New York Advisory Opinion TSB-A-96(24)S: Is a company that supplies custom decorative table linens for one-time special events (weddings, parties) performing an exempt "laundering" service, or is it making a taxable rental of tangible personal property?

Plain-English summary

Table Wraps, Ltd. manufactures custom-made decorative table linens and supplies them to customers -- typically for a special one-time event like a wedding, anniversary, or party -- delivering the linen and retrieving it after use. Customers spend considerable time selecting fabric, colors, and design, and the price reflects that selection. Contracts run typically one or two days and are for a single isolated use, with no ongoing relationship; once the linen is returned, the agreement simply ends, and Table Wraps has no contractual obligation to clean it (though it usually does clean returned linens before putting them back in inventory, at its own cost and for its own purposes, not itemized to the customer). Table Wraps asked whether it's performing an exempt "laundering" service under Tax Law § 1105(c)(3)(ii), or renting taxable tangible personal property.

The Department ruled it's a taxable rental. The exemption for laundering/dry-cleaning services is meant for arrangements where a customer's OWN linens are periodically picked up, laundered, and swapped out for clean replacements -- there, the linen's value is typically a small fraction of the charge, with the bulk of the price paying for the cleaning service itself (citing the Department's Linen Systems for Hospitals opinion, and the Appellate Division's Atlas Linen Supply decision holding that even a stated per-item cleaning cost of 17-20% of revenue wasn't enough to convert a genuine hospital linen-laundering arrangement into a taxable rental). Table Wraps' facts are the mirror image: there's no periodic pickup-and-replace cycle, contracts are one-off and short, and the value of the specialty linen fabric itself (nearly 95% of the cost of sales) dwarfs the incidental cleaning cost the company incurs afterward for its own inventory purposes (about 5%). So Table Wraps' charges don't qualify for the laundering exclusion -- they're retail rentals of tangible personal property under Tax Law § 1105(a), fully taxable (the same treatment 20 NYCRR 527.8(f)(2) gives a caterer's own purchase of linens: not a resale, and taxable). One upside for Table Wraps: because it's now classified as renting the linens (rather than reselling a laundering service), its own purchases of cloth to manufacture the linens qualify for the resale exemption -- it should give its fabric supplier a properly completed Form ST-120 Resale Certificate.

What this means for you

Event and specialty linen rental companies

If your business supplies decorative or specialty linens for one-off events (rather than an ongoing periodic laundering-and-exchange arrangement), expect your charges to be taxed as a rental of tangible personal property, not treated as an exempt laundering service -- the more the linen's own value/design dominates the charge over any incidental cleaning cost, and the shorter and more one-off the contract, the more clearly this applies. On the upside, your own fabric purchases should qualify for the resale exemption, so use a Form ST-120 Resale Certificate with your fabric suppliers.

Ongoing commercial linen services (hospitals, hotels, restaurants)

An arrangement genuinely built around periodically picking up soiled linens and replacing them with clean ones -- where the linen's value is incidental to the cleaning service -- can still qualify as exempt laundering, per the Department's own prior Linen Systems for Hospitals opinion, even if a meaningful cost fraction is attributable to the linens themselves.

Common questions

Q: Why does the proportion of cleaning cost versus linen value matter so much?
A: The laundering exemption is meant to cover a true cleaning SERVICE, where the linen furnished is basically the vehicle for that service and its value is comparatively insubstantial. When the linen's own design/fabric value dominates the price (95% here) and cleaning is a minor afterthought (5%), that signals the charge is really for the goods themselves -- a rental -- not for a laundering service.

Q: Does the short, one-time nature of the contract matter independently of the cost breakdown?
A: Yes -- the Department also emphasized that Table Wraps' contracts are for a single isolated use of limited duration, with no periodic pickup-and-clean-and-replace cycle and no long-term or continuous customer relationship, unlike the recurring exchange arrangements that define an exempt linen-laundering service.

