How does New York sales tax and the passenger-car-rental tax apply to a rental company's rental charges, incidental fees, insurance, fuel, promotions, and fleet purchases?

Plain-English summary

Alamo Rent A Car, Inc. planned to start short-term car rentals in New York and posed 25 questions about sales and use tax. The Department's answers organize into a few themes.

The rental itself and its incidental charges are taxable.

• Renting a car is a taxable sale of tangible personal property (§§ 1101(b)(5), 1105), and the special 5% passenger car rental tax under § 1160 applies to the rental receipts and to taxable incidental charges.
• Taxable incidental charges include time/mileage charges, intercity drop fees, upgrade charges, and fuel charges — all incidental to the rental.

Insurance-type charges and pass-through repairs are not taxed.

• Personal accident insurance and collision damage waivers are not taxable — a CDW is, in substance, insurance — provided the charge is separately stated.
• A lessee's damage reimbursement for repairs to a damaged car is not taxable, because the lessor buys the repair for resale.

Reducing the taxable base.

• Discounts (trade, volume, cash) are deductible in computing taxable receipts (§ 526.5); refunds/credits to dissatisfied customers reduce the tax proportionally; bad debts written off for federal income tax get a sales-tax credit/refund (§ 534.7).
• But incentives of monetary value (e.g., a plane ticket to return a car to a certain station) are gifts that do not reduce the taxable rental, and the company owes tax on its purchase of promotional items. (A cash refund or rate reduction, by contrast, does reduce the receipts and the tax.)

Fleet, fuel, repairs, and use.

• Rental cars are purchased for resale (exempt with ST-120 in-state / ST-174 for nonresidents). Gasoline for rental cars is a purchase for resale, but ST-120 cannot be used — tax is prepaid and recovered as a credit on Schedule FR.
• Repairs, parts, and labor for rental vehicles are for resale (not taxed); but the same for support vehicles is fully taxable, and gasoline for employee cars is taxable.
• Employee/business use of fleet cars (including mixed business/personal use) is a taxable use — if the car was bought for resale, use tax is owed, with an option to pay at a depreciated 2%/month value if the company is a registered motor vehicle dealer.
• Complimentary rentals for promotion are exempt as to the customer (no retail sale), but the company owes use tax at the rate it would have charged (with the 2%/month depreciation option). Free dealer-loaned vehicles (not conditioned on volume) create no tax for the dealer, but the company owes use tax at the rental rate.
• Free airport shuttle vehicles the company buys are subject to sales/use tax.

Real property and bundled park-and-ride.

• Renting real property for commercial use is exempt.
• Park-and-ride: no charge, no taxable service; if the parking and transportation charges are separately stated, the parking is taxable and the transportation is exempt; but a single combined charge for both is fully taxable under the single-unit rule (§ 527.1(b)).

What this means for you

Car rentals carry both sales tax and a separate 5% rental tax — and most add-on fees ride along

If you rent cars in New York, the base rental is taxable and also subject to the § 1160 5% passenger-car-rental tax, and the "incidental" charges customers see — mileage, drop fees, upgrades, fuel — are taxable too. Don't treat those add-ons as separate nontaxable services.

Separately stating insurance-type charges is what keeps them nontaxable

Personal accident insurance and collision damage waivers escape tax only when separately stated on the bill. Bundle them into the rental and you lose that treatment. The same separate-statement discipline decides the park-and-ride result: split parking from transportation, or the whole charge is taxed.

Fleet cars and their fuel/repairs are "for resale" — but your own-use flips to use tax

The rental fleet, its fuel, and its repairs are bought for resale (with a special prepay-and-credit route for gasoline via Schedule FR, since ST-120 doesn't work for motor fuel). The moment a car or fuel is used for the company's own purposes — employee cars, support vehicles, business/personal use of a fleet car, complimentary or promotional use — use tax applies, and a registered dealer can use the 2%/month depreciated-value method.

Common questions

Q: Are fuel, drop, and upgrade fees on a car rental taxable in New York?
A: Yes. They are incidental to the rental and taxable, and also subject to the § 1160 5% passenger car rental tax.

Q: Is a collision damage waiver or accident insurance taxable?
A: No — they are treated as insurance and are not taxable, provided the charge is separately stated on the bill.

Q: Do I pay sales tax when I buy cars and gasoline for my rental fleet?
A: They are purchases for resale. Cars are exempt with a resale certificate; for gasoline you can't use ST-120 — you prepay the tax and recover it as a credit on Schedule FR.

Q: I let employees use fleet cars or give free promotional rentals. Any tax?
A: Yes, use tax. Business/personal use by employees and promotional/complimentary use are taxable uses; a registered dealer may pay at a depreciated 2%-per-month value.

