Does a for-profit school owe sales tax on course materials and textbooks it buys and gives to students as part of one all-inclusive tuition fee?

Plain-English summary

An accredited for-profit school charges students one flat fee for a course of study that always includes required course materials and textbooks — there's no separate charge, no option to buy the course without them, and lost or stolen copies are replaced free. The materials average only about 2.5% of a student's total tuition. This same petitioner asked a closely related question in a companion opinion issued about five weeks later, TSB-A-06(6)S, about prewritten course software and textbook readers.

The Department worked through a multi-factor test for whether bundled materials are "incidental" to a nontaxable educational service (versus a separate taxable sale of goods): are the materials integrally connected to the course subject matter, is there a separate charge, can they be bought without taking the course, and is their value commensurate with or higher than the educational service's value. Here, everything pointed toward "incidental" — no separate charge, materials tightly tied to course content, replacements provided free, and a small (2.5%) share of overall tuition.

Because the materials are incidental to a nontaxable educational service rather than separately sold, two things follow. First, the school can't buy the materials tax-free as a "resale" purchase (the resale exclusion only works for items that are actually resold, or used in performing a TAXABLE service — an educational service isn't taxable) — so the school owes sales tax when IT buys the course materials and books. Second, the school's transfer of those materials TO students isn't a separate taxable event, since it's just part of delivering the nontaxable educational service. And even if some of the materials might otherwise look like eligible "college textbooks," the exemption in § 1115(a)(34) only applies to a STUDENT'S purchase of a textbook — it doesn't help the school's own purchase here, since the school isn't selling the books separately to students at all.

What this means for you

For-profit schools and training companies

If your tuition is one all-inclusive fee that bundles in required materials with no separate charge or option to skip them, you (the school) owe sales tax on your OWN purchase of those materials — you can't buy them tax-free as "for resale," and the student-facing textbook exemption doesn't reach your purchase either. The upside: you don't have to separately charge students tax on the materials themselves.

Accountants and tax professionals

This ruling lays out the Department's multi-factor "incidental to educational service" test in full — a useful checklist (separate charge? separable purchase? proportional value? replacement policy?) for any bundled tuition-plus-materials fact pattern, and a clean illustration of why the resale exclusion and the college-textbook exemption both fail when a service provider (not the student) is the one buying the materials.

Common questions

Q: Does a school owe sales tax on textbooks it bundles into tuition?
A: Yes — when the materials are incidental to its nontaxable educational service (no separate charge, integrally tied to the course), the school owes sales tax on its own purchase of them.

Q: Is the transfer of those materials to students separately taxed?
A: No — since it's part of delivering a nontaxable educational service, not a separate sale.

Q: Does the college-textbook exemption help the school avoid this tax?
A: No — that exemption applies to a student's own purchase of a required textbook, not to a school's purchase of materials it bundles into tuition.

Q: Can another school rely on this Advisory Opinion?
A: No. It binds the Department only for the petitioner and facts described; a school with a different bundling or pricing structure should check its own facts.

Citations and references

Statutes, regulations, and case law:

• Tax Law §§ 1101(b)(4)(i); 1105(c); 1115(a)(34)
• 20 NYCRR 526.6(c); 527.1(b)
• TSB-M-98(4)S (college textbook exemption)
• Atlas Linen Supply Co., Inc. v Chu, 149 AD2d 824

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2006.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a06_4s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-06(4)S
Sales Tax
January 19, 2006

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S020411B

On April 11, 2002, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Marcum & Kliegman LLP, c/o Mark L. Stone, CPA, 10 Melville Park
Road, Melville, NY 11747. Petitioner, Marcum & Kliegman LLP, furnished additional
information with respect to the petition on January 6, 2005.
The issues raised by Petitioner are:
(1)

Whether a school is required to pay sales or use tax on its purchase of course
materials and books that are transferred to students during a class.

(2)

Whether the transfer of these materials and books to the students results in any
sales and use tax obligation for either the students or the school.

Petitioner submitted the following facts as the basis for this Advisory Opinion.
The school qualifies as an institution of higher learning, recognized and approved by the
Regents of the University of the State of New York or as an institution that is accredited by a
nationally recognized accrediting agency or association accepted as such by the Regents of the
University of the State of New York. The school is organized as a for-profit company that offers
a course of study leading to a post-secondary degree, certificate or diploma. Students are
enrolled in the school either on a part-time or a full-time basis.
The school charges a student a set fee for the program and transfers course materials and
books to the student for use in class. The contract with the student states that the fee for the
program always includes all required course materials and books (primarily textbooks). If the
course materials or books are lost or stolen, the school typically replaces these items for students
free of charge. The school does not sell the books or course materials to students separately.
The cost of the course materials and books provided are on average 2.5% of the price of the
student’s total tuition charge (i.e., for every $1,000 of tuition paid by the student, the cost of the
course materials and books averages about $25). Once these items are turned over to the student,
they cannot be returned to the school.
Applicable law and regulations
Section 1101(b)(4)(i) of the Tax Law defines the term “retail sale,” in part, as follows:
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)

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January 19, 2006
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. . . .
Section 1105(c) of the Tax Law imposes sales tax upon the receipts from every sale,
except for resale, of certain enumerated services.
Section 1115(a) of the Tax Law provides, in part:
Receipts from the following shall be exempt from the tax on retail sales imposed
under subdivision (a) of section eleven hundred five and the compensating use tax
imposed under section eleven hundred ten:
*

*

*

(34) Textbooks purchased by full and part time college students for their courses;
provided, however, that upon purchase such a student shall present a valid student
identification card, and such a textbook shall be required for a course being taken by such
student at an institution of higher education. For purposes of this subdivision the term:
(i) “Textbooks” includes only those books specifically written, designed or
produced for educational, instructional or pedagogical purposes.
(ii) “Institution of higher education” shall mean any institution of higher
education, recognized and approved by the regents of the university of the state of
New York or accredited by a nationally recognized accrediting agency or
association accepted as such by the regents of the university of the state of
New York, which provides a course of study leading to the granting of a post­
secondary degree, certificate or diploma.
Section 526.6 of the Sales and Use Tax Regulations provides, in part:
(a) The term retail sale or sale at retail means the sale of tangible personal
property to any person for any purpose, except as specifically excluded.
*

*

*

(c) Resale exclusion. (1) 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.