Q: Does this ruling mean all specialty/decorative linen suppliers are taxable, while all hospital/hotel linen services are exempt?
A: Not necessarily as a bright-line rule, but the facts here (high linen value, low cleaning cost, one-off short contracts) point clearly toward a taxable rental, while facts more like the Atlas Linen and Linen Systems cases (recurring exchange arrangements built around a cleaning service) point toward exemption -- each company's own contract structure and cost mix would need separate review.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4) (definition of retail sale)
• Tax Law § 1101(b)(5) (definition of sale/purchase)
• Tax Law § 1105(a) (retail sale tax)
• Tax Law § 1105(c)(3), (c)(3)(ii) (installation/maintenance service tax; laundering/dry-cleaning exclusion)
• 20 NYCRR 527.8(f)(2) (caterer self-use purchases taxable)

Prior rulings and cases referenced:

• Linen Systems for Hospitals, Inc., Advisory Opinion, State Tax Commission, September 25, 1981, TSB-A-81(14)S
• Atlas Linen Supply Company, Inc. v. Chu, 149 A.D.2d 824
• Matter of Linen Systems for Hospitals, Inc., Decision, Tax Appeals Tribunal, August 24, 1989

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a96_24s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (24)S
Sales Tax
April 25, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S930611D

On June 11,1993, a Petition for Advisory Opinion was received from Table Wraps, Ltd., 666
Cantiague Road, Jericho, New York 11753.
The issue raised is whether Petitioner, Table Wraps, Ltd., sells at retail a "laundering" service
within the meaning of Section 1105(c)(3)(ii) of the Tax Law or whether Petitioner rents table linens
to customers.
Petitioner makes the following submission of facts.
Petitioner is engaged in the business of manufacturing and then providing custom-made
linens to its customers. Pursuant to its standard agreement, Petitioner delivers the table linen to the
customer for the customer's use, and retrieves it when the customer is finished. Petitioner charges
the customer a flat fee based on the duration of the agreement and the type of table linen at issue.
Under the terms of the standard agreement, once the table linen has been returned to
Petitioner, the agreement between Petitioner and the customer terminates. Neither Petitioner nor the
customer owes any additional obligation to each other. Petitioner is under no obligation to return
clean table linen to the customer. In fact, Petitioner is under no contractual obligation to clean any
table linen under any circumstances.
In most cases, before soiled table linen is returned to inventory, Petitioner does have the table
linen cleaned. In cases where the soiled table linen is not returned to inventory (e.g., because it is no
longer fit for use), Petitioner does not have the table linen cleaned. The only laundering which takes
place is performed by Petitioner on its own account for the sole purpose of maintaining its inventory.
The cleaning costs incurred by Petitioner after the table linens are returned at the expiration
of the customer agreement are not itemized in the invoice to the customer. The cleaning cost
attributable to each item cleaned by Petitioner represents a small fraction of Petitioner's cost of doing
business. Overall, the cost of cleaning soiled table linens is slightly more than 5% on average of
Petitioner's total cost of sales. In contrast, the value of the table linen itself with respect to the price
charged the customer represents almost 95% of the overall cost of sales.
Petitioner does not provide any table linens for extended terms. Customers generally use
linens for a special occasion, such as a wedding, anniversary, or other party. Many hours are
expended selecting the appropriate fabric, colors, designs and coordinated combinations. The price
reflects the nature of the fabric and the particular design selected. Many of the specialty linens must
be discarded after only one or two customer agreements because of the delicacy of

-2­
TSB-A-96 (24)S
Sales Tax
April 25, 1996
the fabric. No customers are under a long-term or continuous contract with Petitioner. Each contract
is for one isolated use and is of limited duration, typically one or two days.
Section 1101 of the Tax Law states, in part:
Definitions ....
(b) When used in this article for the purposes of the taxes imposed by
subdivisions (a), (b), (c) and (d) of section eleven hundred five and by
section eleven hundred ten, the following terms shall mean:
(4) Retail sale. (i) A sale of tangible personal property to any person
for any purpose, other than (A) for resale as such or as a physical
component part of tangible personal property, or (B) for use by that
person in performing the services subject to tax under paragraphs (1),
(2), (3), (5), (7) and (8) of subdivision (c) of section eleven hundred
five where the property so sold becomes a physical component part
of the property upon which the services are performed or where the
property so sold is later actually transferred to the purchaser of the
service in conjunction with the performance of the service subject to
tax
(5) Sale, selling or purchase. Any transfer of title or possession or
both, ... rental, lease or license to use or consume ... conditional or
otherwise, in any manner or by any means whatsoever for a
consideration, or any agreement therefor, including the rendering of
any service, taxable under this article, for a consideration or any
agreement therefor.
Section 1105 of the Tax Law states, in part:
Imposition of sales tax . . . there is hereby imposed and there shall be
paid a tax of four percent upon:
(a)
The receipts from every retail sale of tangible personal
property, except as otherwise provided in this article.
*
*
*
(c)
The receipts from every sale, except for resale, of the
following services:
(3)
Installing tangible personal property, or maintaining, servicing
or repairing tangible personal property, ... not held for sale in the
regular course of business, whether or not the services are performed

