Is there a 50% cap on how much of a sand-and-gravel seller's bill can be a tax-exempt, separately stated delivery charge?

Plain-English summary

Peck's Trucking, Inc. of Cassadaga, New York, sells sand and gravel. In most cases its trucking cost exceeds the cost of the material delivered. The company had been billing the trucking charge at only 50% of the total bill, because it believed the Tax Law limits a tax-exempt, separately stated transportation charge to 50% of the total. It asked how to invoice so its delivery charges are exempt.

The Department ruled there is no 50% cap — a separately stated, reasonable delivery charge is fully excluded from tax.

• New York taxes the "receipt" from a retail sale of tangible personal property under Tax Law § 1105(a).
• Tax Law § 1101(b)(3) defines "receipt" to exclude the cost of transporting the property when that cost is separately stated in the written contract (if any) and on the bill given to the customer.
• Under 20 NYCRR 526.5(g)(4), the transportation charge must be reasonable in relation to prevailing rates, and the Department may set standard reasonable charges for an industry and reduce the exclusion for excessive charges.
• The Department has not established any such charges for the sand-and-gravel trucking business, so Peck's may separately state any transportation charge that is accurate and reasonable — including one that is more than 50% of the total — and that charge is not subject to sales tax.

What this means for you

The exclusion is not capped at a percentage. New York's rule excludes the actual, separately stated cost of transporting the goods you sell. It doesn't matter that the freight is larger than the value of the goods — a legitimate delivery charge can exceed half the bill and still be tax-free.

"Reasonable and accurate," not a fixed formula, is the standard. The one limit is that the charge be reasonable in relation to prevailing rates. The Department can set a standard rate for an industry and disallow anything above it, but it had not done so here.

Show it as a genuine separate line. To claim the exclusion, state the transportation cost separately on the written contract (if any) and on the customer's bill. Bundle it into the price of the sand and gravel and the whole amount becomes taxable.

Common questions

Q: I heard the exempt delivery charge can't be more than 50% of the bill — true?
A: No. The Department found no such cap. You may separately state any accurate and reasonable transportation charge, even one that exceeds 50% of the total, and it won't be subject to sales tax.

Q: What's the actual limit on the delivery charge, then?
A: It must be reasonable in relation to prevailing established rates (20 NYCRR 526.5(g)(4)). The Department can set standard charges for an industry and disallow excess, but had set none for sand-and-gravel trucking.

Q: How do I keep the delivery charge tax-free?
A: State it separately on the written contract (if any) and on the bill to the customer, per Tax Law § 1101(b)(3). If it's lumped into the goods' price, it's taxable.

Citations and references

Statutes, regulations and authority:

• Tax Law § 1105(a) — imposes sales tax on receipts from every retail sale of tangible personal property
• Tax Law § 1101(b)(3) — defines "receipt" and excludes the separately stated cost of transporting property sold at retail
• 20 NYCRR 526.5(g)(4) — requires transportation charges to be reasonable relative to prevailing rates and lets the Department set industry rates and reduce the exclusion for excessive charges

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/h81_53s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-H-81(53)S
Sales Tax
April 14, 1981

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S801222B

On December 22, 1980 a Petition for Advisory Opinion was received from
Peck's Trucking, Inc., 32-34 Main Street, Cassadaga, New York 14718.
Petitioner inquires as to the proper way to invoice sales and deliveries
of sand and gravel such that the delivery charges will be exempt from the sales
tax imposed under Article 28 of the Tax Law.
Petitioner is a corporation in the business of selling sand and gravel.
Petitioner states that in most instances the trucking cost exceeds the cost of
the material delivered but that it bills the trucking cost at only 50% of the
total bill because of a belief that under the Tax Law and exempt, separately
stated transportation charge may not exceed 50% of the total charge.
Section 1105(a) of the Tax Law imposes a tax on the "...receipts from every
retail sale of tangible personal property, except as otherwise provided in this
article." Section 1101(b)(3) of the Tax Law defines the term "receipt," in
relevant part, as "The amount of the sale price of any property...but excluding
the cost of transportation of tangible personal property sold at retail where
such cost is separately stated in the written contract, if any, and on the bill
rendered to the purchaser."
The Sales and Use Tax Regulations provide that in order to qualify for this
exclusion from the definition of taxable receipts "...transportation charges must
be reasonable in relation to prevailing established rates. The bureau may
establish reasonable charges for an industry, and reduce the exclusion for
excessive transportation charges." 20 NYCRR 526.5(g)(4).
Inasmuch as no "reasonable charges" have been established pursuant to 20
NYCRR 526.5(g)(4), with respect to the industry in which Petitioner is involved,
Petitioner may separately state any transportation charge which is both accurate
and reasonable, in which case the same will not be subject to sales tax.

DATED: February 25,1981

TP-8 (4/80)

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau

JAMES H. TULLY, JR., COMMISSIONER
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR