Are barges (scows) that earn more than 75% of their receipts moving cargo between states exempt 'commercial vessels' under New York sales tax, along with services performed on them?

Plain-English summary

Lone Star Industries, Inc. (Greenwich, Connecticut) planned to set up a new transportation subsidiary to haul aggregates — crushed stone and sand — by scow (barge). The subsidiary would serve only an affiliated company, NYTR: scows would be loaded at NYTR's plants on the Hudson River in New York and towed through New York and New Jersey waters to a distribution pier at Weehawken, New Jersey, and on to NYTR's customers' piers in New Jersey and the New York City-Long Island area.

Lone Star stated that nearly 100% of each scow's trips pass through the waters of a state other than New York, and more than 75% of each vessel's receipts come from trips between ports in different states. It asked whether buying the scows (and property for them) was exempt under Tax Law § 1115(a)(8), and whether services on the scows were exempt under § 1105(c)(3).

The Department ruled the scows and the services on them are exempt.

• Tax Law § 1115(a)(8) exempts "commercial vessels primarily engaged in interstate or foreign commerce" and property purchased for their fuel, provisions, supplies, maintenance and repairs (other than articles for originally equipping a new ship).
• Tax Law § 1105(c)(3), which taxes installing, maintaining, servicing or repairing tangible personal property, specifically excludes those services when performed on such exempt commercial vessels.
• Under 20 NYCRR 528.9(a), a "vessel" is any floating craft used to transport on water; a vessel is engaged "primarily" in interstate/foreign commerce when at least 75% of its receipts come from that commerce.
• The scows are vessels, and because more than 75% of each vessel's receipts come from interstate transportation, they are primarily engaged in interstate commerce. So buying the scows (and the related property) is exempt from sales and use tax, and the § 1105(c)(3) services performed on them are exempt too.

What this means for you

The commercial-vessel exemption turns on a 75% interstate-receipts test. If a floating craft earns at least three-quarters of its receipts moving people or property for compensation between states (or countries), it is a "commercial vessel primarily engaged in interstate or foreign commerce." Both the purchase of the vessel and the fuel, provisions, supplies, maintenance and repairs bought for it are exempt from New York sales and use tax.

The exemption carries over to repair and maintenance services. The same interstate-commerce status that exempts the vessel purchase also pulls the installation, maintenance, servicing and repair work on the vessel out of the § 1105(c)(3) tax — so a qualifying operator isn't taxed on that service work either.

Watch the two carve-outs. The exemption does not cover articles bought for the original equipping of a new ship, and it applies only to vessels that actually clear the 75% interstate threshold. Barges shuttling cargo only within New York wouldn't qualify. Measuring and documenting the interstate share of receipts is what supports the exemption.

Common questions

Q: Is a barge a "vessel" for this exemption?
A: Yes. Under 20 NYCRR 528.9(a), a "vessel" is any type of floating craft used to transport on water, which includes scows/barges.

Q: How much interstate activity do I need?
A: At least 75% of the vessel's receipts must come from interstate or foreign commerce — transporting persons or property for compensation between states or countries. Here more than 75% of each scow's receipts came from trips between ports in different states.

Q: Does the exemption cover repairs and supplies, or just buying the vessel?
A: Both. Section 1115(a)(8) exempts the vessel and property bought for its fuel, provisions, supplies, maintenance and repairs (except original equipping of a new ship), and § 1105(c)(3) exempts the service of maintaining, servicing or repairing such a vessel.

Citations and references

Statutes, regulations and authority:

• Tax Law § 1115(a)(8) — exempts commercial vessels primarily engaged in interstate or foreign commerce and property purchased for their fuel, provisions, supplies, maintenance and repairs (other than original equipping of a new ship)
• Tax Law § 1105(c)(3) — taxes installing/maintaining/servicing/repairing tangible personal property, but excludes such services performed on exempt commercial vessels
• 20 NYCRR 528.9(a) — defines "vessel" (any floating craft used to transport on water), "primarily" (at least 75% of receipts from interstate/foreign commerce), and "engaged in interstate or foreign commerce"

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_63s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-H-81(63)S
Sales Tax
March 30, 1981

