Is rent for leasing an entire parking garage taxable, and can a building owner who leases the garage to serve tenants treat that rent as a nontaxable purchase for resale?

Plain-English summary

An accounting firm asked, on a client's behalf, about a parking garage next to (and physically connected with) a commercial office building. The building is owned by one entity; the garage by a different one. The building owner wants to lease the entire garage — but the garage owner will keep operating and maintaining it (paying taxes, utilities, repairs), earning a fixed monthly rent as its only income. The building owner then lets some tenants use spaces for free and charges other tenants (collecting tax on those charges). Two questions: is the rent for leasing the whole garage taxable, and can the building owner treat that rent as a nontaxable purchase for resale?

The Department ruled:

• The whole-garage rent is taxable parking, not a mere real-property lease. Leasing or licensing real property is generally not taxable (Miller, Addison, Steele, Inc., TSB-A-81(13)S). But here the garage owner does more than rent out space — it continues to operate and maintain the facility. That is the taxable service of "providing parking, garaging or storing for motor vehicles" under § 1105(c)(6), so the rent it receives is taxable.
• No full resale exemption — the garage wasn't leased solely to resell. The building owner gives some tenants parking at no charge and charges others. Because it is not reselling parking under the free leases, it did not lease the garage for the exclusive purpose of resale, so the full rent is taxable.
• But a partial resale credit is allowed. Since the building owner does collect tax on the spaces it charges tenants for, it may claim a credit on its sales/use tax return for the tax it paid to the garage owner on the percentage of spaces resold to tenants for consideration, under 20 NYCRR § 526.6(c)(1).

What this means for you

Operating the facility turns a "lease" into taxable parking service

The dividing line is whether the deal is purely renting real estate or actually providing a parking service. When the owner keeps running the garage — maintaining it, paying its expenses, managing it — the receipts are taxable under § 1105(c)(6) even though the arrangement is called a lease.

The resale exemption requires reselling all of it

To buy parking tax-free for resale, you generally have to be reselling the parking. Here, because some spaces were handed to tenants for free, the arrangement wasn't an exclusive resale, so the entire rent stayed taxable up front.

You can still recover tax on the spaces you actually resell

The Department allowed a credit for the tax paid on the portion of spaces re-rented to tenants for a charge (on which tax is collected). Keep records allocating spaces between the free and the paid tenants so you can compute the resale percentage.

Common questions

Q: Isn't leasing a garage just a nontaxable real-property lease?
A: Not when the owner keeps operating and maintaining it. That makes it the taxable parking service under § 1105(c)(6), so the rent is taxable.

Q: Can the building owner buy the whole garage tax-free for resale?
A: No. Because it gives some tenants free parking, it didn't lease the garage exclusively for resale, so the full rent is taxable.

Q: Can it recover any of that tax?
A: Yes — a credit under § 526.6(c)(1) for the tax paid on the percentage of spaces it re-rents to tenants for a charge (and collects tax on).

Citations and references

Statute, regulation, and prior opinion:

• Tax Law § 1105(c)(6) — tax on providing parking, garaging or storing for motor vehicles
• 20 NYCRR § 526.6(c)(1) — purchase for resale
• Miller, Addison, Steele, Inc., TSB-A-81(13)S — leasing/licensing real property generally not taxable

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a91_18s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-91 (18)S
Sales Tax
February 11, 1991

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S900816C

On August 16, 1990 a Petition for Advisory Opinion was received from DiMarco, Abiusi,
Pascarella & Firnstein, CPA's, Suite 104, 4 Clinton Square, Syracuse, New York 13202-1074.
The issues raised by Petitioner, DiMarco, Abiusi, Pascarella & Firnstein, CPA's, are whether:

