Are a licensed engineering firm's photocopying charges for its final reports, billed as a reimbursable expense, subject to sales tax?

Plain-English summary

EMCON had acquired Wehran Engineering Corp. ("WEC"), a licensed environmental engineering and consulting firm with New York offices. WEC's contracts billed clients hourly rates for engineering and administrative personnel, plus "reimbursable expenses" -- travel, telephone, courier, computer usage, safety equipment, and reproduction/photocopy costs, all at fixed rates set in the contract (photocopies at 15 cents a page, maps/plans at $2.70-$3.60, binders at $1-$1.50). WEC never offered photocopying to the general public; copying was only ever performed as part of delivering its engineering reports to clients. EMCON asked whether these photocopy charges are taxable sales of tangible personal property.

New York's tax base for a taxable sale or service is the total "receipt," and expenses a vendor incurs in making a sale -- including ones separately billed to the customer -- generally can't be deducted from that taxable receipt. But that rule only kicks in if there's a taxable sale or service in the first place. New York has long treated professional engineering services (technical advice from a licensed professional engineer) as a service outside the scope of Section 1105 entirely -- not one of the state's enumerated taxable services -- even when the engineer's advice comes wrapped in a written report. The Department has confirmed this in prior rulings (R.H. McDermott Corp. and PCA Engineering, Inc.).

Because WEC's photocopying was never sold on its own -- it happened only as an incidental part of delivering the underlying, non-taxable engineering service -- and because New York's "single sale" rule treats charges that can't be separately purchased as one transaction, the Department concluded the photocopying charges here aren't taxable. The whole engagement (engineering advice plus report copies) is one untaxed professional service. However, the opinion draws a sharp line: if photocopies were instead billed under a genuinely separate contract or agreement, apart from the engineering-services agreement, that separate photocopy charge WOULD be taxable (even though the engineering charge itself still wouldn't be). And WEC's own purchases of paper, supplies, and equipment used to produce these reports remain subject to sales/use tax -- WEC is the ultimate consumer of those materials, not a reseller.

What this means for you

Licensed engineers and similar professional-services firms

If your reproduction/copying charges are billed as an incidental "reimbursable expense" under the same engagement as your professional services -- and you don't otherwise offer copying to the public -- those charges likely escape sales tax along with your underlying professional fee. But structuring copying as a separate, stand-alone charge under a different agreement flips that outcome and makes the copying itself taxable.

Clients of engineering and consulting firms

Don't assume every line-item "reimbursable expense" on a professional invoice is separately taxed -- if it's genuinely incidental to a non-enumerated professional service (like licensed engineering), it may be untaxed as part of the whole bill.

Accountants and tax professionals

This is a useful "single sale" / incidental-expense opinion, applying the § 1101(b)(3) receipt definition and the McDermott/PCA Engineering line on professional engineering services -- and it explicitly limits its own holding to services that, by law, may only be performed by a licensed professional engineer (evaluations, specifications, tests, plans, and analysis grounded in math/physical science).

Common questions

Q: Would this same result apply to a non-engineering consulting firm?
A: The opinion expressly limits itself to reports and documents that, by law, may only be rendered by licensed professional engineers -- it doesn't extend the holding to other professional services generally.

Q: What if the firm charged for photocopies under a separate contract?
A: The opinion says photocopies billed pursuant to a separate contract or agreement, apart from the engineering-services agreement, would be subject to sales and use tax, even though the engineering service charge itself would remain untaxed.

Q: Is the firm's purchase of paper and copier supplies tax-free?
A: No -- the opinion states the firm's own purchases of paper, supplies, and equipment used to produce its engineering reports remain subject to sales and compensating use tax.

Q: Can another firm rely on this ruling?
A: No. This advisory opinion binds the Department only with respect to EMCON/WEC and the exact facts described.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(3) (definition of receipt; no deduction for expenses)
• Tax Law § 1101(b)(4)(i) (definition of retail sale)
• 20 NYCRR § 526.5(e) (expenses not deductible from taxable receipts)
• Opinion of Counsel, dated April 18, 1966, published in New York Tax Bulletin - Book 2, Page 58

Prior rulings and cases referenced:

• R.H. McDermott Corp., Adv Op Comm T&F, March 2, 1988, TSB-A-88(22)S
• PCA Engineering, Inc., Adv Op Comm T&F, February 15, 1990, TSB-A-90(4)S
• Penfold v. State Tax Commission, 114 AD2d 696 (1985)

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_79s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (79) S
Sales Tax
December 16, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S960509A

On May 9, 1996, a Petition for Advisory Opinion was received from EMCON, 1433 N.
Market Blvd., Suite 2, P.O. Box 349014, Sacramento, CA 95834-9014.
The issue raised by Petitioner, EMCON, is whether charges of a professionally licensed
engineering company for photocopying and issuance of its final reports are sales of tangible personal
property subject to sales tax.
Petitioner makes the following submission of facts.
Petitioner acquired Wehran Engineering Corp. and Subsidiaries (hereinafter "WEC") and
merged them into EMCON. Prior to this merger, WEC was an environmental engineering and
consulting firm conducting business in nine offices in the northeast and midwest. There were two
offices in New York State, one in Middletown and the other in Grand Island. WEC provided a broad
range of environmental engineering services to clients representing both private industry and
government. The contracts for the engineering services stipulated that the fee WEC was to be paid
for its services was based on a schedule (included in the contract) of hourly rates for specified
engineering and administrative personnel. In addition, the contracts stipulated that the client would
be billed for "reimbursable expenses" including expenses such as subcontractors, travel and
subsistence, supplies, telephone, courier service, computer usage, safety equipment, and reproduction
or photocopy costs. The rates for these items were also specified in an attached schedule with the
photocopy charge fixed at 15 cents per page. There was also a charge of $1.00 to $1.50 for a 3-ring
binder if required or requested. Generally, the number of copies of a report to be supplied to a client
was not specified in the contract but was left to the discretion of the client. Frequently, a project
would require the production of a map or plan, charges for which were also separately billed in the
reproduction category at rates ranging from $2.70 to $3.60 per plan.
At no time did WEC offer reproduction or photocopy services to the general public. The
service was only performed in conjunction with and incidental to the rendering of professional
engineering services.
Section ll01(b)(3)of the Tax Law defines the term "receipt" as "The amount of the sale price
of any property and the charge for any service taxable under this article,. . . without any deduction
for expenses . . ." (Emphasis added)
Section 526.5(e) of the Sales and Use Tax Regulations explains the above section of law as
follows:
Expenses. All expenses, including telephone and telegraph and other
service charges, incurred by a vendor in making a sale, regardless of
their taxable status and regardless of whether they are billed to a
customer are not deductible from the receipts.

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TSB-A-96 (79) S
Sales Tax
December 16, 1996
Example 1: A photographer contracts with a customer to furnish photographs
at $50 each in addition to expenses. The customer is billed as follows:
Photographs (2)
Model fees
Meals
Travel
Props (Flowers)
Total due

$100
60
10
25
5
$200

Receipt subject to tax is $200
Example 2: An appliance repairman charges $10 per hour plus
expenses when on a service call. The customer is billed as
follows:
3 hrs. at $10
$30
Travel
15
Parts
20
Meals
5
Total due
$70
Receipt subject to tax is $70
Section ll01(b)(4)(i) 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 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
. . . .
In this case, WEC performed a professional engineering service. As a result of performing
these engineering services reports were issued to its clients describing its findings and
recommendations. In a number of instances multiple copies of a report were provided to a client.
WEC charged the client for these photocopies and other reimbursable expenses in the contract.
It has been the policy of the Department to view professional engineering services as a
service not enumerated in Section 1105 of the Tax Law. This policy was established with an
Opinion of Counsel, dated April 18, 1966 and published in the New York Tax Bulletin - Book 2,
Page 58. In R.H. McDermott Corp., Adv Op Comm T & F, March 2, 1988, TSB-A-88(22)S, and
PCA Engineering. Inc., Adv Op Comm T & F, February 15,1990, TSB-A-90(4)S, it was concluded
that the furnishing of technical advice by a licensed professional engineer is not deemed to be the
sale of tangible personal property or the sale of an enumerated service even if

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TSB-A-96 (79) S
Sales Tax
December 16, 1996
a written report is furnished as an incident to the engineering service being performed. Such a
professional service is outside the scope of Section 1105 of the Tax Law. Accordingly, to the extent
that the services rendered by WEC were the rendering of technical advice by a licensed professional
engineer, the charge for said services, including amounts charged for copies of reports, maps or plans
furnished as an incident to these services, is not subject to sales or use tax.
In this case, WEC was providing a service not enumerated in Section 1105 of the Tax Law.
The fee schedule for the service was fixed and the copying expenses were set at $.15 cents per page.
The purpose of the report prepared by WEC was to inform the client about the solution to a problem
presented to WEC as a professional engineering company. The reports given to the client were the
findings of the professional engineering staff, expressed to the client through the use of a report.
The effect of Section l101(b)(3) of the Tax Law is to treat as a single sale any sale in which
any of the components cannot be singly purchased. Thus, even though the components of a
particular sale can be separately stated, calculated or estimated, if they cannot be separately
purchased, the combination of the items listed must be considered as one. Penfold v. State Tax
Commission, 114 AD 2d 696 (1985). Section 526.5(e) of the Sales and Use Tax Regulations
provides that expenses incurred by a vendor cannot be deducted from charges to a customer where
the charges are for the sale of tangible personal property or a taxable service under Section
1105(c)(1), (2), (3), (5), (7) or (8) of the Tax Law. Accordingly, since WEC was not selling a
photocopying service in the normal course of business, but rather was providing an engineering
service not enumerated in Section 1105(c) of the Tax Law, charges for photocopying expenses were
not subject to sales tax. However, the purchases of the paper, supplies and equipment used by WEC
to supply these engineering reports are subject to the sales and compensating use tax.
In the event the photocopies are supplied and billed pursuant to a separate contract or
agreement apart from the contract or agreement for the sale of the engineering service, then the
charges for such photocopies will be subject to sales and compensating use tax, although the charges
for the engineering service will not be subject to said tax.
It must be emphasized that this opinion as it relates to engineering services is limited to the
tax status of reports and documents (e.g., evaluations, specifications, tests, plans and analysis) which
being based upon the principles of mathematics and the physical sciences, may legally be rendered
only by licensed professional engineers. Opinion of Counsel, 1966 NYTB-2, p.58.

DATED: December 16, 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.