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S800825B

On August 25, 1980, a Petition for Advisory Opinion was received from Lone
Star Industries, Inc., One Greenwich Plaza, Greenwich, Conn. 06830.
The issue raised is whether the purchase by a transportation company of
certain scows (and of property used by or for the use of such scows) will be
exempt from State and local sales and use taxes pursuant to section 1115(a)(8)
of the Tax Law, and whether services rendered with respect to such scows will be
exempt from such taxes pursuant to section 1105(c)(3) of the Tax Law.
Petitioner proposes to establish a new subsidiary corporation for the sole
purpose of transporting aggregates such as crushed stone and sand. Present plans
are for this subsidiary to provide transportation services exclusively to NYTR,
another subsidiary of Petitioner. Scows (barges) owned by Petitioner's new
transportation company will be loaded with aggregates at NYTR's New York plants
along the Hudson River and towed through New York and New Jersey waters to NYTR's
piers at Weehawken, New Jersey; to NYTR's customers' piers in New Jersey; or to
piers in the New York City-Long Island area belonging either to NYTR or its
customers. Scows towed to Weehawken will later be towed by the transportation
company to NYTR's customers, a majority whom are located in New York State, as
directed by NYTR.
It is anticipated that the carriage of aggregates to Weehawken, New Jersey,
and the subsequent shipment to NYTR's customers will be the normal method of
operation. Direct transportation of a lading from a NYTR facility along the
Hudson to its ultimate destination will be much less frequent.
The Weehawken, New Jersey piers will serve as a distribution center for
NYTR's products and as a depot from which customers' orders can be filled. The
aggregates transported to Weehawken to await shipment to customers will be
fungible in nature and NYTR will not necessarily know the ultimate customer for
any paticular load as it leaves a plant, as happens when NYTR sends a given load
to Weehawken to satisfy future orders and there is no customer for the load as
it begins transit down the Hudson. The staging of scows and temporary storage of
cargoes at the Weehawken piers will be done for NYTR's business purpose of
promoting the orderly distribution of its products. That is, it will be at
Weehawken that various individual barges are organized into groupings of up to
four for ultimate delivery to customers.
Nearly 100% of the trips logged by each scow will entail passage through
the waters of a state other than New York, and nearly 100% of the receipts from
each vessel will be derived from such activity. In excess of 75% of the trips for
hire of each scow will end or begin at the Weehawken, New Jersey piers or will
involve direct carriage to NYTR's customers in a state other than New York, and
more than 75% of the receipts from each vessel will be derived from such
activity. Petitioner states, thus, that in excess of 75% of the receipts earned
by each vessel will be derived from trips between ports lying in different
states.

TP-8 (4/80)

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

2
TSB-H-81(63)S
Sales Tax
March 30, 1981

Section 1115(a)(8) of the Tax Law provides for an exemption from sales and
use taxes with respect to "Commercial vessels primarily engaged in interstate or
foreign commerce and property used by or puchased for the use of such vessels for
fuel, provisions, supplies, maintenance and repairs (other than articles
purchased for the original equipping of a new ship)."
Section 1105(c)(3) of the Tax Law, which imposes a tax on the receipts from
the services of installing tangible personal property or maintaining, servicing
or repairing tangible personal property, specifically excludes receipts for
"...services rendered...with respect to commercial vessels primarily engaged in
interstate or foreign commerce and property used by or purchased for the use of
such vessels for fuel, provisions, supplies, maintenance and repairs (other than
with respect to articles purchased for the original equipping of a new ship)...."
Section 528.9(a) of the Sales and Use Tax Regulations define certain of the
terms used in the above statutory provision as follows:
"...
(2) Vessel. A vessel is any type of floating craft used as a means of
transportation on water.
...
(4) Primarily. Primarily means that at least seventy-five percent of the
receipts from the vessel's activities are derived from interstate or
foreign commerce.
(5) Engaged in interstate or foreign commerce. Engaged in interstate or
foreign commerce means that transportation of persons or property for
compensation between state or countries.
..." 20 NYCRR 528.9(a)
It is clear that the scows in question are "vessels" as that term is
defined in the Regulations cited above. In addition, the scows will be primarily
engaged in interstate commerce in that in excess of 75% of the receipts from each
vessel's activities will be derived from the transportation of property, for
compensation, between NYTR's New York plants and its piers at Weehawken, New
Jersey or the piers of customers in New Jersey, and between NYTR's Weehawken, New
Jersey piers and piers of NYTR or its customers in states other than New Jersey.
Accordingly, the receipts from the purchase of scows (and the related
property described in the statute) used as described above will be exempt from
sales tax, and the use thereof will be exempt from the compensating use tax,
pursuant to section 1115(a)(8) of the Tax Law. Similarly, the services described
in section 1105(c)(3) of the Tax Law and performed with respect to such scows and
the related property specified in that statutory provision will be likewise
exempt from sales and compensating use taxes.
DATED: March 13, 1981

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau