New York Advisory Opinion TSB-A-96(45)S: If a three-year car lease is extended by three months (because the lessee's replacement vehicle isn't ready), are the extension's rental payments hit with the extra 5% passenger car rental tax on top of ordinary sales tax -- and does it matter whether the extension is agreed to before or after the original lease expires?

Plain-English summary

New York State Automobile Dealers, Inc. posed a hypothetical: a consumer's three-year passenger vehicle lease (originally taxed upfront under Tax Law § 1111(i)(A), which requires sales tax on all 36 monthly payments to be collected at lease inception for any motor vehicle lease of a year or more) is about to expire, but the lessee's new replacement vehicle isn't ready yet. The lessor and lessee agree to extend the existing lease for an additional three months so the lessee can keep using the original car until the new one arrives. The question: do the extension's rental payments get hit with the extra 5% tax on passenger car rentals under Tax Law § 1160, on top of ordinary sales tax?

The answer turns entirely on timing. If the extension is agreed to BEFORE the original three-year lease expires, it's treated under § 1111(i)(C) as a renewal/extension of the same long-term lease -- the extension gets folded into the existing long-term-lease framework, sales tax on the three months of extension payments is collected upfront (at the date the extension is agreed to, based on the full length of the extension), and the additional 5% passenger car rental tax under § 1160 does NOT apply, because § 1111(i)(C) and 20 NYCRR 527.15(g) specifically exempt a renewal/extension of an already-taxed long-term lease from the Article 28-A rental tax. But if the parties instead wait until AFTER the three-year lease has already expired before arranging the extra three months, that arrangement is a brand-new lease for a term under one year -- it doesn't get the benefit of § 1111(i)'s long-term-lease treatment at all, and the lessor must collect both ordinary sales tax AND the additional 5% tax on each of the three new monthly payments as they're made.

What this means for you

Auto dealers and leasing companies

If a customer's replacement vehicle is delayed, extend the existing lease BEFORE it expires (even by a day) rather than letting it lapse and writing a fresh short-term rental afterward -- that timing choice determines whether the extension period owes the extra 5% passenger car rental tax. Collect tax on the extension period upfront, the same way you did for the original long-term lease.

Consumers with an expiring long-term vehicle lease

Ask your dealer to formally extend your current lease before its expiration date if you need a few extra months -- letting the lease lapse first and arranging a new short-term rental afterward will cost you the additional 5% tax that a timely extension avoids.

Common questions

Q: Why does the timing of the extension matter so much?
A: Tax Law § 1111(i)(C) only protects a renewal/extension exercised "as part of" an existing long-term lease that was already taxed under § 1111(i) -- once that original lease has expired, there's no longer an existing long-term lease for a later arrangement to extend, so a new agreement made afterward is legally a fresh, separate short-term lease subject to ordinary rental-tax rules.

Q: How is tax collected on a timely (pre-expiration) extension?
A: The same way as the original long-term lease -- upfront, at the time the extension agreement is signed, based on the full stated length of the extension (here, tax on all three months of extension payments collected at once).

Q: How is tax collected if the extension instead becomes a new short-term lease?
A: The lessor collects both ordinary sales/use tax and the additional 5% tax on each monthly payment as it's actually made, rather than upfront -- the standard treatment for a short-term (under one year) rental.

Q: Does this apply to leases of vehicles other than passenger cars?
A: Tax Law § 1111(i)(A) also covers certain vessels and small noncommercial aircraft leased for a year or more, but this opinion's specific 5%-tax analysis is about Tax Law § 1160's passenger car rental tax, which applies only to passenger cars.

