The operator
will take instructions from the company's foreman, and the
company determines the working hours and locations. The
operator's wages are separately stated. This transaction is
within the definition of sale, and the transfer of possession
has occurred by reason of the company's right to direct and
control the use of the equipment by the operator. The taxable
receipt excludes the operator's wages.

Where Petitioner is directed by the customer or a person acting on behalf of such customer,
as in the transaction between Petitioner and the mobile home sales company, the rental of the crane
by the customer is a taxable sale because the right to direct and control the use of the crane belongs
to the customer.

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TSB-A-90(17)S
Sales Tax
April 16, 1990

Maplecrest Sausage Co., Inc. v. Tully, 67 AD 2d 329; Ormsby Haulers, Inc. et al v Tully, 72 AD 2d
845). However, the operator's wages, if separately stated and if reflective of prevailing wage rates,
are excludible from the receipts subject to tax.
Likewise, a transfer of possession will occur in all of Petitioner's crane rental transactions
wherein the customer actually directs and controls or has the right to direct and control the use of the
equipment by the operator. Such transactions will fall within the definition of sale as stated in
Section 1101(b)(5) of the Tax Law and the receipts from such transactions will be subject to the tax
imposed under Section 1105(a) of the Tax Law. The operator's wages, where separately stated and
reflective of prevailing wage rates, will be excludible from the receipts subject to tax.

DATED: April 16, 1990

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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