Is a rental car company's separately billed 'booking agent' fee part of the taxable rental charge (and subject to the 5% special tax), even when a foreign travel agent pays the fee separately?

Plain-English summary

This is the passenger-car-rental companion to the same day's hotel booking-fee ruling, TSB-A-97(58)S. A foreign-based travel agent sells vacation tour packages that include passenger car rentals, and a large New York rental car company set up a separate legal entity to act as its booking agent, negotiating discounted weekly rates for bulk or off-peak rentals. The booking agent bills the travel agent a separate fee of roughly 20% of the rental charge (capped at 25%), on top of the rental company's own invoice, and throws in free travel brochures. KPMG asked, on the travel agent's behalf, whether the booking agent's fee is part of the taxable rental receipts, and whether it's subject to New York's 5% special tax on short-term passenger car rentals.

Because the booking agent operates on the rental car company's behalf and holds itself out as having cars available for rental, it's treated as a "co-vendor" of the rental company under New York's vendor-agency rules -- meaning both the booking agent and the rental company are jointly responsible for collecting and remitting the tax. Since a car can't actually be rented through the booking agent unless the traveler pays both the negotiated rental charge and the booking fee, the entire combined amount counts as the taxable rental receipt -- not just the rental company's own invoice -- regardless of whether the two charges are billed separately. And because the underlying transaction is a short-term passenger car rental, the whole combined amount (rental charge plus booking fee) is also subject to New York's additional 5% special tax on passenger car rentals, on top of ordinary sales tax.

What this means for you

Rental car companies using a separate booking-agent entity to negotiate bulk or off-peak rates

The booking agent becomes a co-vendor jointly liable for sales tax alongside the rental company, and its fee is part of the taxable rental receipt (plus the 5% special tax) regardless of separate invoicing -- structure your tax collection and remittance accordingly.

Travel agents and tour operators booking blocks of rental cars through negotiating intermediaries

Budget for both ordinary sales tax and the 5% special passenger car rental tax on the full amount paid to secure the rental -- the rental company's charge plus any separately billed booking or negotiation fee.

Accountants and tax professionals

This ruling pairs with the same-day hotel booking-fee ruling (TSB-A-97(58)S) to establish a consistent principle across lodging and vehicle rentals: a booking/negotiating agent's fee required to actually secure the underlying rental or occupancy is part of the taxable receipt, and the agent itself can become jointly liable as a co-vendor.

Common questions

Q: Does separately invoicing a rental car booking fee keep it out of the sales tax base?
A: No -- if the fee is required to actually secure the rental, it's part of the taxable rental receipt regardless of how it's invoiced.

Q: Is the booking agent responsible for collecting tax, or just the rental car company?
A: Both -- because the booking agent holds itself out as having cars available for rental on the company's behalf, it's treated as a co-vendor jointly liable for the tax along with the rental company.

Q: Does the 5% special passenger car rental tax apply to the booking fee too, not just the base rental charge?
A: Yes -- since the booking fee is part of the overall taxable rental receipt, the 5% special tax applies to the combined total, not just the rental company's own charge.

Q: Does this ruling apply to my rental car company's or travel agency's booking-fee arrangement?
A: Not automatically. An Advisory Opinion binds the Department only for the taxpayer and facts it was issued to, and it can't be relied on by anyone else. Your own structure would need its own analysis.

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_57s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(57)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S970529A

