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«ADVISORY OPINION PETITION NO. S030422C On April 22, 2003, the Department of Taxation and Finance received a Petition for Advisory Opinion from ...»

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New York State Department of Taxation and Finance

Office of Tax Policy Analysis

TSB-A-03(47)S

Technical Services Division Sales Tax

December 31, 2003

ADVISORY OPINION PETITION NO. S030422C

On April 22, 2003, the Department of Taxation and Finance received a Petition for Advisory

Opinion from Brendan P. McCafferty, Esq., CPA, 613 Ashland Avenue, Buffalo, New York 14222.

The issues raised by Petitioner, Brendan P. McCafferty, Esq., CPA, are:

1. Whether charges by a trucking company to a construction contractor under the circumstances described below are subject to sales tax.

2. What documentation must be obtained by the trucking company to substantiate the exempt nature of a transaction.

Petitioner submits the following facts as the basis for this Advisory Opinion.

"Truck Co." is a trucking services company and "Contractor" is a general construction contractor. Both entities operate in and are qualified to do business in New York State. All the construction work being performed by Contractor qualifies as a capital improvement to realty under Article 28 of the Tax Law.

Truck Co. provides dump trucks and drivers for hire to Contractor. The drivers do not perform any activities other than operation of the trucks. Truck Co. charges for the use of the trucks and operators by the hour and states the hourly charges for the trucks and the drivers separately on customer invoices. The material hauled by the truck and driver is not purchased or resold by Truck Co. and at no time is the material the property of Truck Co.

Truck Co. owns the fleet of dump trucks. Truck Co. is responsible for all costs of operating and maintaining the trucks, including fuel, maintenance, registration and insurance, as well as the salaries and other compensation for the truck drivers. The truck drivers are employees of Truck Co.

and Truck Co. retains the right to hire and fire the drivers. Amounts billed to Contractor for the drivers' services reasonably represent the drivers' actual compensation.

Contractor hires a truck and driver from Truck Co. to haul excess dirt fill, excess concrete, or other refuse from an excavation at either a residential or commercial construction site managed by Contractor. Contractor instructs the driver that the fill is to be removed from the site and may or may not provide the driver with instructions regarding disposition of the fill. When the driver does not receive instructions regarding disposition of the fill, th

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In some instances, the truck and driver are contracted to operate at a construction site moving material from one location on the site to another, all at the direction of Contractor.

Petitioner inquires whether the sales tax consequences would be different if Truck Co.

subcontracts the hauling job to a single independent owner/operator or a trucking service company that owns a fleet of dump trucks operated by its employees. Truck Co. in such case would arrange with its trucking subcontractor to provide trucks and drivers on specific jobs, and would bill Contractor for each job. The trucking subcontractors would in turn bill Truck Co. for their trucks and services.

Petitioner further inquires whether the sales tax consequences would be different if the above described work were performed on property owned by an entity exempt pursuant to section 1116(a) of the Tax Law, and what documents would be appropriate to substantiate the exempt nature of the transaction.

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:

* * * (4) Retail sale. (i) A sale of tangible personal property to any person for any purpose, other than (A) for resale as such or as a physical component part of tangible personal property, or (B) for use by that person in performing the services subject to tax under paragraphs (1), (2), (3), (5), (7) and (8) of subdivision (c) of section eleven hundred five where the property so sold becomes a physical component part of the property upon which the services are performed or where the property so sold is later actually transferred to the purchaser of the service in conjunction with the performance of the service subject to tax.

Notwithstanding the preceding provisions of this subparagraph, a sale of any tangible personal property to a contractor, subcontractor or repairman for use or consumption in erecting structures or buildings, or building on, or otherwise adding to, altering, improving, maintaining, servicing or repairing real property, property or land, as the terms real property, property or land are defined in the real property tax law, is deemed to be a retail sale regardless of whether the tangible personal property is to be resold as such before it is so used or consumed, except that a sale of a new mobile home to a contractor, subcontractor or repairman who, in such capacity, installs such property is not a retail sale....

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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... conditional or otherwise, in any manner or by any means whatsoever for a consideration, or any agreement therefor, including the rendering of any service, taxable under this article, for a consideration or any agreement therefor.





Section 1105 of the Tax Law provides, in part:

Imposition of sales tax. On and after June first, nineteen hundred seventy-one, there

is hereby imposed and there shall be paid a tax... upon:

(a) The receipts from every retail sale of tangible personal property, except as otherwise provided in this article.

* * * (c) The receipts from every sale, except for resale, of the following services:

* * * (3) Installing tangible personal property, excluding a mobile home, or maintaining, servicing or repairing tangible personal property, including a mobile home, not held for sale in the regular course of business, whether or not the services are performed directly or by means of coin-operated equipment or by any other means, and whether or not any tangible

personal property is transferred in conjunction therewith, except:

* * * (iii) for installing property which, when installed, will constitute an addition or capital improvement to real property, property or land, as the terms real property, property or land are defined in the real property tax law as such term capital improvement is defined in paragraph nine of subdivision (b) of section eleven hundred one of this chapter;...

