When an unredeemed towed vehicle is sold at a New York City Marshal's auction, are the towing charges paid to the towing company out of the auction proceeds subject to sales tax?

Plain-English summary

A Marshal's Bureau employee asked the Department to confirm how sales tax applies to the New York City Marshal towing program that enforces Parking Violations Bureau summonses. Marshals hire private towing companies and storage facilities to seize and hold vehicles with outstanding tickets. Owners who redeem their vehicles pay the outstanding tickets, statutory fees, a $150 towing charge plus sales tax, and any other reimbursed expenses. Vehicles that go unredeemed are instead sold at a public Marshal's auction; the petition included a worked example showing exactly how auction proceeds get distributed -- to the auctioneer, plate remover, towing company, storage facility, the Marshal's statutory fees and poundage, reimbursed expenses, advertising costs, and finally the Parking Violations Bureau -- noting that the towing company's $150 share becomes $162.38 "if taxable."

The Department's answer mirrors its companion ruling on the redemption scenario (TSB-A-97(8)S): towing charges paid by the Marshal to the towing company out of auction proceeds are not subject to sales tax, because the Marshal is purchasing the towing service for resale (the Marshal should give the towing company a resale certificate, Form ST-120, to document this). Instead, the Marshal must collect State and local sales tax on the full retail selling price of the auctioned vehicle itself, at the combined New York City rate, regardless of whether the sale price is enough to cover the towing bill. Because the Marshal is the one making retail sales of vehicles, the Marshal (not the towing company) must register as a vendor under Tax Law § 1134 and file the required returns.

What this means for you

Towing companies paid out of government auction proceeds

Whether you're paid directly by a redeeming vehicle owner or out of the proceeds of a government auction, your towing charge to the government agency is generally a nontaxable resale transaction -- make sure you're holding a resale certificate from the agency rather than collecting tax on that leg yourself.

Marshals and government agencies running vehicle auctions

The tax obligation sits with you, the agency selling the vehicle, based on the full auction sale price -- not on the towing, storage, or other component costs baked into the proceeds distribution, and not reduced just because the sale price came in below the towing bill.

Accountants and tax professionals

This ruling and its companion, TSB-A-97(8)S (issued about three weeks earlier, addressing the redemption-payment side of the same NYC Marshal towing program), together give a complete before-and-after picture: tax on the towing charge itself is collected from the vehicle owner at redemption, while tax on an unredeemed vehicle's ultimate sale is collected on the auction price -- with the towing company's own compensation staying untaxed as a resale purchase in both scenarios.

Common questions

Q: If the vehicle sells for less than the towing charges owed, does the Marshal still collect sales tax on the full sale price?
A: Yes -- the ruling specifically confirms tax is based on the retail selling price of the vehicle "whether or not the selling price exceeds the amount owed for towing."

Q: Does the towing company ever collect sales tax in this arrangement?
A: No -- like the redemption scenario in the companion ruling, the towing company's charge to the Marshal is a nontaxable resale purchase.

Q: Can another towing company or government agency rely on this ruling?
A: No. This advisory opinion binds the Department only as to the specific petitioner and the Parking Violations Bureau towing/auction program described.

Citations and references

Statutes and regulations:

• Tax Law § 1105(a) (tax on retail sales of tangible personal property)
• Tax Law § 1105(c)(3), (4) (installing/servicing/repairing and storing tangible personal property)
• Tax Law § 1134 (vendor registration requirement)
• 20 NYCRR § 526.11 (persons required to collect tax)
• New York State and Local Sales Tax Information Booklet No. 5, Questions and Answers on Motor Vehicles, Garages and Service Stations, ST-215 (9/73)

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_10s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(10)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S950920A

On September 20, 1995, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Michael Vecchio, NYC Dept. of Investigation,
Marshal's Bureau, 80 Maiden Lane - 17th Floor, New York, New York 10038.
The issue raised by Petitioner, Michael Vecchio, is whether towing charges
which are allocated to a towing company from the proceeds of a vehicle sold at
a New York City Marshal’s auction are subject to sales tax.
Petitioner submits the following facts as the basis for this Advisory
Opinion.
Pursuant to the New York City Civil Court Act, New York City Marshals
(hereinafter "Marshals") are given the authority to enforce civil court
judgments. Marshals also levy and seize vehicles with outstanding summonses on
behalf of the New York City Parking Violations Bureau. Marshals hire private
towing companies and private storage facilities who tow and store these seized
vehicles. The vehicles usually get redeemed by their owners, who must pay the
Marshal the following fees which are forwarded to the Parking Violations Bureau
and to the towing company:
a) the outstanding summonses;
b) statutory Marshal's fees and poundage;
c) towing fee of $150.00 plus sales tax; and
d) any reimbursed expenses deemed necessary.
Once the above fees are paid by the owner, the Marshal gives the owner a release
form which the owner must bring to the storage facility when redeeming the
vehicle. At that point the owner must pay the proper storage fees before the
vehicle is released.
Vehicles which are not redeemed are sold at a Marshal's public auction.
The Marshal must advertise this auction two days prior to the sale. Sales tax
is collected on the selling price of each vehicle sold at the auction. The
Marshal collects the total proceeds from the auction, including the sales tax on
the selling price of the vehicle, and deposits the funds in a trust account to
appropriate parties, including the New York State Department of Taxation and
Finance. The following is an example of the distribution of the proceeds of a
vehicle sold at a Marshal's auction:
Judgment Amount:
Selling Price:
Sales Tax:

$1,500.00
$1,000.00
$82.50

-2­
TSB-A-97(10)S
Sales Tax

a) Auctioneer (5% of selling price)
b) Plate Remover ($1.50 per car)
c) Towing company
d) Storage ($10.00 per day)
e) Marshal's statutory fees
f) Marshal's Poundage (5%)
g) Reimbursed expense (mailing)
h) Advertising Expense
(Total cost of ad divided among
total number of vehicles sold)
i) Net amount to Parking Violations
Bureau

$50.00
$1.50
$150.00 (or $162.38, if
taxable)
$100.00
$45.00
$50.00
$3.08
$15.00

$585.42

Applicable Law and Regulations
Section 1105(a) of the Tax Law imposes a tax upon "[t]he receipts from the
sale of tangible personal property, except as otherwise provided in this
article."
Section 1105(c) of the Tax Law imposes tax on receipts from the sale,
except for resale, of certain enumerated services, including under paragraph (3)
the service of "[i]nstalling tangible personal property, ... or maintaining,
servicing or repairing tangible personal property, ... not held for sale in the
regular course of business" and under paragraph (4) the service of "[s]toring all
tangible personal property not held for sale in the regular course of business."
Section 526.11 of the Sales and Use Tax Regulations provides in part:
Persons required to collect tax. [Tax Law, §1131(1)] (a) General.
Persons required to collect tax includes: (1) Every person who makes
sales of tangible personal property as a vendor.
Opinion
Charges for the towing services are subject to sales tax. See New York
State and Local Sales Tax Information Booklet No. 5, Questions and Answers on
Motor Vehicles, Garages and Service Stations, ST-215 (9/73).
Marshals are
required to collect and remit sales tax on receipts from the sale of towing
services from the vehicle owner when the owner claims the vehicle from the
Marshal. The applicable rate of sales tax in New York City is 8 1/4 percent.
However, towing charges paid by a Marshal to a towing company from the
proceeds of a vehicle sold at a Marshal's auction are not subject to tax, since
the towing services are purchased by the Marshal for resale. The Marshal should
provide the towing company with a properly completed resale certificate (Form
ST-120) to evidence the transaction. The resale certificate is then retained by
the towing company as proof of a non-taxable sale.
Non-taxable sales are
reflected on a vendor's sales tax return as the difference between gross and
taxable sales.

-3­
TSB-A-97(10)S
Sales Tax

Since the Marshal is making retail sales of tangible personal property at
auctions for the sale of motor vehicles, the Marshal is required to collect sales
tax imposed by Section 1105(a) of the Tax Law on the sale of the vehicle, as well
as locally imposed sales tax. The tax to be collected is based on the retail
selling price of the vehicle, whether or not the selling price exceeds the amount
owed for towing. As a vendor of tangible personal property making sales in this
State, the Marshal is required to register under Section 1134 of the Tax Law and
to file returns and remit tax required to be collected.

DATED: February 25, 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.