Are a city impound lot's charges for towing, storage, notification letters, and DMV searches subject to New York sales tax, even though the operator is a government body?

Plain-English summary

The City of Rochester ran an auto pound: vehicles removed from city streets (for code or motor-vehicle-law violations, accidents, or arrests) were towed to the pound and held until the owner redeemed them or they were auctioned. To get a car back, the owner paid a single charge that combined $55 towing, $8.00–$8.50 per day storage, a $2.00 certified notification letter, and a $6.00 DMV search. For part of the period the City used a contractor (Central Auto) to run the pound. The City asked whether these charges are subject to sales tax.

The Department held that the entire release charge is taxable:

• Storing vehicles is a taxable service. Operating an auto pound is operating a "place of business engaged in providing parking, garaging or storing for motor vehicles" under § 1105(c)(6).
• The government exemption does not apply. Although the City is an instrumentality of New York State, the § 1116(a)(1) exemption covers a government body acting as a vendor only where it sells "services or property of a kind not ordinarily sold by private persons." Vehicle towing and storage is a kind of service ordinarily sold by private persons, so the exemption does not shield the City's receipts.
• All the bundled expenses are part of the taxable receipt. Under § 526.5(a) and (e), "receipts" include all expenses a vendor incurs in making a sale — telephone, service charges, and the like — regardless of whether those expenses would be taxable on their own and regardless of whether they are billed to the customer. The Department cited Freidus v. Leary (owner of an impounded vehicle may be charged reasonable removal and storage costs), Jack W. Miller Excavating v. State Tax Commission (a separately listed loading charge was still taxable as part of the sale price), and Richard C. Penfold / C.I.D. Refuse v. State Tax Commission (dumping charges passed through by a refuse hauler were taxable because integral to the removal service).
• Result: the towing, certified letters, and DMV searches are all expenses incurred in conducting the taxable service of storing motor vehicles, so the entire charge to release the vehicle is subject to sales tax — whether collected by the City or its contractor.

What this means for you

Government status is not a blanket sales-tax exemption

A common assumption is that a city, county, or state agency never has to charge sales tax. Not so on the vendor side: when a government body sells a service that private businesses also sell, the § 1116(a)(1) exemption drops away and the government must collect tax just like a private operator. Impound and towing services are the textbook example.

You can't untax a bundled service by itemizing its costs

The vehicle owner pays one charge, and it's all taxable — even the pieces (a DMV search, a certified letter, the tow) that might look like nontaxable pass-through costs in isolation. New York's "receipts" rule folds a vendor's expenses of making the sale into the taxable base. Separately stating them on the invoice does not carve them out.

Using a contractor doesn't change the answer

Whether the City ran the pound itself or paid a private operator to run it, the receipts for the storage service are taxable.

Common questions

Q: A city runs the impound lot — does it still have to charge sales tax on the release fee?
A: Yes. Storing motor vehicles is a service ordinarily sold by private persons, so the § 1116(a)(1) government exemption does not apply, and § 1105(c)(6) taxes the charge.

Q: The bill lists towing, a DMV search, and a notice letter separately. Are those taxed too?
A: Yes. Under § 526.5(a) and (e), all expenses of making the sale are part of the taxable receipt, even if separately stated and even if nontaxable on their own.

Q: Does it matter that the storage is compelled (the car was impounded) rather than chosen by the owner?
A: No. The opinion treats a compelled impound the same as ordinary paid vehicle storage under § 1105(c)(6).

Citations and references

Statutes, regulations, and cases:

• Tax Law § 1105(c)(6) — tax on providing parking, garaging, or storing motor vehicles
• Tax Law § 1116(a)(1) — exemption for New York and its subdivisions, limited to property/services "not ordinarily sold by private persons"
• 20 NYCRR § 526.5(a) and (e) — definition of "receipt"; all expenses of making a sale are nondeductible from the receipt
• Freidus v. Leary, 38 AD2d 919, 329 NYS2d 897; Jack W. Miller, Excavating Contractor, Inc. v. State Tax Commission, 516 NYS2d 352; Richard C. Penfold, DBA C.I.D. Refuse Service v. State Tax Commission, 494 NYS2d 552

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_48s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-91 (48)S
Sales Tax
July 3, 1991

