Can a picture-framer separately state its delivery charge for artwork so the delivery charge isn't subject to New York sales tax?

Plain-English summary

James Linnehan, doing business as James Frames of Port Washington, New York, frames works of art. Delivering the framed art is incidental to the framing, but because the pieces are valuable and fragile, his delivery charge is substantially higher than an ordinary delivery charge. He asked whether he must collect sales tax on that delivery charge.

The Department ruled the delivery charge is not taxable — provided it is separately stated and reasonable.

• New York taxes the "receipt" from a retail sale of tangible personal property under Tax Law § 1105(a).
• But 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 cut back the exclusion for excessive charges.
• Because the Department has not established any such "reasonable charges" for the framing business, the framer may separately state any transportation charge that is accurate and reasonable, and that charge will not be subject to sales tax.

What this means for you

Separately stating a genuine delivery charge keeps it out of the tax base. When you sell tangible personal property at retail, the actual cost of transporting it to the buyer is excluded from your taxable receipts — but only if you show it as a separate line, both in the written contract (if there is one) and on the bill. Bundle it into the price of the goods and the whole amount becomes taxable.

"Reasonable" is the catch, and a high charge can still qualify. Even a delivery charge that is much larger than normal — here, because of the care needed to move artwork — can be excluded, as long as it is accurate and reasonable in relation to prevailing rates. The Department reserves the power to set a standard charge for an industry and disallow the excess above it, but had not done so for framers.

This exclusion is narrow. It covers the true cost of transportation of the property sold. It does not turn other charges (fabrication, handling that is really part of the sale, etc.) into tax-free items just by labeling them "delivery."

Common questions

Q: My delivery charge is way higher than average because the items are fragile — is it still tax-free?
A: It can be. The Department allowed the framer's above-normal delivery charge to be excluded because there was no established industry rate, so long as the charge is accurate and reasonable. A charge that is padded well beyond the real transportation cost risks being treated as excessive.

Q: What exactly do I have to do to exclude the delivery charge?
A: State the transportation cost separately — in the written contract, if any, and on the bill given to the customer — under Tax Law § 1101(b)(3). If it's lumped into the price of the goods, it isn't excluded.

Q: Could the Department later start taxing part of my delivery charge?
A: Yes. Under 20 NYCRR 526.5(g)(4) the Department may establish reasonable charges for an industry and reduce the exclusion for anything charged above that. Here it simply hadn't set such a rate for framers.

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_69s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-H-81(69)S
Sales Tax
April 3, 1981

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

PETITION NO. S810113A

On January 13, 1981 a Petition for Advisory Opinion was received from Mr.
James Linnehan, d/b/a James Frames, 7 Irma Avenue, Port Washington, New York.
Petitioner inquires as to whether sales tax should be collected on the
charge for delivery of paintings and works of art within New York.
Petitioner is in the business of framing works of art. Petitioner states
that incidental to the framing of works of art is the delivery of same. The
delivery charge is substantially greater than a normal delivery charge, due to
the precautions and extreme care that must be used in delivery.
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 such "reasonable charges" have been established, pursuant
to 20 NYCRR 526.5(g)(4), with respect to the business in which Petitioner is
engaged, Petitioner may separately state any transportation charge which is both
accurate and reasonable. Such separately stated transportation charge will not
be subject to the sales tax.

DATED: March 18, 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