1. Sales tax is imposed on receipts resulting from rents collected for the leasing of a
   complete parking garage (parking lot, walls, structural supports, utility rooms, light fixtures, etc.)
   as opposed to specific parking spaces.
2. If a commercial building owner leases a complete parking garage from a third party and
   the commercial building owner permits some of its tenants to use the parking spaces at no cost to
   those tenants, is the rent paid by the commercial building owner to the parking garage owner exempt
   from sales tax as a sale for resale.
   A commercial building ("Building") exists contiguous to a parking garage ("Garage").
   Building is physically connected to Garage. Garage is not a part of premises occupied solely as a
   private one or two-family dwelling.
   Building is owned by a New York general partnership and Garage is owned by a New York
   corporation. The owners of Building and Garage are not identical. The owners of Building are
   engaged in the business of providing commercial office space. The owner of Garage is engaged in
   the business of providing parking spaces for motor vehicles.
   The owners of Building will be leasing Garage, in its entirety but the owner of Garage will
   continue to operate Garage. The owners of Building will pay the owner of Garage a fixed monthly
   rent. This monthly rent paid to it will be its only source of income. All expenses of operating and
   maintaining Garage (ie: taxes, utilities, repairs, etc.) will be paid for by the owner of Garage with
   the monthly rental proceeds received from the owners of Building. The renting of Garage by the
   owners of Building is a critical function of providing parking for its tenants.
   The owners of Building have written leases with their tenants. Some of the leases provide
   that they will provide a certain number of parking spaces in Garage at no additional cost to the
   tenant. They can allocate more or less parking spaces to the tenant and no corresponding increase
   or decrease in the tenants' rent paid to them will be required. They will not collect any income from
   these tenants specifically for the tenants' use of the parking spaces in Garage. For the leases that they
   have with tenants that do impose specific parking charges for use of Garage, they will collect the
   required sales tax.

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TSB-A-91 (18)S
Sales Tax
February 11, 1991
Section 1105 of the Tax Law states, in part:
Imposition of sales tax.--. . .there is hereby imposed and there shall be paid a tax. .
.upon:
(c) The receipts from every sale, except for resale of the following services:
(6) Providing parking, garaging or storing for motor vehicles by persons operating
a garage (other than a garage which is part of premises occupied solely as a private
one or two family dwelling), parking lot or other place of business engaged in
providing parking, garaging or storing for motor vehicles.
Section 526.6(c)(1) of the Sales and Use Tax Regulations states, in part:
Where a person, in the course of his business operations, purchases tangible personal
property or services which he intends to sell, either in the form in which purchased,
or as a component part of other property or services, the property or services which
he has purchased will be considered as purchased for resale, and therefore not subject
to tax until he has transferred the property to his customer.
Article 28 of the Tax Law imposes a sales tax applicable to the sales of tangible personal
property and enumerated services. Receipts from the sale of real property are not included within
the ambit of Article 28. Receipts from the leasing, or the licensing to use of real property, are also
generally not subject to tax under said Article. Miller, Addison, Steele, Inc.; Adv Op St Tx Comm,
August 6, 1981 TSBA-81(13)S.
However in the instant case the transaction will involve more than the mere leasing of real
property, since the owner of Garage as part of the transaction will maintain and operate the parking
facility which it has leased to the owners of Building. The activities of the owner of Garage under
these circumstances will constitute the providing of the service of parking, garaging or storing of
motor vehicles and thus the receipts that will be received by it from the owners of Building will be
subject to sales tax in accordance with the provisions of Section 1105(c)(6) of the Tax Law.
With reference to the issue of resale in the instant case, the owners of Building will lease
Garage in its entirety for the purpose of providing parking for their tenants with whom they will have
written leases. They will enter into some leases whereby they will provide parking spaces at no
additional charge to the tenants. However, they will also enter into leases whereby specific parking
charges will be imposed on the tenants. Therefore, they will not be selling parking services under
those leases which do not impose a specific or additional charge for tenant parking and therefore they
will not have leased Garage for the exclusive purpose of resale.
Accordingly, the transaction between the owners of Building and the owner of Garage will
be considered to be a sale of parking services not for the exclusive purpose of resale and thereby the

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TSB-A-91 (18)S
Sales Tax
February 11, 1991

receipts from such transaction will be subject to the sales tax imposed under Section 1105(c)(6) of
the Tax Law. However, since they collect sales tax on parking charges from some tenants, they will
be allowed to claim a credit on the applicable sales and use tax return for sales tax paid to the owner
of Garage on the applicable percentage of parking spaces which they lease to tenants for a
consideration in accordance with Section 526.6(c)(1) of the Sales and Use Tax Regulations.

DATED: February 11, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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