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S910403A

On April 3, 1991, a Petition for Advisory Opinion was received from City of Rochester,
400A City Hall, 30 Church Street, Rochester, New York 14614.
The issue raised by Petitioner, City of Rochester, is whether the services of towing, storage,
mailing of certified notification letters to owners and Department of Motor Vehicles searches
performed by Petitioner, or its contracted representative, in the removal of vehicles from city streets
for violations of the Rochester City Code, the Motor Vehicle Law or accidents or pursuant to arrests
are subject to the imposition of sales tax.
Petitioner, from July, 1989 through January, 1991 contracted with Central Auto to operate
an auto pound for Petitioner. Petitioner directed Central Auto to tow vehicles to the auto pound to
be stored until redeemed by the owners or sold at auction. Petitioner took back the operation of the
auto pound on January 22, 1991 due to various breaches of contract by Central Auto.
Vehicle owners must pay a single charge to Petitioner before their vehicles are released from
the auto pound. Such charge includes $55.00 for the towing of the vehicle, storage of $8.00 to $8.50
per day, $2.00 for a certified notification letter and $6.00 for a Department of Motor Vehicles search.
Section 1105(c)(6) of the Tax Law imposes sales tax upon "(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." (emphasis added)
Section 1116(a)(1) of the Tax Law provides, that:
Except as otherwise provided in this section, any sale or amusement charge
by or to any of the following or any use or occupancy by any of the following shall
not be subject to the sales and compensating use taxes imposed under this article:
(1)
The state of New York or any of its agencies, instrumentalities, public
corporations (including a public corporation created pursuant to agreement or
compact with another state or Canada) or political subdivisions where it is the
purchaser, user or consumer, or where it is a vendor of services or property of a kind
not ordinarily sold by private persons; (emphasis added)
Section 526.5 of the Sales and Use Tax Regulations provides in part as follows:

-2­
TSB-A-91 (48)S
Sales Tax
July 3, 1991

(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. . .
*
*
*
(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
receipt.
Example 1: A photographer contracts with a customer to furnish photographs at
$50.00 each in addition to expenses.
The customer is billed as follows:
Photographs (2)
Model fees
Meals
Travel
Props (Flowers)
Receipt subject to tax is

$100.00
60.00
10.00
25.00
5.00
Total due $200.00
$200.00

Example 2: An appliance repairman charges $10.00 per hour plus expenses when
on a service call. The customer is billed as follows:
3 Hrs. at $10.00
Travel
Parts
Meals
Total due
Receipt subject to tax is

$ 30.00
15.00
20.00
5.00
$ 70.00
$ 70.00

In the matter of Freidus v. Leary 38 AD2d 919, 329 NYS2d 897, the court held the owner
or other person entitled to the possession of an illegally stopped vehicle which has been removed by
an authorized police officer or person may be charged with a reasonable cost for removal and
storage, payable before the vehicle is released. (emphasis added)
In the matter of Jack W. Miller, Excavating Contractor, Inc. v. State Tax Commission, 516
NYS2d 352, the court held that the taxpayer's service charge for loading gravel, although listed
separately from the cost of gravel on the invoice, was subject to sales tax, as an expense passed along
to customers as part of the sale price.

-3­
TSB-A-91 (48)S
Sales Tax
July 3, 1991

In the matter of Richard C. Penfold, DBA C.I.D. Refuse Service v. State Tax Commission,
494 NYS2d 552, the court held that dumping charges passed on by the operator of the refuse removal
service to customers were includable in operator's taxable receipts even though dumping charges per
se is a nontaxable receipt, since the disposal was an integral aspect of the removal service and not
a separate service arising from a different transaction.
The operation of an auto pound constitutes the operation of a place of business engaged in
the providing of storage of motor vehicles pursuant to Section 1105(c)(6) of the Tax Law and in
accordance with Freidus v. Leary, supra. Moreover, the operation of an auto pound is a kind of
service ordinarily sold by private persons. Therefore, pursuant to Section 526.5(a) of the Sales and
Use Tax Regulations and Section 1116(a)(1) of the Tax Law, the receipts received by Petitioner, an
instrumentality of the State of New York, or its contracted representative for the sales of such service
are subject to sales tax.
Pursuant to Section 526.5(a) and (e) of the Sales and Use Tax Regulations and in accordance
with the court's decisions in Jack W. Miller, Excavating Contractor, Inc. v. State Tax Commission,
supra and Richard C. Penfold, DBA C.I.D. Refuse Service v. State Tax Commission, supra
"receipts" include the charge for any service taxable under Articles 28 and 29 of the Tax Law and
all expenses incurred by a vendor in making a sale, regardless of their taxable status. Expenses
incurred for towing, certified notification letters, and Department of Motor Vehicles searches are all
expenses incurred in conducting the taxable service of storing motor vehicles. Accordingly, the entire
charge received by the Petitioner or its contracted representative for the release of the motor vehicle
from the auto pound is subject to sales tax.

DATED: July 3, 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.