On May 29, 1997, the Department of Taxation and Finance received a Petition
for Advisory Opinion from KPMG Peat Marwick, LLP, 100 North Tampa Street, Suite
2400, Tampa, Florida 33602-5121.
The issue raised by Petitioner, KPMG Peat Marwick, LLP, is whether the
charges to its client for passenger car rental booking fees are subject to New
York State sales and use tax.
Petitioner submitted the following facts as the basis for this Advisory
Opinion.
Petitioner’s client, domiciled outside the United States, does business as
a travel agent selling "tour packages" to foreign citizens vacationing in New
York. The tour packages provide Petitioner’s client’s customers, under one lump
sum charged, with the airline tickets, hotel accommodations, bus service,
passenger car rental and other miscellaneous items commonly included in a
vacation package. Petitioner’s client pays tax on the purchase price of all
taxable components of any tour packages sold.
To provide better service to its customers, a large rental car company in
New York (the "Lessor") recently established a separate legal entity that
operates as a booking agent for the Lessor. The booking agent maintains books
and records with respect to its own activities separate and apart from the
Lessor’s books and records. This booking agent assists Petitioner’s client by
providing information on available passenger car rental discounts that arise
either from renting a large number of passenger cars (quantity discounts) or from
renting the cars during off-peak times of the year. Ordinarily, the booking
agent, on behalf of Petitioner’s client, negotiates a "package deal" with the
Lessor at a reduced rental rate, thus saving Petitioner’s client money. The
booking agent’s normal booking fee is approximately 20 percent of the amount paid
to the Lessor by Petitioner’s client for the passenger car rental and in no
circumstances is the booking fee greater than 25 percent of the amount paid to
the Lessor by Petitioner’s client. Besides providing a booking service for the
Lessor, the booking agent also provides travel brochures and travel guides
highlighting areas of interest within a short driving distance. These travel
brochures and travel guides are provided to Petitioner’s client at no charge.
The following scenario illustrates the aforementioned transaction when
Petitioner’s client (on behalf of its customers) rents passenger cars from the
Lessor and the transaction is negotiated by the booking agent:

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After the booking agent negotiates a price per week on behalf of the
Lessor with Petitioner’s client, Petitioner’s client rents passenger
cars from the Lessor for $80 per car per week plus applicable tax.
Petitioner’s client pays the negotiated amount directly to the
Lessor. The booking agent then separately invoices Petitioner’s
client an additional $20 per car for booking services charged for
negotiating the transaction.
The booking service is a valuable service performed by the booking agent
for Petitioner’s client and the Lessor. Petitioner’s client is thereby able to
obtain reduced rates and the Lessor is able to rent a greater number of cars.
The booking fee is not a mandatory fee required by the Lessor. Petitioner’s
client can avoid this fee by choosing not to use the booking agent to negotiate
passenger car rentals. However, the total combined amount charged by the Lessor
and the booking agent, upon utilizing the booking agent’s services to negotiate
the transaction, is usually less than the normal weekly rental rate charged by
the Lessor.
Applicable Law
Section 1105(a) of the Tax Law imposes sales tax on the receipts from sales
of tangible personal property.
Section 1101(b)(3) of the Tax Law defines “receipt” as follows:
Receipt.
The amount of the sale price of any property and the
charge for any service taxable under this article, valued in money,
whether received in money or otherwise, including any amount for
which credit is allowed by the vendor to the purchaser, without any
deduction for expenses or early payment discounts and also including
any charges by the vendor to the purchaser for shipping or delivery
regardless of whether such charges are separately stated in the
written contract, if any, or on the bill rendered to such purchaser
and regardless of whether such shipping or delivery is provided by
such vendor or a third party, but excluding any credit for tangible
personal property accepted in part payment and intended for resale.
For special rules governing computation of receipts, see section
eleven hundred eleven.
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, including the rendering
of any service, taxable under this article, for a consideration or
any agreement therefor (emphasis added).
Section 1101(b)(8)(i) of the Tax Law defines the term "vendor," in part,
as:

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(A) A person making sales of tangible personal property or
services, the receipts from which are taxed by this article . . .
Section 1101(b)(8)(ii)(A) of the Tax Law provides, in part:
. . . when in the opinion of the commissioner of taxation and
finance it is necessary for the efficient administration of this
article to treat any salesman, representative, peddler or canvasser
as the agent of the vendor, distributor, supervisor or employer
under whom he operates or from whom he obtains tangible personal
property sold by him, or for whom he solicits business, the
commissioner of taxation and finance may, in his discretion, treat
such agent as the vendor jointly responsible with his principal,
distributor, supervisor or employer for the collection and payment
over of the tax.
Section 1160 of the Tax Law provides, in part:
(a)(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 of a passenger car which is a retail
sale of such passenger car.
*

