Is a construction company's use of a leased crane and operator a taxable equipment rental or a nontaxable purchase of a construction service?

Plain-English summary

Vector Construction Corp. occasionally needs a crane for its construction projects and gets one, with an operator, from a third-party crane provider. Vector doesn't use its own employees to run the crane — the crane provider's own staff sets it up, tears it down, and operates it, and the provider (not Vector) has the authority to hire and fire the operators and decides how the work gets done, even though Vector can tell the operator what to pick up and where to put it. The crane provider stays responsible for the crane's operation and pays all the associated costs: wages, insurance, and fuel.

New York's regulations draw a bright line here: when equipment comes with an operator, the arrangement is presumed to be a service rather than a taxable rental of the equipment, as long as the equipment owner (not the customer) keeps "dominion and control" — meaning the owner doesn't hand over possession or control of the equipment, keeps the right to hire and fire the operator, uses its own discretion in doing the work, stays responsible for the equipment's operation, and directs the work and pays the operating costs. Vector's facts checked every one of those boxes, so the crane provider is furnishing a service, not renting equipment, to Vector. That still leaves one more question: is the service itself taxable? If the crane work is part of a capital-improvement project, the charge is exempt (with a Certificate of Capital Improvement passed to the crane provider); if it's ordinary repair, maintenance, or servicing work, the charge is a taxable service (with a Contractor Exempt Purchase Certificate used instead, if Vector is a subcontractor passing the tax obligation upstream).

What this means for you

Contractors who rent equipment with an operator

The key facts that keep an operated-equipment arrangement out of "taxable rental" territory are: the provider's own staff runs the equipment, the provider (not you) can fire and reassign operators, the provider directs how the work gets done (you can only specify what/where), and the provider bears all the operating costs. If any of those flip toward you — especially if you gain the right to direct how the operator does the job, or you pay the operator's costs — the arrangement risks being reclassified as a taxable equipment rental instead.

Crane, equipment, and machinery providers who supply operators

Structuring your contracts to keep operational control (hiring/firing authority, work direction, cost responsibility) supports treating your charges as a service rather than a rental — but you still need to separately determine whether that service itself is taxable, based on whether the underlying job is a capital improvement or ordinary repair/maintenance.

Accountants and tax professionals

This applies the settled "dominion and control" multi-factor test from 20 NYCRR § 541.2(p)(2) and § 541.9(c)(1), the same framework the Department uses in its aircraft/vessel dominion-and-control rulings. Note the follow-on paperwork: a Certificate of Capital Improvement (Form ST-124) relieves the crane provider of collecting tax if the underlying job is a capital improvement, while a Contractor Exempt Purchase Certificate (Form ST-120.1) is used when Vector is a subcontractor passing along a taxable service to a prime contractor.

Common questions

Q: Is a crane with an operator always treated as a nontaxable service?
A: No — only if the crane provider retains dominion and control (its own hiring/firing authority, work direction, and payment of operating costs). If the customer instead gains control of the equipment, it's a taxable rental.

Q: If the crane provider is furnishing a service, is that service automatically tax-exempt?
A: No. It's exempt only if the underlying work qualifies as a capital improvement to real property; if it's ordinary repair, maintenance, or servicing, the service charge is taxable.

Q: What paperwork keeps the crane provider from having to collect tax?
A: A properly completed Certificate of Capital Improvement (Form ST-124) if the job is a capital improvement, or a Contractor Exempt Purchase Certificate (Form ST-120.1) if it isn't and Vector is passing the tax obligation upstream as a subcontractor.

Q: Does it matter that Vector can tell the operator what to pick up and where to place it?
A: No — the regulations specifically allow the customer to designate what's picked up and where it's delivered without that alone shifting dominion and control to the customer.

Q: Can another construction company rely on this ruling for its own crane rental arrangement?
A: No. It's binding only on Vector's specific facts and can't be relied on by any other taxpayer — the outcome turns closely on exactly how much control each side actually has under the contract.

Citations and references

Statutes and regulations:

• Tax Law § 1105(a) (imposition on retail sales)
• 20 NYCRR § 541.2(a)(1), (d) (construction contract; construction contractor)
• 20 NYCRR § 541.2(p) (rental, lease, license to use; dominion-and-control factors)
• 20 NYCRR § 541.5(d)(1) (taxable repair/service/installation charges)
• 20 NYCRR § 541.9(c)(1) (equipment supplied with an operator)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2008.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a08_32s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-08(32)S
Sales Tax
July 21, 2008

Office of Tax Policy Analysis
Taxpayer Guidance Division

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S070911C

On September 11, 2007, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Vector Construction Corp., 6364 Island Road, Cicero, New York 13039.
The issue raised by Petitioner, Vector Construction Corp., is whether the provision of a
crane to Petitioner constitutes a rental of tangible personal property or the provision of a
construction service.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner is a construction company that occasionally requires the use of a crane in its
construction projects. Petitioner obtains cranes with operators from a third party when a crane is
needed. Petitioner does not use its own employees to operate the cranes. The cranes are set-up,
torn down and operated by the employees of the crane provider. The crane provider maintains
the right to hire and fire the crane operators and uses its own discretion in performing the work.
Petitioner will tell the operator what has to be picked up and where the items should be placed
but does not control how the crane operator accomplishes the task. The crane provider retains
responsibility for the operation of the crane, directs the work, and pays all costs associated with
operating and maintaining the cranes, including the crane operator’s wages, insurance, and fuel.
Applicable law and regulations
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.
Section 541.2(a)(1) of the Sales and Use Tax Regulations provides:
A construction contract means a contract to erect, construct, alter, repair
or maintain any building or other structure, project, development or other
improvement on or to real property, property or land.
Section 541.2(d) of the Sales and Use Tax Regulations provides:

-2­
TSB-A-08(32)S
Sales Tax
July 21, 2008

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.
Section 541.2(p) of the Sales and Use Tax Regulations provides, in part:
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;
(ii) maintains the right to hire and fire the drivers and operators;
(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.
Whether a transaction is a sale (license to use, rental or lease) of a vehicle or
equipment or is the sale of a service, such as a transportation service, must be determined
in accordance with the facts and circumstances of the particular transaction and
provisions of the agreement between the contractor and his customer.
Section 541.5(d)(1) of the Sales and Use Tax Regulations provides, in part:

-3­
TSB-A-08(32)S
Sales Tax
July 21, 2008

(i) Charges for repair, service, maintenance, and installation of tangible
personal property which retains its identity as tangible personal property are
taxable to the customer based on the full invoice price.
*

*

*

(iii) A subcontractor must collect tax on all his charges to a prime
contractor for repair, service, maintenance, and installation of tangible personal
property unless the prime contractor issues a properly completed exemption
certificate or a capital improvement certificate to the subcontractor.
Section 541.9 (c)(1) of the Sales and Use Tax Regulations provides, in part:
(ii) When dominion and control of equipment supplied with an operator or
driver remains with the lessor, there is no rental or lease of equipment to the
contractor, but the service performed may be subject to the tax pursuant to section
1105(c)(3) and (5) of the Tax Law. The method of payment (for example, a rate
per hour, day, week, month, or job or trip) is not relevant in determining whether
the transaction is a service or a taxable rental or lease of equipment.
(a) If the service performed constitutes a capital improvement to real
property, for example, a foundation excavation, the charge for such service is not
taxable.
(b) If the service performed constitutes a repair, maintenance or service to
tangible personal property or to real property, the service is subject to the tax.
(c) However, the owner-operator of the equipment must pay tax on the
equipment used to perform the forgoing services.
(iii) When dominion and control of equipment supplied with an operator
or driver transfers to the contractor, there is a rental or lease of tangible personal
property and the charge is subject to the tax. If the operator=s or driver=s wages
are separately stated and reasonable in relation to prevailing wage rates, such
wages may be excluded from the receipts subject to the tax. If the operator=s or
driver=s wages are not separately stated the total charge is subject to the tax. If the
operator=s or driver=s wages are not reasonable in relation to prevailing wage rates,
the "wages" must be included in the receipts subject to the tax until the contractor
satisfies his burden, under section1132(c) of the Tax Law, or [sic] proving that the
taxable receipts are less than the total charge.

-4­
TSB-A-08(32)S
Sales Tax
July 21, 2008

Opinion
Petitioner is a construction company that occasionally requires the use of a crane in its
construction projects. Petitioner obtains cranes with operators from a third party when a crane is
needed. The question of whether Petitioner is purchasing services or is leasing tangible personal
property hinges on whether dominion and control of the crane is actually transferred to
Petitioner. Petitioner states that the cranes are set up, torn down and operated by the employees
of the crane provider; the crane provider maintains the right to hire and fire the crane operators
and uses its own discretion in performing the work; and that the crane provider retains
responsibility for the operation of the crane, directs the work, and pays all costs associated with
operating and maintaining the cranes, including the crane operator’s wages, insurance, and fuel.
Section 541.2(p)(2) of the Sales and Use Tax Regulations provides that 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. Where dominion and control over the vehicle or equipment
are transferred to the customer, then the transaction is considered to be a rental of tangible
personal property subject to sales tax under section 1105(a) of the Tax Law. It does not appear
from the facts provided that Petitioner has met any of the requirements set forth under section
541.2(p)(2) to gain dominion and control over the crane. However, whether a particular
transaction is a taxable rental of tangible personal property or the purchase of a service, such as a
construction service, can only be determined in accordance with the facts and circumstances of
the particular transaction and provisions of the agreement between the lessor or contractor and its
customer. Therefore, if Petitioner has a contract for services with the crane provider and
dominion and control of the crane are not transferred to Petitioner by such agreement, the crane
provider appears to be performing services for Petitioner. Whether Petitioner is required to pay
sales tax on the charges for such services will depend on the nature of the contracted services.
In the case where Petitioner has hired a crane provider to perform construction services as
contemplated in section 541.2(a)(1) of the Sales and Use Tax Regulations and Petitioner’s
contract with its customer is for a project that results in a capital improvement to real property, in
order to relieve the crane provider of its obligation to collect sales tax on its sale of services,
Petitioner should provide the crane provider with a copy of the properly completed Certificate of
Capital Improvement (Form ST-124) provided by the property owner to the prime contractor. If
Petitioner's contract with its customer is for a project that does not result in a capital
improvement to real property, Petitioner should provide the crane provider with a properly

-5­
TSB-A-08(32)S
Sales Tax
July 21, 2008

completed Contractor Exempt PurchaseCertificate (Form ST-120.1) in lieu of paying sales tax
on the construction services. See section 541.5(d)(1)(iii) of the Sales and Use Tax Regulations.

DATED: July 21, 2008

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Taxpayer Guidance Division

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the
person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.