Does a salvage broker owe sales tax on the storage and towing charges it pays to release insurance-owned vehicles headed for resale at auction?

Plain-English summary

Salvage Management, Inc., is retained by insurance companies to act as a broker for wrecked vehicles the insurers now own: it tows the vehicles from auto dealers and body shops to dealer wholesale auctions, where they are sold to wholesale dealers who buy them for resale. Before the dealers and body shops will release a vehicle, Salvage Management must pay the storage and towing charges owed on it; it then deducts its expenses from the auction proceeds and remits the balance to the insurers. It asked whether it owes sales tax on those storage and towing charges.

The Department said no, because the vehicles are held for resale:

• The storage resale exclusion. Section 1105(c)(4) taxes storing tangible personal property not held for sale, and Regulation § 527.6(c) excludes "the storage of property held for sale in the regular course of business." Its Example 1 (a furniture store's inventory in a public warehouse) makes the point: no tax on storage of resale inventory. The related service and parking/storage charges under § 1105(c)(3) and (c)(6) are treated the same way when the property is held for resale.
• The result — not taxable, if certificates flow. Because the vehicles Salvage Management tows and stores will be sold for resale at the auctions in the regular course of the insurers' business, the storage and towing charges are not subject to sales tax — provided the resale documentation is in place:
  • Salvage Management must give the dealers and body shops a properly completed resale certificate (Regulation § 532.4(d)); and
  • the insurance companies must give Salvage Management a properly completed resale certificate, since Salvage Management performs the transactions on their behalf.

What this means for you

"Held for resale" turns off the storage and service taxes

New York's storage tax (§ 1105(c)(4)), servicing tax (§ 1105(c)(3)), and vehicle parking/storage tax (§ 1105(c)(6)) all apply to property not held for sale. Flip that: when the property is genuinely inventory for resale, those charges fall within the resale exclusion and aren't taxed. Salvage vehicles heading to a wholesale auction for resale qualify.

The exclusion is only as good as the certificate chain

The tax-free result depends entirely on resale certificates flowing through every link. Here the chain has two hops: the insurers → the broker, and the broker → the dealers/body shops holding the cars. Miss a certificate and the exclusion can fail, exposing the storage/towing charges to tax. When you're acting on behalf of an owner who holds the property for resale, get a resale certificate from that owner and give one to your vendors.

Brokers and agents: document the "on behalf of" relationship

Salvage Management doesn't own the vehicles — it acts for the insurers. The Department accommodated that by requiring the insurers to certify resale to the broker, which the broker then passes down. If you buy services as an agent for a principal who holds goods for resale, build that documentation trail deliberately.

Common questions

Q: Does the salvage broker owe sales tax on the storage and towing charges?
A: No, provided the resale certificates are in place. Because the vehicles are held for resale at wholesale auction, the charges fall within the storage resale exclusion.

Q: What paperwork is required?
A: Salvage Management must give the dealers and body shops a resale certificate, and the insurance companies must give Salvage Management a resale certificate (since it acts on their behalf).

Q: Why does "held for resale" matter?
A: The storage, servicing, and vehicle-storage taxes apply to property not held for sale. Property held for resale in the regular course of business is excluded.

Q: What happens without the certificates?
A: The resale exclusion depends on the certificates; without them, the storage and towing charges could be treated as taxable.

Citations and references

Statutes, regulations, and authorities:

• Tax Law § 1105(c)(3) (tax on servicing tangible personal property not held for sale)
• Tax Law § 1105(c)(4) (tax on storing tangible personal property not held for sale; rental of safe deposit boxes)
• Tax Law § 1105(c)(6) (tax on parking, garaging, or storing motor vehicles not held for sale), effective June 1, 1990
• Sales and Use Tax Regulations § 527.6 (storage of tangible personal property; exclusion for property held for resale; Example 1)
• Sales and Use Tax Regulations § 532.4(d) (resale certificate)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1992.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a92_9s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-92 (9)S
Sales Tax
February 19, 1992

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK

COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S911211C

On December 11, 1991, a Petition for Advisory Opinion was received from Salvage
Management, Inc., 522 Trolley Boulevard, Rochester, New York 14606.
The issue raised by Petitioner, Salvage Management, Inc., is whether Petitioner must pay
sales tax to automobile dealers and body shops for storage and towing charges on automobiles to be
resold on behalf of insurance companies at dealer wholesale auctions.
Petitioner is retained by insurance companies to act as broker to tow vehicles, which they
have become the owners of, from automobile dealers and body shops to dealer wholesale auctions.
Before dealers and body shops will release the automobiles to Petitioner, Petitioner must pay all
storage and towing charges owed on the automobiles. At the auction, the automobiles are sold to
wholesale automobile dealers who purchase the automobiles for resale. Petitioner subtracts from
proceeds of the sales the expenses it incurs, and sends checks for the balances to the insurance
companies.
Section 1105(c)(3) of the Tax Law imposes sales tax on the servicing of tangible personal
property not held for sale in the regular course of business.
Section 1105(c)(6) of the Tax Law, effective June 1, 1990, imposes sales tax on the parking,
garaging or storing of motor vehicles not held for sale in the regular course of business:
Section 1105(c)(4) of the Tax Law, however, imposes sales tax on storage charges as follows:
(4)
Storing all tangible personal property not held for sale in the regular
course of business and the rental of safe deposit boxes or similar space. (emphasis
added)
Section 527.6 of the Sales and Use Tax Regulations provides, in part, as follows:
Reg. Sec. 527.6. Storage of tangible personal property.--(Tax Law, Sec.
1105(c)(4)). (a) Definition. Storage is the provision of a place for the safekeeping
of goods, without regard to the manner of payment or length of time of the service.
(b)
Imposition. (1) The tax is imposed on the sale, except for resale, of
the service of storing tangible personal property, and the rental of safe deposit boxes
and similar space.
*

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-2­
TSB-A-92 (9)S
Sales Tax
February 19, 1992

(c)
Exclusions. The storage of property held for sale in the regular course
of business, and the sale of the service of storage for resale is not taxable.
Example 1: A furniture store maintaining part or all of its inventory in a
public warehouse is not liable for tax on the storage charges because the tangible
personal property is held for resale in the regular course of business. (emphasis
added)
Section 532.4(d) of the Sales and Use Tax Regulations provides, in part, as follows:
(d)
Resale certificate. (1) A resale certificate is used to claim exemption
from tax on purchases of tangible personal property or services which will be resold
or transferred to a customer when the:
(i)
tangible personal property is for resale as such or as a physical
component part of tangible personal property;
Accordingly, pursuant to Sections 1105(c)(3), 1105(c)(4) and 1105(c)(6) of the Tax Law and
Section 527.6 of the Sales and Use Tax Regulations since the automobiles towed and stored by the
dealers and body shops will be sold for resale at dealer wholesale auctions by Petitioner on behalf
of insurance companies in the regular course of their business, the charges paid by Petitioner for
storage and towing will not be subject to sales tax, provided, however, Petitioner presents the dealers
and body shops with a properly completed resale certificate pursuant to Section 532.4(d) of the Sales
and Use Tax Regulations. In addition, the insurance companies must present Petitioner with a
properly completed resale certificate since Petitioner is performing the transactions on their behalf.

DATED: February 19, 1992

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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