Is a yacht charter company's cruise fee taxable as an equipment rental, and are its liquor and catering charges taxable too?

Plain-English summary

Klondike Cruises operates yacht cruises around Long Island Sound. It asked the Department whether its charges are taxable in three scenarios: a bare cruise (yacht rental for a set time), a cruise plus liquor service from an onboard bar, and a cruise plus liquor plus an outside caterer Klondike arranges on the customer's behalf.

For a bare cruise, the Department found Klondike is providing a nontaxable transportation service, not a taxable equipment rental, because it retains "dominion and control" of the yacht throughout: it selects the captain and crew, chooses and strictly follows the route, pays all operating costs (insurance, tolls, fuel), and the customer's rights are limited to boarding and riding along. That satisfies the same dominion-and-control test the Department applies to bus charters.

Once liquor or catered food enters the picture, though, the analysis shifts to New York's restaurant/caterer tax. If a customer has sole use of the yacht and Klondike serves liquor from its open bar and/or arranges catering, the Department treats the yacht, much like a rented banquet room, as part of the overall food-and-drink service, meaning the entire charge, including the cruise fee, becomes taxable, unless the food or drink is merely incidental (like a simple box lunch, not requiring significant preparation time). Liquor sold from an open bar and catering charges Klondike arranges through an outside caterer are both taxable food-and-drink sales; Klondike can buy the liquor and caterer's services tax-free for resale and then collect tax from its own customers, taking a credit for any tax it already paid. If a customer independently hires their own third-party caterer unrelated to Klondike's arrangement, Klondike's own cruise charge stays exempt.

What this means for you

Charter boat, yacht, and similar equipment-rental businesses

Retaining full "dominion and control" -- your own crew, your chosen route, you paying all operating costs, the customer only riding along -- is what keeps a charter as an exempt transportation service instead of a taxable equipment rental. Losing any of those elements risks reclassification as a taxable rental.

Charter and cruise operators who also sell food or alcohol onboard

Be careful: serving liquor or arranging catering for a customer's private or sole-use event can convert your normally exempt transportation charge into part of a taxable food-and-drink sale, unless the food or drink is genuinely incidental to the trip. Track whether food and drink service is minor and simple versus a significant part of the event.

Accountants and tax professionals

This ruling is a clean application of both the TSB-M-84(7)S bus-charter dominion-and-control framework (extended by analogy to boats) and the Hunts Point Palace banquet-room precedent for bundled venue-plus-catering charges, and usefully separates the resale-exemption mechanics for liquor versus outside catering.

Common questions

Q: Is chartering a boat always exempt from sales tax as a transportation service?
A: No. It's exempt only if the boat operator retains dominion and control -- their own crew, chosen route, and all operating costs and responsibility -- rather than simply handing the customer the keys and the boat.

Q: Does serving a simple box lunch or drinks make the whole cruise taxable?
A: No. Merely incidental food or drink, not requiring significant preparation or serving time or expense, doesn't convert an otherwise-exempt cruise charge into a taxable one.

Q: What if the customer hires their own independent caterer?
A: If the customer independently hires a third-party caterer not arranged by the operator, the operator's cruise charge remains exempt, regardless of whether the caterer happens to be affiliated with the operator.

Q: Can another charter company rely on this ruling?
A: No. It's an Advisory Opinion binding the Department only as to Klondike Cruises and the specific facts it described.

Citations and references

• Tax Law § 1101(b)(5) (sale, selling or purchase; rental)
• Tax Law § 1105(a) (tax on retail sales, including rentals)
• Tax Law § 1105(d)(i) (tax on food, drink, and alcoholic beverage sales)
• 20 NYCRR § 526.7(e) (transfer of possession for rentals)
• 20 NYCRR § 527.8 (restaurant, tavern, and caterer sales)
• TSB-M-84(7)S (Bus Company Transactions -- Transportation Service vs. Equipment Rental, April 10, 1984)
• Matter of Hunts Point Palace, Inc., TSB-H-86(138)S (June 19, 1986)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1998.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a98_46s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(46)S
Sales Tax
July 29, 1998

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S980227A

On February 27, 1998, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Klondike Cruises, Inc., 542 Second Avenue,
Pelham, NY 10803.
Petitioner, Klondike Cruises, Inc., provided additional
information pertaining to the petition on April 1, 1997.
The issue raised by Petitioner is whether separately stated charges for the
below listed services are subject to sales tax:
(1) charges for the rental of its yacht for a specific period of time;
(2) charges for the rental of its yacht and the per person charges for the
serving of liquor aboard the yacht by Petitioner; or
(3) charges for the rental of its yacht, the serving of liquor by
Petitioner and the procurement by Petitioner of an outside caterer to
cater meals aboard the yacht.
Petitioner submitted the following facts as the basis for this Advisory
Opinion.
Petitioner operates a charter yachting business for the purpose of
conducting yacht cruises in and around the Long Island Sound area. The captain
of the yacht is one of the officers of Petitioner. While sailing, the boat is
under the direction and control of Petitioner at all times. The route taken is
determined by Petitioner and is followed strictly.
Petitioner retains the
responsibility for the operation of the boat and pays all operating expenses
including insurance, tolls and fuels.
On some excursions, Petitioner serves liquor to its customers from a bar
on board the boat which is charged on a per person basis and stated separately
from the rental of the yacht on the invoice given to the customer. On other
excursions, customers desiring to have food catered aboard the boat may ask
Petitioner to make the necessary arrangements and retain a caterer. When so
asked, Petitioner will engage and pay the caterer on behalf of the customer,
passing on the catering charge to the customer as another separately stated item
on the invoice. The customer also has the option of independently hiring its own
caterer. In all cases, the caterer comes on board the boat to bring, prepare and
serve the food.
Applicable Law and Regulations
Section 1101(b) of the Tax Law provides, in part:
When used in this article for the purposes of the taxes imposed by
subdivisions (a), (b), (c) and (d) of section eleven hundred five
and by section eleven hundred ten, the following terms shall mean:

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*

*

*

(5) Sale, selling or purchase. 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.
Section 1105(a) of the Tax Law imposes sales tax on the receipts from
retail sales (including rentals) of tangible personal property.
Section 1105(d)(i) of the Tax Law imposes sales tax on:
The receipts from every sale of beer, wine or other alcoholic
beverages or any other drink of any nature, or from every sale of
food and drink of any nature or of food alone, when sold in or by
restaurants, taverns or other establishments in this state, or by
caterers, including in the amount of such receipts any cover,
minimum, entertainment or other charge made to patrons or customers
(except those receipts taxed pursuant to subdivision (f) of this
section):
(1) in all instances where the sale is for consumption on the
premises where sold;
(2) in those instances where the vendor or any person whose services
are arranged for by the vendor, after the delivery of the food or
drink by or on behalf of the vendor for consumption off the premises
of the vendor, serves or assists in serving, cooks, heats or
provides other services with respect to the food or drink. . . .
(3) in those instances where the sale . . . is for consumption off
the premises of the vendor, except where food (other than
sandwiches) or drink or both are (A) sold in an unheated state and,
(B) are of a type commonly sold for consumption off the premises and
in the same form or condition, quantities and packaging, in
establishments which are food stores other than those principally
engaged in selling foods prepared and ready to be eaten.
Section 526.7(e) of the Sales and Use Tax Regulations provides, in part:

Transfer of possession with respect to a rental, lease or
(4)
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;

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(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.
Section 527.8 of the Sales and Use Tax Regulations provides, in part:
(a) Imposition. Sales tax is imposed on the receipts, including any
cover, minimum, entertainment or other charge, from every sale of
beer, wine or other alcoholic beverages and food or drink of any
nature sold in or by restaurants, taverns or other establishments in
this State or by caterers:
(1) in all instances where the sale is for consumption on the
premises where sold;
(2) in those instances where the sale is for consumption off the
premises and the vendor (or someone acting on behalf of the vendor)
after delivery either serves or assists in serving, cooks, heats or
provides services with respect to the food or drink. . .
*

*

*

The term premises shall mean the total space and
(c) Premises.
facilities in or on which the vendor conducts his business,
including but not limited to... counter space, indoor or outdoor
tables, chairs, benches and similar conveniences.
The phrase for consumption on the
(d) Consumption on premises.
premises shall mean that the food or drink sold may be consumed on
the premises where the vendor conducts his business.
(e) Consumption off premises. The phrase for consumption off the
premises shall mean that the food, including sandwiches, or drink is
intended to be consumed at a place away from the vendor’s premises.
*
(f) Caterers.

*

*

(1) Sales by caterers.

(i) All charges by caterers selling food or drink who provide
serving or assistance in serving, cooking, heating or other services
after delivery are taxable.
(ii) Sales of food or drink by caterers where the caterers merely
deliver the items purchased and offer no other services after
delivery are deemed to be sales for off-premises consumption and are
taxable in accordance with the provisions of subdivision (a) of this
section.

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(iii) Sales of food or drink by caterers where the caterers deliver
the items purchased and arrange the food on platters or place the
drink in containers so that food or drink is ready to serve guests
are taxable.
*

*

*

(i) Resale. (1) Any person purchasing food or drink for resale as
such is required to pay tax thereon at the time of purchase.
(2) When the food or drink is subsequently resold, the seller is
required to collect tax from the purchaser.
(3) The tax paid by the seller may be taken as a credit against the
tax which the seller is required to collect and remit on the
subsequent sale.
The credit is limited to the amount of tax
actually paid on the purchase by the seller of the food and drink
resold.
Technical Services Bureau Memorandum TSB-M-84(7)S, dated April 10, 1984,
entitled Bus Company Transactions -- Transportation Service vs. Equipment Rental,
provides, in part:

1. Where a bus company conducts a tour for which it determines the
   time and destination and sells tickets at a predetermined price, the
   company is providing a transportation service which is exempt.
   2.
   Where a bus company charters a bus to a group, and the bus
   company retains dominion and control over the bus, the bus company
   is engaged in providing a transportation service and, therefore, the
   charges are exempt from sales tax. A chartering party’s rights are
   limited to boarding the bus and riding to the agreed destination....
   *Dominion and control remains with the owner of a vehicle when pursuant to
   an agreement or contract:
2. there is no transfer of possession, control and/or use of the
   vehicle during the terms of the agreement or contract; and
   2.

the owner maintains the right to hire and fire the drivers; and

3. the owner uses his own discretion in performing the service...
   and generally selects his own routes; and
4. the owner retains the responsibility for the operation of the
   vehicle; and
5. the owner directs the operation, pays all operating expenses,
   including drivers’ wages, insurance, tolls and fuels.

