If a vendor separately bills a New York client for reimbursed travel expenses (airfare, hotel, meals) on top of its service fee, does sales tax apply to the travel-expense portion of the bill too?

Plain-English summary

Comark Corporate Sales, an out-of-state company, provides computer-related services to a New York client. Because its employees have to travel to New York and stay overnight, its contract lets it bill the client back for reasonable travel expenses — airfare, taxi, hotel, and a per diem for meals. Comark pays sales tax on those travel expenses itself when it incurs them, then puts two separate line items on its invoice: one for its service fee (on which it charges the client sales tax) and one for the rounded total of travel expenses (on which it does not charge sales tax). Comark asked whether that second, travel-expense line item should also be taxed.

The Department said yes. Under New York's broad definition of "receipt," a vendor's own business expenses — including travel costs it incurs while doing the work — count as part of what it's charging for the taxable service, whether or not they're billed to the customer and whether or not they're separately stated on the invoice. Comark is treated as having "consumed" the travel costs as ordinary overhead of doing business, so when it passes those costs through to the client (including the sales tax it already paid on them), that whole amount becomes part of the taxable receipt for Comark's services. Since Comark's underlying computer services are themselves taxable, the travel-expense reimbursement riding along with them is taxable too — separately stating the two amounts on the invoice doesn't change that.

The Department also noted that Comark's contract specifically identifies it as an independent contractor, not an agent purchasing on the client's behalf — which matters because if Comark had truly been buying travel services as the client's agent, a different (disclosed-agency) analysis might apply. As an independent contractor, no agency relationship exists, reinforcing that the travel costs are Comark's own expense, passed through as part of its own taxable receipts.

What this means for you

Consultants, contractors, and service providers who bill clients for travel

If your underlying service is taxable, don't assume that separately itemizing "reimbursed expenses" (travel, meals, lodging) on your invoice keeps that portion untaxed — it doesn't. Those pass-through costs are part of your taxable receipt for the service, in the same way an ordinary business expense would be, regardless of how cleanly you break it out for the client's convenience.

Businesses whose underlying service is NOT taxable

The flip side matters too: if what you're selling isn't one of New York's taxable enumerated services to begin with, reimbursed travel expenses charged alongside that nontaxable service aren't taxed either — the tax treatment of the expense reimbursement rides on the tax treatment of the underlying service.

Accountants and tax professionals

This tracks a well-established Department position (see also TSB-A-01(19)S on telephone-expense pass-throughs and TSB-M's general expense-inclusion rule under 20 NYCRR § 526.5(e)): a vendor's own consumed business expenses are part of its receipts regardless of separate statement or reimbursement structure. Also flag the independent-contractor point for clients structuring service agreements — an agency relationship (where the vendor is truly buying on the client's behalf, with the client as the disclosed principal) can lead to a different result than the ordinary vendor-consumes-its-own-expenses analysis applied here.

Common questions

Q: If I separately state "reimbursed expenses" on my invoice, are they automatically tax-free?
A: No. Separately stating an expense doesn't exempt it if the underlying service you're providing is itself taxable — the expense becomes part of your taxable receipt either way.

Q: Does this apply to all types of reimbursed expenses, or just travel?
A: The reasoning is general — any expense a vendor incurs and consumes as part of doing business (travel, phone charges, and similar costs) is treated the same way, whether or not it's billed to the customer.

Q: What if I'm acting as my client's purchasing agent rather than an independent contractor?
A: That could change the analysis. This ruling specifically notes that Comark's contract identified it as an independent contractor with no agency relationship; a genuine disclosed-agency arrangement (where the client is the actual purchaser of record) can be treated differently.

Q: Can another consulting or service business rely on this ruling?
A: No. This advisory opinion binds the Department only for Comark Corporate Sales, Inc. on the facts described. Confirm your own contract terms and service classification before relying on it.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(3) (definition of "receipt")
• Tax Law § 1105(c) (tax on enumerated services)
• 20 NYCRR § 526.5(e) (nondeductible vendor expenses)

Prior rulings/cases referenced:

• Matter of Penfold v. State Tax Commn., 114 A.D.2d 696
• Salomon & Leitgeb, CPA's, LLP, Adv Op Comm T&F, July 23, 1997, TSB-97(44)S
• ARASERVE, Inc., Adv Op Comm T&F, Sept. 27, 1990, TSB-A-90(97)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2001.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a01_13s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-01(13)S
Sales Tax
April 17, 2001

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S001030B

On October 30, 2000, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Comark Corporate Sales, Inc., Attn: Tax Dept., 444 Scott Drive,
Bloomingdale, IL 60108.
The issue raised by Petitioner, Comark Corporate Sales, Inc., is whether charges made by
Petitioner for travel expenses incurred in the performance of its services are subject to sales tax.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner provides computer related services to a New York client. Petitioner’s employees
performing these services travel to New York from out of state. Due to the travel distance involved,
Petitioner’s employees are required to stay overnight. A written contract between Petitioner and its
client states that the client will reimburse Petitioner for all reasonable travel expenses. These
expenses include airline tickets, taxi service, hotel accommodations and meals. Receipts of more
than $25.00 are retained by Petitioner’s employees to substantiate the expenses. A per diem
allowance is given for meals. Petitioner pays all sales taxes on the travel expenses at the time they
are incurred.
Petitioner’s bill to its client includes two charges. One is a fee for services rendered and the
other is for the amount of travel expenses incurred in conjunction with such services, rounded to the
nearest dollar. These two charges appear on the same invoice in order for the client to be able to
match the expenses with the services charged. Sales tax is charged on the service portion of the
invoice. Sales tax is not charged on the travel reimbursement portion of the invoice.
As part of its Petition, Petitioner submitted a copy of the contract with its client which
indicates, in Item 7, that the client will reimburse Petitioner for all “reasonable travel and related
business expenses” incurred by Petitioner in the performance of its services. Item 2 of the contract
indicates that Petitioner “will act as an independent contractor” in the performance of its duties.
Also submitted as part of the Petition is an invoice, including back-up documentation, for services
rendered and travel expenses incurred by Petitioner on one of its projects.
Applicable Law and Regulations
Section 1101(b) of the Tax Law states, in part:

-2­
TSB-A-01(13)S
Sales Tax
April 17, 2001

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:
*

*

*

(3) Receipt. The amount of the sale price of any property and the charge for
any service taxable under this article . . . valued in money, whether received in
money or otherwise, including any amount for which credit is allowed by the vendor
to the purchaser, without any deduction for expenses or early payment discounts and
also including any charges by the vendor to the purchaser for shipping or delivery . . .
regardless of whether such charges are separately stated in the written contract, if
any, or on the bill rendered to such purchaser and regardless of whether such
shipping or delivery . . . is provided by such vendor or a third party. . . . (Emphasis
added)
Section 1105(c) of the Tax Law imposes sales tax upon the receipts from every sale, except
for resale, of certain enumerated services. (Emphasis added)
Section 526.5(e) of the Sales and Use Tax Regulations provides, in part:
Expenses. All expenses, including telephone and telegraph and other service
charges, incurred by a vendor in making a sale, regardless of their taxable status and
regardless of whether they are billed to a customer are not deductible from the
receipts.
Example 1:

A photographer contracts with a customer to furnish
photographs at $50 each in addition to expenses.
The customer is billed as follows:
Photographs(2)
Model fees
Meals
Travel
Props(Flowers)
Total due
Receipt subject to tax is $200

$100
60
10
25
5
$200

-3­
TSB-A-01(13)S
Sales Tax
April 17, 2001

Opinion
Petitioner provides computer related services to a client located in New York State. The
client reimburses Petitioner for certain travel expense items which Petitioner incurs in traveling to
New York to perform its services. Submitted with the Petition is a billing invoice showing two
separate charges, one for the services performed by Petitioner and one for the total of all associated
travel expenses, including sales tax, paid by Petitioner.
Petitioner is deemed to have consumed the travel expense items as a cost of doing business,
and they are characterized as items of overhead. Therefore, all reimbursed expenses including air
fare, hotel and meals incurred by Petitioner and included in its charges to its client are included in
the definition of “receipt” provided in Section 1101(b)(3) of the Tax Law. See Matter of Penfold
v. State Tax Commn., 114 AD2d 696. Charges to Petitioner’s client for reimbursed expenses carry
the same tax consequences as the services they are provided in conjunction with. Accordingly, the
charge to Petitioner’s client for reimbursed travel items, including the tax paid by Petitioner on its
purchase of such items, is part of the receipt from the sale of services by Petitioner, and is subject
to sales tax provided that the receipt from Petitioner’s sale of services is subject to tax. If Petitioner
makes a nontaxable sale, the amount charged to its client, including such reimbursed expenses, is
not subject to tax. See Salomon & Leitgeb, CPA’s, LLP, Adv Op Comm T&F, July 23, 1997,
TSB-97(44)S.
It is noted that the contract between Petitioner and its client stipulates that Petitioner is an
independent contractor in the performance of its duties. Therefore, Petitioner is not making
purchases on behalf of its client and there is no agency relationship between the two parties. See
ARASERVE, Inc., Adv Op Comm T&F, September 27, 1990, TSB-A-90(97)S.

DATED: April 17, 2001

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist III
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.