* * * (5) Maintaining, servicing or repairing real property, property or land, as such terms are defined in the real property tax law, whether the services are performed in or outside of a building, as distinguished from adding to or improving such real property, property or land,

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by a capital improvement as such term capital improvement is defined in paragraph nine of subdivision (b) of section eleven hundred one of this article....

Section 526.5(g) of the Sales and Use Tax Regulations provides, in part:

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* * * (3) A charge for transporting or delivering property by a transportation or delivery company to the person or business requesting that the property be transported or delivered is not a receipt subject to tax, since transportation and delivery are not themselves services subject to tax.

* * * Example 6: A delivery service company makes available to the general public an area in its warehouse where customers may drop off packages to be delivered to persons or businesses in the United States for a fee. The customer dropping off a package for delivery is required to complete an invoice stating his or her name and address, the name and address where such package is to be delivered, and the contents and value of the package. The delivery service company charges a fee to the customer for delivering the package. This fee is based on the weight and value of the package and the distance it is to be delivered. The company's charge to the customer for shipping the package is not subject to sales tax. This is purely a transportation service, which is not a taxable service.

Section 526.7 of the Sales and Use Tax Regulations provides, in part:

(a) Definition. (1) The words sale, selling or purchase mean any transaction in which there is a transfer of title or possession, or both, of tangible personal property for a consideration.

(2) Among the transactions included in the words sale, selling or purchase are exchanges, barters, rentals, leases or licenses to use or consume tangible personal property.

* * * (c) Rentals, leases, licenses to use. (1) The terms rental, lease and license to use refer to all transactions in which there is a transfer for a consideration of possession of tangible personal property without a transfer of title to the property. Whether a transaction is a "sale"

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or a "rental, lease or license to use" shall be determined in accordance with the provisions of the agreement....

* * * (e) Transfer of possession. (1) Except as otherwise provided in paragraph (3) of this subdivision, a sale is taxable at the place where the tangible personal property or service is delivered, or the point at which possession is transferred by the vendor to the purchaser or his designee.

* * * (4) Transfer of possession with respect to a rental, lease or license to use, means that

one of the following attributes of property ownership has been transferred:

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* * * (6) When a lease of equipment includes the services of an operator, possession is deemed to be transferred where the lessee has the right to direct and control the use of the equipment. The operator's wages, when separately stated, are excludible from the receipt of the lease, provided they reflect prevailing wage rates.

Section 527.7 of the Sales and Use Tax Regulations provides, in part:

Maintaining, servicing or repairing real property.

(a) Definitions. (1) Maintaining, servicing and repairing are terms which are used to cover all activities that relate to keeping real property in a condition of fitness, efficiency, readiness or safety or restoring it to such condition. Among the services included are services on a building itself such as painting; services to the grounds, such as lawn services, tree removal and spraying; trash and garbage removal and sewerage service and snow removal.

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(b) Imposition. (1) The tax is imposed on receipts from every sale of the services of maintaining, servicing or repairing real property, whether inside or outside of a building.

* * * (2) All services of trash or garbage removal are taxable, whether from inside or outside of a building or vacant land.

Example 3: A carting firm picks up trash and garbage at its customers' premises and dumps the materials at sites away from its customers' premises. Receipts from the sale of this service are taxable.

Example 4: A contractor who is erecting a building engages a carter to haul away the debris resulting from the construction activities. The amounts paid to the carter are not taxable.

Example 5: A contractor enters into an agreement with a farmer to demolish an old farm structure and haul away the resulting debris. The charge for demolition and debris removal is not subject to the tax.

* * * (4) The imposition of tax on services performed on real property depends on the end result of such service. If the end result of the services is the repair or maintenance of real property, such services are taxable. If the end result of the same service is a capital improvement to the real property, such services are not taxable.

Section 541.2 of the Sales and Use Tax Regulations provides, in part:

Definitions. The words, terms and phrases used in this Part have the following

definitions except when the context clearly indicates a different meaning:

* * * (d) A construction contractor means any person who engages in erecting, constructing, adding to, altering, improving, repairing, servicing, maintaining, demolishing or excavating any building or other structure, property, development, or other improvement on or to real property, property or land.

(e) Contractor means a construction contractor, subcontractor or repairman.

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(p) Rental, lease and license to use. (1) The terms rental, lease and license to use refer to all transactions in which there is a transfer of possession of tangible personal property without a transfer of title to the property.

(2) For the purposes of this Part, when a rental, lease or license to use a vehicle or equipment includes the services of a driver or operator, such transaction is presumptively the sale of a service, rather than the rental of tangible personal property, where dominion and control over the vehicle or equipment remain with the owner or lessor of the vehicle or equipment. Dominion and control remain with the owner or lessor of the vehicle or

equipment when pursuant to an agreement or contract the lessor:

(i) does not transfer possession, control and/or use of the equipment or vehicle to the lessee during the term of the agreement or contract;

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(iii) uses his own discretion in performing the work (even though the lessee may designate the area where material is to be picked up and delivered) and generally selects his own routes;

(iv) retains responsibility for the operation of the equipment or vehicle; and (v) directs the work, pays all operating expenses, including drivers' and/or operators' wages, insurance, tolls and fuels.



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