In an outsourced copy-service arrangement, who owes sales tax on the copies, on the toner and paper, on outsourced repairs, and on copier lease payments?

Plain-English summary

A company (called "A" in the opinion) runs other companies' copy machines: it supplies the staff, paper, toner, and other supplies and bills the customer ("B") a flat charge for each copy made. It asked the Department to sort out the sales tax across four increasingly involved versions of that deal.

The Department's core conclusion is that charging by the copy is a taxable sale of tangible personal property — the copies themselves — under Tax Law § 1105(a). Everything else follows from treating the provider as a reseller/producer:

• Scenario 1 — supplies. Because A is reselling the paper and toner to B (embodied in the copies), A does not pay sales tax on buying them; A gives its supplier a Form ST-120 Resale Certificate. Caveat: if A actually consumes supplies with no detectable portion transferred to B, those purchases are taxable to A.
• Scenario 2 — outsourced repairs. Repairing/maintaining a copier is itself a taxable service (§ 1105(c)(3)). A can buy the third party's repair service for resale (tax-free, using ST-120) only if A's agreement and/or invoice to B specifically breaks out a separate charge for repairs and maintenance. If A just bakes the repair cost into a higher per-copy price without separately stating it, A is not reselling the repair service and must pay tax on the third party's charges.
• Scenario 3 — A pays B's lease. B owns the copier as lessee and is not producing copies for sale, so B's lease payments are taxable; A's agreeing to make those payments doesn't change that (the lease was never assigned to A). A's per-copy charges to B remain taxable too. But if B formally assigns the lease to A, A becomes the lessee using the machine to produce copies for sale, and the lease payments then qualify for the § 1115(a)(12) production exemption (A gives the lessor Form ST-121).
• Scenario 4 — A leases the copier directly. Here A is unquestionably using the leased machine to produce copies it sells to B, so A's lease payments are exempt under § 1115(a)(12); A gives the leasing company Form ST-121.

What this means for you

Copy-shop and facilities-management providers

If you bill per copy, treat it as selling tangible personal property: collect tax on the full per-copy charge and buy your paper and toner for resale with an ST-120 rather than paying tax on them. The recurring trap is separate statement — you can only pass an outsourced repair charge through tax-free, or claim the production exemption on a copier lease, if the paperwork actually reflects that structure. A cost silently folded into a higher per-copy price is not a separately stated resale.

Businesses that own or lease the copier

Who holds the lease controls the tax. If your machine is used to make copies you sell, the lease can qualify for the production-machinery exemption — but only the actual lessee can claim it. Having a service provider volunteer to make your lease payments does not shift the exemption to that provider unless the lease is formally assigned.

Accountants and tax professionals

This opinion is a clean walk through resale (§ 1101(a)(4)) and production-exemption (§ 1115(a)(12)) mechanics layered on a service-style contract. The consistent theme is that the form of the invoice governs: resale of a repair service and exempt use of leased equipment both depend on separate statement and on correctly identifying the lessee.

Common questions

Q: If I charge my customer by the copy, is that a taxable sale?
A: Yes. The Department treats a per-copy charge as a sale of tangible personal property (the copies) under § 1105(a), and the full charge is taxable.

Q: Do I pay sales tax on the toner and paper I buy?
A: No — you are reselling them to your customer as part of the copies, so buy them with a Form ST-120 Resale Certificate. But if you consume supplies with no detectable portion passing to the customer, those purchases are taxable to you.

Q: Can I pass through an outsourced repair charge tax-free?
A: Only if your agreement and/or invoice specifically states a separate charge for repairs and maintenance. Then you are reselling the repair service and give the third party an ST-120. If the cost is just built into a higher per-copy price, you must pay tax on it.

Q: Are copier lease payments exempt because I use the machine to make copies for sale?
A: Only if you are the lessee. If your customer holds the lease and you merely agree to make the payments, they stay taxable. If the lease is assigned to you, or you lease the machine directly, the payments qualify for the § 1115(a)(12) production exemption (Form ST-121).

Q: Can another copy-service company rely on this opinion?
A: No. An advisory opinion binds the Department only as to the petitioner and the facts described; another taxpayer with different facts cannot rely on it.