-3­
TSB-A-96 (24)S
Sales Tax
April 25, 1996

directly or by means of coin-operated equipment or by any other
means, and whether or not any tangible personal property is
transferred in conjunction therewith, except:
*
*
*
(ii)
any receipts from laundering, dry-cleaning, tailoring,
weaving, pressing, shoe repairing and shoe shining; .... (emphasis
added)
Section 527.8(f)(2) of the Sales and Use Tax Regulations provides as follows:
(2)
Purchases by caterers. (i) Self-use. Taxable tangible personal
property or services used or consumed by a caterer in performing
catering services are not purchased for resale as such and are subject
to tax. Examples of such taxable property are: tables, tents, chairs,
bars, linens, napkins, silverware, glassware, chinaware, serving
utensils, table covers, ice used to chill food or drinks before serving,
as well as floral arrangements not purchased in accordance with the
conditions set forth in subparagraph (v) of this paragraph. (Emphasis
added)
Linen services are considered to be exempt laundering and dry-cleaning services if the
service agreement provides for return of the linen articles periodically for laundering or dry-cleaning
and replacing the articles with clean linens. The value of the article of tangible personal property
furnished typically is insubstantial compared with the charge for the service rendered so that the
major portion of the charge made is for laundering or dry-cleaning service. See Linen Systems for
Hospitals. Inc., Adv Op STC, September 25, 1981 TSB-A-81(14)S.
In Atlas Linen Supply Company. Inc. v Chu, 149 A.D.2d 824, the Court found that although
contracts between the taxpayer and some hospitals contained aspects of rental arrangements, no
contract for price per item laundering actually split the stated price into component parts of
laundering services and rental charges. To the contrary, evidence supported a finding that the
taxpayer's provision of linens to some of its hospital customers was essentially part of the taxpayer's
laundering service rather than a separate rental transaction. In Matter of Linen Systems for Hospitals.
Inc., Decision of Tax Appeals Tribunal, August 24, 1989, the Tax Appeals Tribunal followed the
reasoning in Atlas. Even though the taxpayer in Linen Systems established a separate cost of the
linens of 17 to 20.05 percent of the total revenues, the Tribunal concluded that this was not sufficient
to overcome the application and result of the Appellate Division's decision in Atlas.

-4­
TSB-A-96 (24)S
Sales Tax
April 25, 1996

The facts presented by Petitioner in this case are distinguishable from the facts in Atlas and
Linen Systems. The service Petitioner provides is distinguishable from the type of linen service
considered to be a laundering or dry-cleaning service. Petitioner's contracts with its customers are
of limited duration, typically one or two days. Petitioner does not contract with its customers to pick
up the linens periodically for cleaning and to replace dirty linens with clean linens The fee charged
to customers is based on the nature of the fabric, the particular design selected and the duration of
the lease. None of Petitioner's customers are under a long-term or continuous contract. It is also
noted that Petitioner's laundry costs represented only slightly more than 5% on average of Petitioner's
total cost of sales, while the cost of the table linen represented almost 95% of the cost of sales.
Accordingly, Petitioner is not performing an exempt laundering service. Petitioner does not
supply linens on a continual basis to its customers, or periodically replace the soiled linens with
clean linens. Petitioner's receipts from charges to customers do not qualify for the exclusion from
sales tax provided under Section 1105(c)(3)(ii) of the Tax Law. Petitioner is considered to be renting
table linens to customers. Section 527.8(f)(2) of the Sales and Use Tax Regulations states that the
purchase of tangible personal property, including linens, by a caterer for use in catering an event is
not a purchase for resale and is subject to the sales tax. Accordingly, rentals of linens to caterers or
other customers are considered to be retail sales of tangible personal property as defined under
Section l101(b)(4) of the Tax Law and the receipts from the rentals are subject to the tax imposed
under Section l105(a) of the Tax Law.
Since Petitioner is renting table linens to its customers, Petitioner's purchases of cloth for the
manufacture of table linens are purchases for resale. These purchases qualify for the exclusion from
tax provided under Section ll01(b)(4)(i)(A) of the Tax Law. When Petitioner makes purchases of
cloth, Petitioner should issue the supplier a properly completed form ST-120, Resale Certificate.

DATED: April 25, 1996

/s/
Doris S. Bauman
Director
Technical Services Bureau

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