Citations and references

Statutes and regulations:

• Tax Law §§ 1101(b)(5), 1105 — rental of tangible personal property is a taxable sale
• Tax Law § 1160 — special 5% passenger car rental tax on rental receipts and taxable incidental charges
• 20 NYCRR § 526.5 — receipts; deductible discounts
• 20 NYCRR § 527.1(b) — taxable and exempt items sold as a single unit are taxed on the total
• 20 NYCRR § 534.7 — credit/refund of tax on worthless accounts (bad debts); Forms ST-120, ST-174, and Schedule FR

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_33s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-91 (33)S
Sales Tax
April 15, 1991

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S901113A

On November 13, 1990, a Petition for Advisory Opinion was received from Alamo Rent A
Car, Inc., PO Box 22776, Fort Lauderdale, FL 33335.
Petitioner, Alamo Rent A Car, is planning to conduct business in New York. Petitioner's
principal business will consist of renting automobiles to customers on a short-term basis. Petitioner
sets forth twenty-five questions concerning the application of the New York State and local sales and
use tax to its activities.
The following are the questions presented by Petitioner concerning its activities and the
appropriate answers:
1.

2.

3.

4.

Q:

Are the receipts from time charges, which are based on the number of days
a car was rented, subject to sales tax?

A:

The income derived from the rental or lease of automobiles based on the
number of days and an exceeded mileage limitation is subject to State and
local sales and use tax pursuant to Sections 1101(b)(5) and 1105 of the Tax
Law since it constitutes the "sale" of tangible personal property. Also,
Section 1160 of the Tax Law imposes a special tax on passenger car rentals
at a rate of 5% of the rental receipts and on all taxable charges incidental to
the rental which are mentioned in succeeding answers.

Q:

Are intercity fee drop charges for allowing lessees to drop off cars in less
desirable cities subject to sales tax?

A:

Intercity fee drop charges are incidental to the rental or lease of motor
vehicles and are, therefore, subject to State and local sales and use tax.

Q:

Are charges for allowing the lessee to upgrade automobiles to a more
luxurious type of car subject to sales tax?

A:

Any charge for allowing a lessee to upgrade automobiles to a more luxurious
type of car is incidental to the rental or lease of the motor vehicle and is
subject to State and local sales and use tax.

Q:

Are lessee fuel charges whether elected or required to be paid at the initial
rental or upon return of the automobile subject to sales tax?

-2­
TSB-A-91 (33)S
Sales Tax
April 15, 1991

5.

6.

7.

8.

9.

10.

A:

Any charges for fuel are incidental to the lease or rental of the motor vehicle
and thus, subject to State and local sales and use tax.

Q:

Are charges for personal accident insurance paid by the lessee to insure
against liability for injuries incurred by lessee or his passengers subject to
sales tax?

A:

Charges for insurance are not subject to State and local sales and use tax,
provided such charges are separately stated on the bill presented to the lessee.

Q:

Are fees paid for a collision damage waiver subject to sales tax?

A:

Fees paid for a collision damage waiver are not subject to State and local
sales and use tax since the waiver is considered to be, in substance, a form of
insurance, provided the charges for the waiver are separately stated on the bill
presented to the lessee.

Q:

Are damage reimbursements paid by lessee to Petitioner to cover the cost of
repairs to damaged automobiles subject to sales tax?

A:

Payments by a lessee for the cost of repairs to a damaged vehicle are not
subject to State and local sales and use tax as the repair charges are purchased
by the lessor for resale.

Q:

Are discounts given at the time of rental or subsequently remitted to lessees
in conjunction with promotional activities and for various other reasons
which reduce revenue subject to sales tax?

A:

Pursuant to Section 526.5 of the Sales and Use Tax Regulations, discounts
which represent a reduction in price, such as a trade discount, volume
discount or cash and carry discount are deductible in computing taxable
receipts.

Q:

Will full or partial credits or refunds which are given to customers which are
not satisfied with the Petitioner's service, reduce the revenue subject to sales
tax?

A:

Refunds or credits granted to customers dissatisfied with the Petitioner's
service will reduce the sales tax by the corresponding amount of tax
computed on that portion of the reduced charge, credit or refund.

Q:

Will credits or reimbursements to customers for incidental repair charges
incurred while renting the auto reduce the revenue subject to sales tax?

A:

No.

-3­
TSB-A-91 (33)S
Sales Tax
April 15, 1991
11.

12.

13.

14.

15.

Q:

Will incentives offered to customers in the form of reduction of rental rates,
partial cash refunds or something else of monetary value (e.g., a plane ticket)
to return autos to different rental stations reduce the revenue subject to sales
tax?

A:

A reduction of the rental rate or a cash refund would have a different
treatment than an inducement in the form of something of monetary value.
The reduction of the rental rate or a cash refund from the lessor would reduce
the applicable sales tax due on the rental since the receipts would be reduced.
The giving of something of monetary value as an incentive to return an auto
to a certain rental station is a gift to the customer and the tax would be based
on the actual rental charge since the receipts would not be reduced. Petitioner
would be required to pay sales tax on its purchase of the promotional items.

Q:

Will bad debt expenses, written off for federal income tax purposes, reduce
revenues subject to sales tax?

A:

Section 534.7 of the Sales and Use Tax Regulations provides a credit or
refund of sales tax paid by a vendor on worthless accounts receivable written
off for federal income tax purposes.

Q:

Is gasoline purchased by Petitioner for use in rental cars subject to sales tax?

A:

The purchase of gasoline for this purpose is a purchase for resale. However,
Form ST-120, Resale Certificate, cannot be used for such purchases. The
sales tax must be prepaid and recovered as a credit on Schedule FR, Report
of Sales and Use Tax on Motor Fuel and Diesel Motor Fuel.

Q:

Is gasoline purchased by Petitioner for use in employee automobiles subject
to sales tax?

A:

The purchase of gasoline by Petitioner for use in employee automobiles is
taxable as the use of tangible personal property.

Q:

Are charges for repairs, maintenance parts, and labor for use in rental vehicles
and in support vehicles subject to sales tax?

A:

Charges for vehicle repairs, maintenance parts, and labor are not taxable, as
the repair and/or maintenance (including labor) of tangible personal property
held exclusively for use in performing a rental service are considered
purchases for resale. Such charges for the support vehicles are fully subject
to sales tax.

-4­
TSB-A-91 (33)S
Sales Tax
April 15, 1991
16.

17.

18.

19.

20.

Q:

Will the use of automobiles from the rental fleet by employees to carry out
business activities of the company be subject to use tax?

A:

Use of autos by employees to carry on business activities is the use of
tangible personal property and is taxable. Therefore, if the autos were
purchased exempt as a sale for resale, the vendor must pay the use tax on the
motor vehicles used in this manner. The company, in lieu of paying the use
tax on the purchase price, may pay tax based on a depreciated price at the rate
of 2 percent per month or part thereof provided that the Petitioner is a
registered motor vehicle dealer.

Q:

Will the use of automobiles from the rental fleet by employees for a
combination of business and personal use be subject to use tax?

A:

The use of automobiles by employees for a combination of business and
personal use is also subject to use tax for the same reason given in number
16.

Q:

Will the use of automobiles by customers provided on a complimentary rental
(for promotional purposes, etc.) be subject to sales or use tax?

A:

The complimentary rental of automobiles to customers for promotion
purposes is exempt from sales tax since no retail sale to the customer has
occurred. However, the use of the vehicles by the Petitioner to promote
business is subject to use tax at the same rate of tax that would have been
charged by the Petitioner in a rental of the vehicle, with allowance for
depreciation at the rate of 2 percent per month or part thereof provided that
the Petitioner is a registered motor vehicle dealer.

Q:

Are purchases of promotional gifts to be given to customers as an inducement
to rent automobiles exempt from sales and use tax? Is a discount against
taxable sales allowed when the gifts are given to customers?

A:

The purchase of items for promotional purposes are subject to sales and use
tax since the items are not being purchased for resale. Also, giving
something of monetary value as an incentive for renting automobiles does not
reduce the rental rate for which the sales tax was applied. Therefore, there
is no discount afforded against taxable sales.

Q:

Will the rental of real property for commercial use be subject to sales tax?

A:

The rental of real property for commercial use or otherwise is exempt from
sales tax.

-5­
TSB-A-91 (33)S
Sales Tax
April 15, 1991
21.

22.

23.

24.

Q:

Are vehicles (other than automobiles) that are purchased to transport
customers free of charge from the airport to the rental agency subject to sales
tax?

A:

Petitioner's purchase and use of vehicles, other than automobiles, that are
offered free of charge to the public to transport customers from the airport to
the rental agency are subject to sales and use tax.

Q:

Are the purchase of rental vehicles for use in the rental business subject to
sales tax?

A:

The purchase of automobiles for this purpose would be considered purchased
for resale and exempt from sales tax.

Q:

Is Petitioner liable for use tax on the use of vehicles loaned free of charge by
car dealers as an incentive for a volume purchase?

A:

Since there is no sale to Petitioner of these vehicles, there is no sales or use
tax due from the car dealer on the free loan provided the loan is not
conditioned upon a certain volume of sales. However, Petitioner would owe
a use tax at the same rate of tax that would have been charged by the
Petitioner in a rental of the vehicle.

Q:

What are the sales and use tax laws relating to sales of vehicles to
wholesalers and retailers?

A:

Purchases for resale by in-state customers are exempt from sales tax upon the
purchaser's issuance of Form ST-120, Resale Certificate. Both the seller and
purchaser must be registered as New York State sales tax vendors.
Purchases for resale by out-of-state customers are exempt from sales tax upon
the purchaser's issuance of Form ST-174, Certificate For Purchase of Motor
Vehicle by Non-resident of New York State or Non-resident of Local Taxing
Jurisdiction.

25.

Q:

Will a park and ride service whereby customers park their privately owned
vehicles on Petitioner's property and are transported to the airport be subject
to sales tax?

A:

If there is no charge for the service, there is no taxable service rendered.
However, if Petitioner charges a fee and separately states a charge for parking
and a charge for transporting the customers, the charge for parking is subject
to sales tax, but the charge for transportation is exempt. If there is one charge

-6­
TSB-A-91 (33)S
Sales Tax
April 15, 1991
for both services, the entire charge is subject to sales tax, since taxable and
exempt tangible personal property and/or services when sold as a single unit
are taxable.

DATED: April 15, 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.