Citations and references

Statutes and authorities:

• Tax Law § 1105(a) (tax on retail sales of tangible personal property)
• Tax Law § 1105(c)(3) (tax on installing, maintaining, servicing or repairing tangible personal property)
• Tax Law § 1101(a)(4) (definition of retail sale; resale exclusion)
• Tax Law § 1101(b)(5) (definition of sale, including lease or license to use)
• Tax Law § 1115(a)(12) (exemption for machinery/equipment used directly and predominantly in production for sale)
• Form ST-120 (Resale Certificate); Form ST-121 (Exempt Use Certificate)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1993.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a93_4s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (4)S
Sales Tax
January 5, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S920626A

On June 26, 1992 a Petition for Advisory Opinion was received from O'Keefe & Company,
115 Broadway, Hicksville, NY 11801.
The issue raised by Petitioner, O'Keefe & Company, is whether certain transactions involving
the providing of copying services, as stated in the various scenarios listed below, are subject to New
York State and Local Sales Tax.
Scenario 1
Company (A), hereinafter referred to as (A), provides services to Company (B), hereinafter
referred to as (B), as follows~
To relieve (B) of the costs associated with running (B)'s copy machines, (A) will provide personnel,
paper, toner, and other supplies for (B)'s copiers and will charge (B) 10 cents for each copy made
on the machine.(A) bills sales tax to (B) as follows:
Total copies X 10 cents X applicable sales tax rate
Does (A) have to pay sales tax on purchases of paper, toner and other supplies since (A) is collecting
sales tax on the total charges to (B)?
Answer 1
Section 1101(b)(3) of the Tax Law defines receipt as "[t]he amount of the sale price of any
property and the charge for any service taxable under this article ..."
Section 1105(a) of the Tax Law imposes tax on "[t]he receipts from every retail sale of
tangible personal property, except as otherwise provided in this article."
In Scenario 1, (A) is considered to be selling tangible personal property in the form of the
copies to (B). (A) bills (B) for each copy provided. (A)'s total charges to (B) are subject to the tax
imposed under Section l105(a) of the Tax Law. (A) should not pay any sales tax on (A)'s purchases
of toner and paper since (A) is considered to be reselling the toner and paper to (B). When making
the purchases of paper and toner (A) should furnish the supplier with a properly completed form ST­
120 Resale Certificate. (A)'s purchases of supplies will not be subject to sales tax if the supplies are
actually transferred to (B) as such or as part of tangible personal property. However, if (A) consumes
the supplies without any detectable portion of them being transferred to (B), (A)'s purchases of the
supplies will be subject to the applicable sales or use tax.

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TSB-A-93 (4)S
Sales Tax
January 5, 1993
Scenario 2
In addition to the services enumerated in Scenario 1, (A) will also take on the responsibility
of repairing and maintaining the copy machines but will now charge (B) a total of 15 cents for each
copy. (A) has a service contract with a third party with a fixed monthly fee plus a per copy charge.
The third party will do the repair and maintenance work as necessary.
Does (A) have to pay sales tax on the charges for the repairs/maintenance done by and paid
to the third party since CA) has incorporated the estimated cost of the repairs/maintenance that will
be needed into the per copy charge that (A) bills CB) and (A) will also bill CB) for sales tax on the
total. An example of a bill that CA) presents to CB) is as follows:

Sales tax @ 7%

If (A) handles
repairs and maintenance

If (A) does not handle
repairs and maintenance

1,000 copies
X .15 cents
$ 150.00
10.50
$ 160.50

1,000 copies
X .10 cents
$ l00.00
7.00
$ 107.00

Answer 2
Section 1105(c)(3) of the Tax Law imposes tax upon the receipts from every sale, except for
resale, of the service of "[i]nstalling tangible personal property ... or maintaining, servicing or
repairing tangible personal property ...".
Although A) will charge (B) an additional amount per copy due to being responsible for
repairing and maintaining (B)'s copy machines and will collect the applicable sales tax due on the
additional charges, (A) will not be considered to be reselling the repair and maintenance service
performed for (A) by the third party unless the agreement between (A) and (B) and/or the invoice
CA) gives to CB) specifically indicate Cs) that (A) is charging CB) a specific amount per copy and
that CA) will charge CB) an additional amount per copy for repairs and maintenance. If the
agreement and/or invoice indicates that a separate charge is being made for repairs and maintenance
CA) should not pay sales tax on the charges billed to (A) by the third party. When making purchases
of repair and maintenance services from the third party (A) should furnish the third party with a
properly completed form ST-120, Resale Certificate for purposes of substantiating that the
transaction was not subject to sales tax.