Citations and references

Statutes and regulations:

• Tax Law § 1111(i)(A) (long-term motor vehicle/vessel/aircraft lease upfront tax)
• Tax Law § 1111(i)(C) (renewal option exempt from Article 28-A rental tax)
• Tax Law § 1160(a) (5% tax on passenger car rentals)
• 20 NYCRR 527.15(b) (lease term and renewal option definitions)
• 20 NYCRR 527.15(g) (renewal option exempt from Special Tax on Passenger Car Rentals)

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_45s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (45)S
Sales Tax
July 11, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S950526A

On May 26, 1995, a Petition for Advisory Opinion was received from the New York State
Automobile Dealers, Inc., 37 Elk Street, P.O.Box 7347, Albany, New York 12224-0347.
The issue raised by Petitioner, New York State Automobile Dealers, Inc., is whether rental
payments received pursuant to an extension of a long term lease (over one year) of a leased passenger
vehicle are subject to the 5% tax on passenger car rentals imposed by Section 1160 of the Tax Law.
Petitioner submitted the following hypothetical situation. Assume that a three year motor
vehicle lease of a passenger vehicle is about to expire and that, because of the unavailability of a new
replacement vehicle, the lease is extended for three months. Further assume that the original lease
of three years was subject to the provisions of §1111(i)(A) of the Tax Law and that the sales tax due
on the 36 monthly payments provided for in the original lease was paid at the inception of that lease
as required by the Tax Law.
The consumer-lessee wishes to lease a new vehicle but the new vehicle is not available for
delivery. The lessor and lessee agree to extend the original three year lease before it expires so that
the consumer-lessee may continue to use the original leased vehicle until the new vehicle is received.
Applicable Law and Regulations
Section 1111(i) of the Tax Law provides that:
(A) Notwithstanding any contrary provisions of this article or other law, with
respect to any lease for a term of one year or more of (1) a motor vehicle, as defined
in section one hundred twenty-five of the vehicle and traffic law, with a gross vehicle
weight of ten thousand pounds or less, (2) a vessel, as defined in section twenty-two
hundred fifty of such law (including any inboard or outboard motor and any trailer,
as defined in section one hundred fifty-six of such law, leased in conjunction with
such a vessel) and (3) noncommercial aircraft having a seating capacity of less than
twenty passengers and a maximum payload capacity of less than six thousand
pounds, or an option to renew such a lease or a similar contractual provision, all
receipts due or consideration given or contracted to be given for such property under
and for the entire period of such lease, option to renew or similar provision, or
combination of them, shall be deemed to have been paid or given and shall be subject
to tax, and any such tax due shall be collected, as of the date of first payment under
such lease, option to renew or similar provision, or combination of them, or as of the
date of registration of such property with the commissioner of motor vehicles,
whichever is earlier. Notwithstanding any inconsistent provisions of subdivision

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July 11, 1996

(b) of this section or of section eleven hundred seventeen of this article or of other
law, for purposes of such a lease, option to renew or similar provision originally
entered into outside this state, by a lessee (1) who was a resident of this state, and
leased such property for use outside the state and who subsequently brings such
property into this state for use here or (2) who was a nonresident and subsequently
becomes a resident and brings the property into this state for use here, any remaining
receipts due or consideration to be given after such lessee brings such property into
this state shall be subject to tax as if the lessee had entered into or exercised such
lease, option to renew or similar provision, or combination thereof, for the first time
in this state and the relevant provisions of sections eleven hundred ten concerning
imposition and computation of tax, eleven hundred eighteen concerning exemption
from use tax for tax paid to another jurisdiction, eleven hundred thirty-two
concerning presumption of taxability and conditions for registration and eleven
hundred thirty-nine concerning refunds, of this article, shall be applicable to any sales
or compensating use tax paid by the lessee before the lessee brought the property into
this state, except to the extent that any such provision is inconsistent with a provision
of this subdivision. For purposes of this subdivision, (1) a lease for a term of one year
or more shall include any lease for a shorter term which includes an option to renew
or other like provision (or more than one of such option or other provision) where the
cumulative period that the lease, with or without such option or provision, may be in
effect upon exercise of such option or provision is one year or more and (2) receipts
due and consideration given or contracted to be given under any such lease or other
provision for excess mileage charges shall be subject to tax as and when paid or due.
*
*
*
(C) Any receipts due or consideration given or contracted to be given under
an option to renew a lease of a motor vehicle described in this subdivision or similar
contractual provision, or combination of them, exercised as part of any such lease
between the same lessor and the same lessee with respect to the same motor vehicle
or vehicles, where such lease or any option to renew such a lease or any other similar
contractual provision was subject to tax in accordance with the provisions of this
subdivision, shall not be subject to the tax imposed under the provisions of article
twenty-eight-A of this chapter.
Section l160(a) of the Tax Law provides that:
(1) On and after June first, nineteen hundred ninety, in addition to any tax
imposed under any other article of this chapter, there is hereby imposed and there
shall be paid a tax of five percent upon the receipts from every rental