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Opinion
Petitioner is predominantly engaged in providing the use of its yacht,
including its service as a navigator, to paying customers for the purpose of
sailing the waters in and around the Long Island Sound for a fixed period of
time. Whether the chartering of a boat constitutes a taxable rental of tangible
personal property rather than the furnishing of an exempt transportation service
turns upon the question of dominion and control (see Henry F. Geerken, Adv Op
Comm T&F, August 25, 1997, TSB-A-97(52)S).
While the provisions of TSB-M-84(7)S, supra, do not specifically apply to
the chartering of a boat, the criteria set forth therein are useful in
determining whether Petitioner has relinquished dominion and control of its boat
within the meaning of Section 526.7(e) of the Sales and Use Tax Regulations (see
Limousine Operators of Western New York, Inc., Adv Op Comm T&F, October 27, 1988,
TSB-A-88(55)S; Henry F. Geerken, supra). In Petitioner’s case, the chartering
party’s rights are limited to boarding the yacht and sailing a route selected and
strictly followed by Petitioner. Petitioner retains possession of the boat, has
the right to hire and fire any "drivers" should it choose to do so, uses its
discretion in operating the boat, pays all operating expenses and retains the
responsibility for the operation of the boat at all times. In fulfilling all of
the requirements listed in TSB-M-84(7)S, supra, Petitioner is deemed to retain
dominion and control over the boat and is thus providing a nontaxable
transportation service to its passengers (see Morton L. Coren, P.C., Adv Op Comm
T&F, April 25, 1995, TSB-A-95(13)S; Limousine Operators of Western New York,
Inc., supra; Henry F. Geerken, supra).
With respect to the cruises on which Petitioner serves liquor from an open
bar and/or acquires a catering service to provide food at the request of its
customers, and charges them for the sale of food and drink, its activities fall
within the purview of section 1105(d) of the Tax Law. In Matter of Hunts Point
Palace, Inc., State Tax Commission, June 19, 1986, TSB-H-86(138)S, it was
determined that the charge for the rental of a banquet room for a wedding, party
or meeting, was an "other charge" to the customer when sold in conjunction with
the sale of food and drink, and thus became part of the receipts subject to the
tax imposed under Section 1105(d)(i) of the Tax Law. In Petitioner’s case, in
those instances where a customer has sole use of Petitioner’s yacht and an open
bar and/or catered food service is provided, the use of the yacht is equivalent
to the rental of a banquet room. Therefore, unless the food and drink service
is merely incidental to the yacht cruise, the charge for the use of the yacht is
an element of such service and the total charge to the customer, including the
charge for the cruise, is subject to tax (Hunts Point Palace, Inc., supra).
Merely incidental food and drink charges are charges that would be considered
ancillary to the cruise itself, e.g., the inclusion or other provision of a
simple box lunch or beverage(s), where significant time and/or expense is not
devoted to the preparation or serving of such food and/or beverage(s) (see Henry
F.Geerken, supra). The inclusion of such incidental charges in the invoice to

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the customer would not make Petitioner’s charge for the cruise taxable. Sales
of food or drink to passengers from a cash bar, food stand or similar venue, the
charges for which are in addition to the charge for the cruise, are subject to
tax. For those cruises where the customer independently hires a third-party
caterer, whether or not the caterer is an affiliate of Petitioner, Petitioner’s
charge for the cruise would not be subject to sales tax.
Section 1105(d) does not provide for an exclusion from tax for sales of
food and drink for resale. All payments to a caterer are taxable as receipts
from the sale of food and drink. For those cruises where Petitioner purchases
the services of an outside caterer to cater meals aboard the yacht, Petitioner
must pay tax to such caterer at the time of its purchase in accordance with
Section 527.8(i) of the Sales and Use Tax Regulations. When the food and drink
is subsequently resold, Petitioner is required to collect tax from its customers.
However, Petitioner may take a credit on its sales tax return for the tax paid
on such prepared food and drink (see UM Enterprises Ltd, Adv Op Comm T&F, March
24, 1998, TSB-A-98(21)S).
For those cruises where Petitioner, acting as a
caterer, serves liquor from an open bar aboard the yacht, the liquor (and ice
served in drinks) may be purchased for resale. See Section 527.8(f)(2)(ii) of
the Sales and Use Tax Regulations.
Additionally it is noted that the applicable rate of tax Petitioner is
required to collect is the rate in effect in the locality of embarkation of its
customers.

DATED: July 29, 1998

NOTE:

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

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