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TSB-A-93 (4)S
Sales Tax
January 5, 1993
Scenario 3
(A) provides the same services to (B) as noted in Scenario 1. Additionally (A) agrees to pay the lease
payments that (B) has to make on the copy machine that (B) owns in exchange for a higher per copy
charge. If (B) cancels the copy contract, (A) will stop making the lease payments for (B). A sample
bill is as follows:

Sales Tax @ 7%

If (A) makes lease
Payments for (B)

If (A) does not make
lease payments for (B)

1,000 copies
X .20 cents
$ 200.00
14.00

1,000 copies
X .10 cents
$ 100.00
7.00

$ 214.00

$ 107.00

Does (A) have to pay sales tax on the payments it makes to the leasing company?
Answer 3
Section 1101(a)(4) of the Tax Law defines retail sale as "[a] sale of tangible personal property
to any person for any purpose, other than (A) for resale as such ... ".
Section 1101(b)(5) defines sale, selling or purchase as "[a]ny transfer of title or possession
or both .... lease or license to use or consume ... for a consideration or any agreement therefor."
Section 1115(a)(12) of the Tax Law provides an exemption from tax on receipts from retail
sales of "[m]achinery or equipment for use or consumption directly and predominantly in the
production of tangible personal property ... for sale by manufacturing, processing .... "
Because (B) is the lessee of the copier and as (B) is not using the copier to produce copies
for sale, (B)'s lease payments to the lessor were subject to State and local sales tax. The fact that (A)
has agreed to make the lease payments on (B)'s behalf, does not change the tax status of the lease
payments. As (A) has not been assigned the lease by (B), (B) continues to be the lessee of the copier.
(A)'s payments to the lessor will be subject to State and local sales tax. When (A) bills (B) for (A)'s
services, which are billed in the form of a per copy charge, the receipts, regardless of the amount,
will also be subject to State and local tax.
However, it is noted that if (B) assigns the lease to (A), (A) will become the lessee and (A)'s
payments to the lessor would qualify for the exemption provided under Section 1115(a)(12) of the
Tax Law as (A) would be using the machine to produce tangible personal property, in the form of
the copies, for sale to (B). In this instance (A) would be required to give the lessor a properly
completed form ST-121, Exempt Use Certificate in order for the lessor to substantiate that the
transaction was not subject to State or local tax.

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TSB-A-93 (4)S
Sales Tax
January 5, 1993
Scenario 4
Scenario 4 is the same as scenario 3 with the exception that (B) does not own its own copy
machine. (A) leases the machine from a leasing company and charges (B) by increasing (B)'s per
copy charge.
Does (A) have to pay sales tax to the leasing company since it is charging (B) sales tax on
the lease by a higher per copy charge?
Answer 4
Section 1101 (a)(4) of the Tax Law defines a retail sale as "[a] sale of tangible personal
property to any person for any purpose other than (A) for resale as such .... "
Section 1101(b)(5) defines sale, selling or purchase as "[a]ny transfer of title or possession
or both .... lease or license to use or consume ... for a consideration or any agreement therefor."
Section 1115(a)(12) of the Tax Law provides an exemption from tax for receipts from retail
sales of "[m]achinery or equipment for use or consumption directly and predominantly in the
production of tangible personal property ... for sale by manufacturing, processing ..."
Since (A) is using the leased copy machine to produce copies which (A) sells to (B), the copy
machine is considered to be used to produce tangible personal property for sale by manufacturing
or processing and (A)'s lease payments to the third party lessor qualify for the exemption provided
under Section 1115(a)(12) of the Tax Law. (A) should give the leasing company a properly
completed form ST-121, Exempt Use Certificate for the purpose of substantiating that the lease
transaction is not subject to sales tax.

DATED: January 5, 1993

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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