*

*

(b) For purposes of this section, the following definitions shall
apply:

(1)
Motor vehicle.
A motor vehicle as defined in section one
hundred twenty-five of the vehicle and traffic law, but not
including a motorcycle.
(2) Passenger car. A motor vehicle having a gross vehicle weight
of nine thousand pounds or less with a seating capacity of nine
persons or less designed for passenger transportation.
(3) Rental. The transfer of possession of a motor vehicle, whether
or not the motor vehicle is required to be or is registered by this
state, for a consideration, without the transfer of the ownership of
such motor vehicle, but not including a lease described in
subdivision (i) of section eleven hundred eleven of this chapter
[relating to certain long-term leases].
Section 1165 of the Tax Law provides, in part:
The tax imposed by section eleven hundred sixty of this article
shall be administered and collected in a like manner as and jointly
with the taxes imposed by sections eleven hundred five and eleven
hundred ten of article twenty-eight of this chapter.

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Opinion
A vendor’s receipts from the rental of an automobile are subject to State
and local sales and compensating use taxes pursuant to Sections 1105, 1101(b)(5)
and 1110 of the Tax Law since that rental constitutes the retail sale of tangible
personal property. Also, Section 1160 of the Tax Law imposes a special tax on
short term passenger car rentals (less than one year) at a rate of 5% of the
rental receipts and all taxable charges incidental to the rental (see Alamo Rent
A Car, Inc., Adv Op Comm T&F, April 15,1991, TSB-A-91(33)S.)
In its business as a travel agent, Petitioner’s client may utilize the
services of a booking agent to negotiate reduced rate passenger car rentals. The
booking agent was created by the Lessor, the rental car company, to operate on
behalf of the Lessor. Petitioner’s client enlists the services of the booking
agent to negotiate a price for Petitioner’s client for the rental of passenger
cars from the Lessor. In operating on behalf of the Lessor, the booking agent
is holding itself out as having passenger cars available for rental. The booking
agent receives a fee from Petitioner’s client which is a percentage of the
consideration the booking agent negotiates for the passenger car rental. Such
activities render the booking agent a co-vendor of the rental cars with the
Lessor within the meaning and intent of Section 1101(b)(8)(ii)(A) of the Tax Law
(see Matter of Alan Drey Company, Inc. v. State Tax Commission, 67 AD 2d 1055).
As such, they are jointly liable for the taxes due on receipts from the rental
of passenger cars to Petitioner’s client. See Section 526.10(e)(2) of the Sales
and Use Tax Regulations.
In addition to the fee billed by the booking agent, Petitioner’s client
is charged and billed separately by the Lessor for the rental of the car.
However, Petitioner’s client’s customers (i.e. the purchasers of the package)
cannot rent and operate a vehicle leased through the booking agent without the
booking agent’s fee and the Lessor’s rental charge being paid. Thus, the amount
subject to tax in this case is the entire passenger car rental charge to
Petitioner’s client, consisting of the Lessor’s charge, as well as the booking
fee charged by the booking agent (see Buffalo Refining Associates, Adv Op Comm
T&F, October 29, 1981, TSB-A-81(52)S, Matter of Alan Drey Company, Inc. v State
Tax Commission, supra). The fact that these charges are separately invoiced and
billed to Petitioner’s client is immaterial; the fee required by the booking
agency is considered part of the total receipts for the retail rental of the
passenger car.
Accordingly, in those instances where a fee, commission or
service charge is part of the charge for a passenger car rental, the total amount
upon which Petitioner’s client must pay both sales tax and the special tax of
five percent imposed upon the receipts from every short term rental of a
passenger car includes both the Lessor’s charge and the booking agency fee.

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It should be noted that in an analogous situation involving a booking agent
or registry for bed and breakfasts which charges a fee for arranging occupancy
by guests, the agent’s fee is considered part of the taxable rent for occupancy
in the hotel. See TSB-M-92(7)S, dated December 7, 1992, entitled Providers of
Bed and Breakfast Services Required to Collect Sales Tax.

DATED: September 3, 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.