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of a passenger car which is a retail sale of such passenger car.
(2) Except to the extent that a passenger car rental described in paragraph one
of this subdivision has already been or will be subject to the tax imposed under such
paragraph and except as otherwise exempted under this article, there is hereby
imposed on every person and there shall be paid a use tax for the use within this state
on and after June first, nineteen hundred ninety of any passenger car rented by the
user, which is a purchase at retail of such passenger car, but not including any lease
of a passenger car to which subdivision (i) of section eleven hundred eleven of this
chapter applies. For purposes of this paragraph, the tax shall be at the rate of five
percent of the consideration given or contracted to be given for such property, or for
the use of such property, including any charges for shipping or delivery as described
in paragraph three of subdivision (b) of section eleven hundred one of this chapter,
but excluding any credit for tangible personal property accepted in part payment and
intended for resale.
Section 527.15(b) of the Sales Tax Regulations provides the following definitions:
(1) A lease for a term of one year or more includes:
(i) any lease that covers a period of one year or more; and
(ii) any lease for a period of less than one year where the lease
includes one or more options to renew or any similar contractual
provisions or combination thereof that would, if exercised, make the
cumulative period of the lease one year or more.
*
*
*
(2) Renewal option includes any option to renew a lease as well as any contractual
provision that, while not referred to as a renewal option, would obtain the same
result.
Section 527.15(g) of the Sales Tax Regulations further provides that:
Miscellaneous. Any receipts due or consideration given or contracted to be given
under an option to renew a lease of a motor vehicle described in this section or a
similar contractual provision or combination of them, exercised as part of any such
lease between the same lessor and lessee with respect to the same motor vehicle or
vehicles, where such lease or any option to renew such lease or any similar
contractual provision is subject to tax in accordance with this section and section
1111(i) of the Tax Law shall not be subject to the Special Tax on Passenger Car
Rentals imposed pursuant to the provisions of article 28-A of the Tax Law.

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When the lessor and lessee in the hypothetical situation agree to a lease extension prior to
the expiration of the existing lease, the lease extension is subject to the provisions of section
1111(i)(C) and section 527.15 of the Sales and Use Tax Regulations. The tax due on the lease
extension should be collected at the date when the agreement to extend the lease is entered into and
is based upon the full length of the extension. In the hypothetical situation inquired about, since the
extension is for a stated period of three months, tax on the lease payments for the three months
should be collected at the time that the parties agree to the extension. The lease payments during
such an extension are not subject to the additional 5% tax imposed by Section 1160 of Article 28-A
of the Tax Law.
However, if the lessor and lessee in the hypothetical situation agree to an additional three
month rental period after the three year lease has expired, the rental for the additional three months
is considered to be a new lease for a term of less than one year. The payments under the new lease
would be subject to the five percent additional tax imposed by Section 1160 of the Tax Law. In this
case, the additional rental period would not be subject to the provisions of Section 1111(i) of the Tax
Law. The lessor would be required to collect the sales or compensating use tax on each monthly
payment from the lessee, together with the additional five percent tax, at the time that each monthly
payment is made.

DATED: July 11, 1996

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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