Does a tax-exempt nonprofit's sheltered workshop, where disabled clients perform auto detailing for paying customers, have to collect sales tax on those charges?

Subject

Whether a not-for-profit organization operating an auto detail shop is responsible for collecting sales tax on sales of this service when the organization has been granted exempt status under Section 1116(a)(4) of the Tax Law.

What this means for you

A New York nonprofit serving people with disabilities in Orleans County runs a sheltered workshop where disabled clients perform auto detailing -- washing the exterior, cleaning windows, vacuuming, and waxing -- for community customers who are charged a fee. The organization already holds Section 1116(a)(4) exempt-organization status.

That exemption generally shields a qualifying organization's sales from sales and use tax, but the law carves out three specific exceptions where the exemption doesn't apply even for an otherwise-exempt organization: retail sales of tangible personal property made through a shop or store it operates, sales of food or drink through a restaurant/tavern it operates, and vehicle parking/garaging/storage services. Auto detailing doesn't fit any of those carve-outs -- it's a sale of a SERVICE (cleaning a vehicle), not a sale of tangible personal property, not food or drink, and not parking or storage. Because none of the exceptions apply, the organization's receipts from its auto detail work stay fully covered by its exempt-organization status and aren't subject to sales tax.

Q&A

Q: Our exempt organization runs a sheltered workshop where clients perform a service (like cleaning, detailing, or similar work) for paying customers -- is that exempt from sales tax?
A: Per this opinion, yes, as long as the service doesn't fall into "shop or store" retail sales of tangible personal property, restaurant/tavern food and drink sales, or vehicle parking/garaging/storage services -- the three specific exceptions that strip a Section 1116(a) organization of its exemption.

Q: What exactly counts as operating a "shop or store" that would lose the exemption?
A: Per this opinion's citation of Sales and Use Tax Regulations § 529.7(i)(2), a "shop or store" is any place where goods are sold from display with regularity, frequency, and continuity, including a temporary shop or store on the same premises.

Q: Does it matter that customers are charged a fee for this service?
A: No -- per this opinion, charging a fee for the service doesn't change the analysis; what matters is whether the activity falls within one of the three statutory exceptions, and auto detailing (a service) does not.

Q: Can another exempt nonprofit rely on this opinion for a similar sheltered-workshop service?
A: No. This advisory opinion binds the Department only as to the petitioner and the facts described here; another taxpayer cannot rely on it, though the Department applied the same reasoning it used in an earlier opinion involving a similar exempt organization's service sales.

Citations

• Tax Law § 1116(a)(4) -- exempts sales by qualifying organizations described in that subdivision from sales and compensating use tax.
• Tax Law § 1116(b) -- carves the exemption back for (1) retail sales of tangible personal property made through a shop or store operated by the organization, (2) sales of food or drink through a restaurant, tavern, or similar establishment operated by the organization, and (3) vehicle parking, garaging, or storage services provided by the organization.
• Sales and Use Tax Regulations § 529.7(i)(2) -- defines "shop or store" as a place where goods are sold from display with regularity, frequency, and continuity, or a temporary shop/store on the same premises as a tax-collecting business.
• Junior Achievement of Western New York, Inc., Adv. Op. St. Tx Comm., March 20, 1984, TSB-A-84(13)S -- applied the same analysis to hold that a similar exempt organization's sales of a service fell outside the § 1116(b) exceptions.

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_59s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (59) S
Sales Tax
November 10, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S931005B

On October 5, 1993 a Petition for Advisory Opinion was received from Orleans County
Chapter - NYSARC, Inc., 122 Caroline St., P.O. Box 439, Albion, NY 14411-0439.
The issue raised by Petitioner, Orleans County Chapter - NYSARC, Inc. is whether a not-for­
profit organization operating an auto detail shop is responsible for collecting sales tax on sales of this
service when the organization has been granted exempt status under Section 1116(a)(4) of the Tax
Law.
Petitioner is a not-for-profit organization and has been granted Exempt Organization status
under the provisions of Section 1116(a)(4) of the Tax Law.
Petitioner serves the needs of people with disabilities within Orleans County. As part of the
rehabilitation services provided through its sheltered workshop, disabled clients perform auto detail
work on vehicles for customers in the community. This work includes but is not limited to washing
the exterior of the vehicle, cleaning the windows, vacuuming and waxing. Customers are charged
a fee for this service.
Section 1116(a) of the Tax Law provides that sales by organizations described therein shall
not be subject to the sales or compensating use tax. This exemption is applicable to Petitioner,
which satisfies the criteria set forth in Section 1116(a)(4) of the Tax Law. However, pursuant to
Section 1116(b) of the Tax Law such exemption is not applicable to (1) retail sales of tangible
personal property made by such an organization when made by a shop or store operated by such
organization, (£) sales of food or drink in or by a restaurant, tavern or other establishment operated
by such organization and (3) sales of the service of parking, garaging and storing motor vehicles
provided by such organization operating a garage (other than one which is part of premises occupied
solely as a private one or two family dwelling), parking lot or similar place of business.
Section 529.7(i)(2) of the Sales and Use Tax Regulations defines the term "shop or store" as
"any place or establishment where goods are sold from display with a degree of regularity, frequency
and continuity as well as any place where sales are made through a temporary shop or store located
on the same premises as persons required to collect tax."
Petitioner's sales of auto detail work, as described above, are considered to be sales of a
service and not sales of tangible personal property.

-2­
TSB-A-93 (59) S
Sales Tax
November 10, 1993
Since Petitioner, an exempt organization under Section 1116(a)(4) of the Tax Law, is
engaged in the sale of a service which is not one of the activities described in Section 1116(b) of the
Tax Law and Section 529.7(i)(2) of the Sales and Use Tax Regulations, Petitioner's receipts from
sales of auto detail work will in all events be exempt from sales tax. Junior Achievement of Western
New York, Inc. Adv, Op, St Tx Comm, March 20, 1984, TSB-A-84(13)S.

DATED: November 10, 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.