NY TSB-H-81(89)S Sales Tax 1981-05-05

Does a company owe sales tax when it rents equipment only to re-rent it to others, rather than using it itself?

Short answer: Not taxable — it's a purchase for resale, so no tax is due if a resale certificate is given. People's Oil Co. rents credit-card imprinters from Mobil Oil and does not use them itself; instead it re-rents them to its dealers. It asked whether it must pay sales tax on the imprinters it rents from Mobil. The Department held that a rental is a 'sale' (§ 1101(b)(5)), and because People's Oil rents the imprinters in the course of its business with the intention of re-renting them to its dealers, its rentals from Mobil are purchases for resale (20 NYCRR 526.6(c)(1)). Purchases for resale are not retail sales and are not subject to sales tax (§§ 1101(b)(4), 1105(a)). To claim the resale exclusion, People's Oil must give Mobil a properly completed Resale Certificate (Form ST-120) when it rents an imprinter; the resale exclusion is recognized only if the vendor receives that certificate (20 NYCRR 526.6(c)(2)).

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This page answers the general question as of 1981. Ezel answers yours, under current New York tax law, with citations.

Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion, issued by the Technical Services Bureau (identified with the earlier 'TSB-H' numbering prefix used alongside 'TSB-A' in 1981) at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. New York State and local sales taxes are administered centrally by the Department. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

People's Oil Co., Inc. rents credit-card imprinters from Mobil Oil Corp. It does not use the imprinters itself; instead it re-rents them to its dealers. It asked whether it must pay sales tax on the imprinters it rents from Mobil.

The Department held the rentals to People's Oil are nontaxable purchases for resale.

A rental is a "sale." Section 1101(b)(5) defines a sale to include any rental, lease or license to use. So both Mobil's rental to People's Oil and People's Oil's re-rental to its dealers are "sales."
Renting to re-rent is a purchase for resale. Under 20 NYCRR 526.6(c)(1), property a business buys intending to sell (here, re-rent) is a purchase for resale and not taxed until it's transferred to the customer. Because People's Oil rents the imprinters intending to re-rent them to dealers, its rentals from Mobil are purchases for resale.
So no tax is due on the upstream rental. Purchases for resale are not retail sales and are not subject to sales tax (§§ 1101(b)(4), 1105(a)).
A resale certificate is required. The resale exclusion is recognized only if the vendor receives a properly completed resale certificate (20 NYCRR 526.6(c)(2)). People's Oil must give Mobil a Resale Certificate (Form ST-120) when it rents an imprinter.

What this means for you

If you rent equipment only to re-rent it, the upstream rental can be tax-free. New York treats a rental as a sale, so property you lease in and then lease out is a purchase for resale — you don't pay tax when you rent it in; tax (if any) attaches when you rent it out to the end user.

The resale certificate is mandatory, not optional. The exclusion only works if you give your supplier a properly completed Resale Certificate (Form ST-120). Without it, the supplier must treat the rental to you as taxable.

Don't use the property yourself. The exclusion depends on the property being held for resale (re-rental). If you use the imprinters in your own operations, that use can defeat the resale treatment.

Common questions

Q: I rent equipment from a supplier just to re-rent it — do I pay tax on that rental?
A: No. Renting to re-rent is a purchase for resale under 20 NYCRR 526.6(c)(1), so the rental to you isn't a taxable retail sale — provided you give the supplier a Resale Certificate (Form ST-120).

Q: Why is a rental treated as a "sale"?
A: Section 1101(b)(5) defines a "sale" to include any rental, lease or license to use, so both the rental in and the re-rental out are sales for tax purposes.

Q: What happens if I don't give my supplier a resale certificate?
A: The resale exclusion is recognized only if the vendor receives a properly completed resale certificate (20 NYCRR 526.6(c)(2)). Without it, the supplier must charge you tax on the rental.

Citations and references

Statutes, regulations and authority:

Tax Law § 1105(a) — imposes sales tax on receipts from retail sales of tangible personal property
Tax Law § 1101(b)(4) — defines "retail sale" and excludes purchases for resale
Tax Law § 1101(b)(5) — defines "sale" to include any rental, lease or license to use
20 NYCRR 526.6(c)(1) — property bought (or rented) intending to resell is a purchase for resale, not taxed until transferred to the customer
20 NYCRR 526.6(c)(2) — a sale for resale is recognized only if the vendor receives a properly completed resale certificate (Form ST-120)

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_89s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-H-81(89)S
Sales Tax
May 5, 1981

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

PETITION NO. S810209A

On February 9, 1981 a Petition for Advisory Opinion was received from
People's Oil Co., Inc., 59 Miner Street, Canton, New York 13617.
The issue raised is whether Petitioner must pay sales tax on the rental of
credit card imprinters which are not used by Petitioner, but which Petitioner
rents to its dealers.
Section 1105 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)of the Tax Law defines the term "Retail sales" as "A sale
of tangible personal property to any person for any purpose, other than (A) for
resale as such..." and defines "Sale, selling or purchase" as "Any...rental,
lease or license to use or consume, conditional or otherwise, in any manner or
by any means whatsoever for a consideration, or any agreement therefor...."
In elucidating the sale for resale exclusion the Sales and Use Tax
Regulations provide that "Where a person, in the course of his business
operations, purchases tangible personal property or services which he intends to
sell, either in the form in which purchased, or as a component part of other
property or services, the property or services which he has purchased will be
considered as purchased for resale and therefore not subject to tax until he has
transferred the property to his customer." 20 NYCRR 526.6(c)(1).
The Regulations provide, further, that "A sale for resale will be
recognized only if the vendor receives a properly completed resale certificate."
20 NYCRR 526.6(c)(2).
The rental of credit card imprinters to Petitioner is a sale within the
meaning of the Tax Law. The renting out of such imprinters by Petitioner to its
dealers is also a sale. Tax Law, §1101(b)(5). Since Petitioner rents imprinters
from Mobil Oil Corp., in the course of Petitioner's business operations, with the
intention of thereupon renting the imprinters to its dealers, the rentals by
Petitioner constitute purchases for resale. 20 NYCRR 526.6(c)(1).
The rentals to Petitioner are thus not retail sales and are therefore not
subject to the sales tax. Tax Law, §§1101(b)(4) and 1105(a). In order to enjoy
the benefit of the sale for resale exclusion Petitioner must present a properly
completed resale certificate, Form ST-120, to Mobil Oil Corp., upon renting an
imprinter. 20 NYCRR 526.6(c)(2).

DATED: April 20, 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

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