Is hiring a trucking company to haul asphalt to a paving job a nontaxable transportation service, or a taxable equipment rental?

Plain-English summary

A paving contractor hires a trucking company to pick up asphalt from a plant and deliver it to a job site. The trucking company supplies both the truck and the driver, decides which driver to use, pays the driver's wages, and can hire or fire its own drivers. It also covers all its own operating costs -- insurance, tolls, fuel -- and bills the contractor an hourly rate for the truck-and-driver package. The contractor tells the trucking company when to show up at the job site with a load, but the driver picks the route. Once at the site, the driver either backs straight up to the paver to dump the asphalt or waits in line with other trucks; the paver (not the trucking company) controls the pace of unloading, simply because it can't hold an entire truckload at once. After dumping, the truck leaves.

The petitioner asked whether this arrangement is a nontaxable transportation service or a taxable rental of equipment. Under New York's rules, when a lease of a vehicle comes with an operator, it's presumed to be a nontaxable service -- rather than a taxable equipment rental -- as long as "dominion and control" stay with the trucking company. That test looks at whether the trucking company: keeps possession/control of the truck itself, retains hiring/firing authority over drivers, uses its own judgment on how to do the work (even if told where to pick up/deliver), stays responsible for operating the equipment, and pays all the operating costs including wages, insurance, tolls and fuel.

The Department found all of these factors present here. Being told the schedule and destination doesn't defeat dominion and control, and the fact that unloading pace is dictated by the paver's own physical limits (not the driver following instructions) doesn't change the analysis either. Since the trucking company keeps exclusive possession and sufficient control over its trucks while performing this work, the arrangement is a nontaxable transportation service -- transportation isn't one of the services New York taxes.

What this means for you

Trucking, hauling, and equipment-with-operator businesses

To keep this kind of arrangement a nontaxable transportation service rather than a taxable equipment rental, make sure you (not your customer) retain the practical hallmarks of ownership: keep hiring/firing authority over your drivers, let your drivers choose their own routes and methods, pay all operating costs yourself (fuel, insurance, tolls, wages), and don't hand over actual possession or control of the vehicle to the customer. Being told a schedule and a destination is fine and doesn't convert the deal into a taxable rental.

Construction contractors and job-site operators hiring haulers

If you're just directing where and when material needs to arrive -- not actually taking control of the truck itself -- your payment to the hauler is likely an untaxed transportation charge. But if the hauler fails to supply a driver, or effectively hands over control of the vehicle to you, the same transaction can flip into a taxable equipment rental.

Accountants and tax professionals

This is a clean application of the five-factor "dominion and control" test in 20 NYCRR § 541.2(p) -- worth using as a checklist any time a client structures a vehicle-with-operator arrangement and needs to document why it's a service rather than a rental.

Common questions

Q: Does being told when and where to deliver make this a taxable rental?
A: No -- being instructed on scheduling and destination doesn't defeat dominion and control, as long as the trucking company still controls how the work gets done (its own routes, its own drivers, its own equipment responsibility).

Q: What would flip this into a taxable rental?
A: If the trucking company failed to supply a driver, or otherwise gave up dominion and control over the vehicle to the contractor, the transaction would become a taxable rental, lease, or license to use equipment.

Q: Can another trucking arrangement rely on this ruling?
A: No. This advisory opinion binds the Department only as to the specific petitioner and the exact facts of this asphalt-hauling arrangement described.

Citations and references

Statutes and regulations:

• Tax Law § 1105(a) (tax on retail sales, including rentals, of tangible personal property)
• Tax Law § 1101(b)(5) (definition of sale, selling or purchase)
• 20 NYCRR § 526.7(e)(4), (6) (transfer of possession; operator's wages)
• 20 NYCRR § 541.2(p) (rental/lease/license to use vs. transportation service; dominion and control)

Prior rulings and cases referenced:

• Matter of C.D. Perry & Sons, Inc., State Tax Commission, June 24, 1977
• Matter of Firelands Sewer & Water Construction Co., Inc., State Tax Commission, November 17, 1983, TSB-H-83(184)S
• C.K. Industries Corp., Adv Op Comm T&F, February 8, 1988, TSB-A-88(14)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1997.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a97_01s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(1)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S961101A

On November 1, 1996, the Department of Taxation and Finance received a
Petition for Advisory Opinion from David P. McKelvey, c/o Grassi & Co., 76 South
Central Avenue, Valley Stream, NY 11580.
The issue raised by Petitioner, David P. McKelvey, is whether, for purposes
of sales tax, the transaction described below constitutes a transportation
service or the rental of equipment.
Petitioner submitted the following facts as the basis for this Advisory
Opinion.
A trucking company is hired to pick up asphalt from a plant and deliver it
to a job site. The trucking company provides a truck and a driver, selects which
driver will be used, pays the wages of the driver, and has the ability to hire
and fire the drivers. The trucking company pays all of the operating expenses
of its equipment including insurance, tolls and fuels, and will invoice its
customers based on an hourly rate for the truck and the driver.
The trucking company will be instructed when to be at the job site with the
asphalt, and is free to choose any route to get from the plant to the job site.
Upon reaching the job site, the driver will be instructed to either back up to
a paver and dump the asphalt into the paver, or wait on line with other trucks
carrying asphalt before backing up to the paver.
In dumping the asphalt into the paver, the truck must move in unison with
the paver as the paver transforms the loose asphalt into a compressed layer of
pavement.
The paver cannot hold a complete load of asphalt from the truck.
Therefore, the dumping of the asphalt into the paver is not regulated by the
trucking company. If the paver stops, the dumping of the asphalt will stop.
Once the truck has dumped its load, it will leave the job site.
Applicable Law and Regulations
Section 1105(a) of the Tax Law imposes sales tax on the receipts from sales
(including rentals) of tangible personal property.

Section 1101(b)(5) of the Tax Law defines the terms "sale, selling or
purchase," in part, to mean:
Any transfer of title or possession or both, exchange or
barter, rental, lease or license to use or consume . .
. for a consideration, or any agreement therefore,

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Sales Tax

including the rendering of any service, taxable under
this article, for a consideration or any agreement
therefor.
Section 526.7(e)(4) and (6) of the Sales and Use Tax Regulations provides,
in part:
(4) "Transfer of possession" with respect to a rental, lease
or license to use, means that one of the following attributes
of property ownership has been transferred:

(i)

custody or possession of the tangible personal property,
actual or constructive;

(ii)

the right to custody or possession of the tangible
personal property;

(iii) the right to use, or control or direct the use of,
tangible personal property.

*

*

*

(6)
When a lease of equipment includes the services of
an operator, possession is deemed to be transferred
where the lessee has the right to direct and control the
use of the equipment.
The operator’s wages, when
separately stated, are excludible from the receipt of
the lease, provided they reflect prevailing wage rates.
Section 541.2(p) of the Sales and Use Tax Regulations provides, in
(1) The terms "rental, lease and license to use" refer
to all transactions in which there is a transfer of possession
of tangible personal property without a transfer of title to
the property.
(2) For the purposes of this Part, when a rental, lease
or license to use a vehicle or equipment includes the services
of a driver or operator, such transaction is presumptively the
sale of a service, rather than the rental of tangible personal
property, where dominion and control over the vehicle or
equipment remain with the owner or lessor of the vehicle or
equipment.
Dominion and control remain with the owner or
lessor of the vehicle or equipment when pursuant to an
agreement or contract the lessor:

part:

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(i) does not transfer possession, control and/or use of
the equipment or vehicle to the lessee during the term of the
agreement or contract;
(ii) maintains the right to hire and fire the drivers
and operators;
(iii) uses his own discretion in performing the work
(even though the lessee may designate the area where material
is to be picked up and delivered) and generally selects his
own routes;
(iv) retains responsibility for the operation of the
equipment or vehicle; and
(v) directs the work, pays all operating expenses,
including drivers’ and/or operators’ wages, insurance, tolls
and fuels. (Emphasis added)
Whether a transaction is a sale (license to use, rental
or lease) of a vehicle or equipment or is the sale of a
service, such as a transportation service, must be determined
in accordance with the facts and circumstances of the
particular transaction and provisions of the agreement between
the contractor and his customer.
Opinion
In the situation described by Petitioner, the contractor’s payment
to the trucking company for the use of its truck to transport asphalt as
described by Petitioner is not a payment for a taxable rental, lease or license
to use equipment. Although the truck drivers are instructed when and where to
load and unload the asphalt, they are not told how to do so or what routes to use
(see Matter of C.D. Perry & Sons, Inc., State Tax Commission, June 24, 1977).
The timing of the asphalt unloading is regulated by the paver as opposed to the
driver only because the paver’s equipment cannot hold a complete load of asphalt
from the truck at one time.
The trucking company agrees to furnish trucks for the pick up and delivery
of asphalt as required, scheduled and directed by a contractor. The trucking
company pays all operating expenses for its equipment. The contractor pays for
the trucks, including the driver, at an hourly rate. The trucks are not left on
the job site during nights or weekends.
The trucking company has exclusive
possession of the trucks and a sufficient degree of control over them while
performing the service paid for by the contractor so as to be furnishing a
transportation service. Transportation is not one of the enumerated services
upon which sales tax is due (see Matter of Firelands Sewer & Water Construction
Co., Inc, State Tax Commission, November 17, 1983, TSB-H-83(184)S).

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Sales Tax

If the trucking company fails to supply the driver or fails to retain
dominion and control over the vehicle, then the transaction is a taxable rental,
lease or license to use (see C.K. Industries Corp., Adv Op Comm T&F, February 8,
1988, TSB-A-88(14)S).

DATED: January 23, 1997

NOTE:

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

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