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January 19, 2006

*

*

*

(2) A sale for resale will be recognized only if the vendor receives a properly
completed resale certificate. See sections 532.4 and 532.6 of this Title.
(3) Receipts from the sale of property purchased under a resale certificate are not
subject to tax at the time of purchase by the person who will resell the property. The
receipts are subject to tax at the time of the retail sale.
*

*

*

(6) Tangible personal property purchased for use in performing services which are
taxable under section 1105(c)(1), (2), (3) and (5) of the Tax Law is purchased for resale
and not subject to tax at the time of purchase, where the property so sold (i) becomes a
physical component part of the property upon which the services are performed, or (ii) is
later actually transferred to the purchaser of the service in conjunction with the
performance of the service subject to tax.
*

*

*

(7) Tangible personal property purchased for use in performing a service not
subject to tax is not purchased for resale.
Section 527.1(b) of the Sales and Use Tax Regulations provides, in part:
Taxable and exempt items sold as a single unit. When tangible personal property,
composed of taxable and exempt items is sold as a single unit, the tax shall be collected
on the total price.
Technical Services Bureau Memorandum entitled Sales and Use Tax Exemption For
College Textbooks, June 5, 1998, TSB-M-98(4)S, provides, in part:
Definition of Eligible Textbooks
The exemption applies to new or used textbooks and related workbooks required
or recommended for a course at an institution of higher education. The institution of
higher education or the instructor of the course must have designated the book as either
required or recommended. This includes course-packs and workbooks produced and
required or recommended by the institution or instructor. The exemption applies whether
the textbooks are printed or are on computer floppy disk or CD-ROM.
The exemption does not apply to any book (fiction or nonfiction) that is not
required or recommended for a course of study at an institution of higher education.

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Opinion
The school described by Petitioner charges its students a set fee for a course of study
which leads to a post-secondary degree, certificate or diploma. The school’s contract with its
students states that the fee for the program includes all required course materials and books.
Once these course materials and books are turned over to the student, they cannot be returned.
The course materials and books are only provided to a student as part of the school’s single all­
inclusive charge for the chosen course of study.
Presumably, the school’s primary function is to provide its students with a course of
study. The educational services provided by the school are services that are not included among
the enumerated services subject to sales and use tax under section 1105(c) of the Tax Law. In
order to address the issues raised by Petitioner, it must be determined whether the transfer of the
course materials and books to the students is incidental to the school’s provision of a nontaxable
educational service.
Factors that may indicate the course materials and books are not incidental to the
provision of the educational services include: the course materials and books are not integrally
connected to the subject matter of the course, there is a separate charge for the course materials
and books, the course materials and books may be purchased without taking the course, the value
of the course materials and books is more than or commensurate with the value of the
educational service, and the tuition cost for the same course or substantially equivalent course
that includes materials and books is higher than for courses where students must buy course
materials and books separately.
In the present case, the course materials and books are not sold separately by the school
but are only provided to students enrolling in a course, and the cost of the course materials and
books are on average 2.5% of the value of the tuition. In addition, there is no separate charge for
the course materials and books, and there is no additional charge to replace lost or stolen items.
Presumably, the course materials and books offered by the school in conjunction with the
courses are integrally connected to the educational objectives of the courses. Therefore, the
course materials and books appear to be incidental to the provision of a nontaxable educational
service. Essentially, such course materials and books are provided to students as part of the
school’s all inclusive charge for the provision of its educational service.
With respect to Issue 1, since the course materials and books are not separately sold by
the school to the students and are incidental to the school’s provision of educational services, the
course materials and books are purchased by the school in order for it to provide its educational
services. The course materials and books cannot be purchased by the school exempt from tax as
purchases for resale. Tangible personal property purchased for use in performing a service not
subject to sales tax is not purchased for resale. See section 526.6(c)(7) of the Sales and Use Tax
Regulations. Thus, the course materials and books are considered to be purchased at retail by the
school for use in providing nontaxable educational services to the students. See also Atlas Linen

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Supply Co., Inc. v Chu, 149 AD2d 824, lv denied 74 NY2d 616; Linen Systems for Hospitals,
Inc., Dec Tax App Trib, August 24, 1989, DTA No. 800201.
The textbook exemption provided in section 1115(a)(34) of the Tax Law only applies
to purchases by students of textbooks, including CD-ROM textbooks, and workbooks. See
TSB-M-98(4)S, supra. Thus, even assuming that the course materials at issue qualified as
textbooks within the meaning of section 1115(a)(34), the school’s purchases of the course
materials and books are not exempt from tax under section 1115(a)(34).
Accordingly, the school’s purchases of course materials and books are purchases at retail,
and do not qualify for any exemptions from tax. Therefore, the school is required to pay sales
tax on its purchases of the course materials and books.
With respect to Issue 2, the transfer of the course materials and books to the students is
considered part of the educational services provided by the school. Since the transfer of the
course materials and books to the students is incidental to the provision of nontaxable
educational services provided by the school, the transfer of these items is not subject to sales and
use tax.

DATED: January 19, 2006

NOTE:

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

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