Is an optional, separately stated 'rental protection' charge — a theft and damage waiver that isn't insurance — subject to sales tax when you rent equipment?

Plain-English summary

A business rented equipment and, along with the rental, bought an optional "rental protection plan" from the lessor. The plan was a waiver by the lessor limiting what the business would have to pay for theft of or physical damage to the rented equipment. The charge was separately stated, the plan was optional, and the paperwork made clear the plan was not insurance and not offered through an insurance carrier. The business asked whether that charge was taxable.

The answer: no — the optional, separately stated protection charge isn't taxable.

• Sales tax under § 1105 applies to retail sales of tangible personal property and certain enumerated services. The protection charge is neither.
• The waiver is not insurance (fees for insurance aren't taxable either), and it's not a warranty or service plan providing taxable maintenance or repair.
• Because the plan is optional and separately stated, it's not simply the lessor's own insurance expense being passed through inside a taxable rental receipt. (New York treats a lessor's insurance cost that is baked into a taxable rental as part of the taxable receipt — but that's not this situation.)
• So, provided the charge is separately stated when billed, no State or local sales or use tax is due on it.

What this means for you

Optional, separately stated damage waivers on rentals generally aren't taxed — but the structure matters. Three features drove the result here: the plan was optional, the charge was separately stated, and it was genuinely a waiver, not insurance and not a repair/service plan. Keep all three and the charge stays outside the tax.

Don't confuse it with a bundled or mandatory cost. If protection is required or folded into the rental price of taxable equipment, it becomes part of the taxable rental receipt — and a lessor's insurance expense passed through in a taxable rental is taxed even if separately listed. The exemption here depends on the charge being a distinct, optional waiver.

Watch the "not insurance / not a service plan" line. A true insurance policy from a licensed carrier isn't taxable, and a taxable warranty/maintenance plan is. This waiver was neither — a limitation on the lessee's liability for theft or damage — which is why it escaped tax.

Common questions

Q: Is a rental damage waiver taxable in New York?
A: Not when it's optional, separately stated, and a genuine waiver that isn't insurance or a taxable service/warranty plan. Then it isn't a charge for property or an enumerated service, so no sales tax applies.

Q: What if the protection is required or built into the rental price?
A: Then it's generally part of the taxable rental receipt. A lessor's insurance cost passed through in a taxable rental is taxed even if separately stated.

Q: Does it matter that the plan says it's "not insurance"?
A: The Department relied on the fact that it was not insurance and not a warranty/service plan — it was a waiver limiting the lessee's liability — which, being optional and separately stated, is outside § 1105.

Citations and references

Statutes:

• Tax Law § 1105 — imposes sales tax on retail sales of tangible personal property and enumerated services; the optional, separately stated waiver is neither

Related Department opinions cited: TSB-A-09(56)S (pass-through of a lessor's insurance expense in a taxable rental); TSB-A-91(33)S (Alamo Rent A Car), TSB-A-91(65)S (Pro Net, Inc.), TSB-A-03(26)S (ELRAC, Inc.), and TSB-A-08(64)S (SAM (Store and Move), LLC) — optional, separately stated protection/waiver charges.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2010.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a10_18s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-10(18)S
Sales Tax
April 27, 2010

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S100125A

Petitioner name and address redacted asks whether the optional amounts it pays to its leasing
company for rental protection from theft of and damage to the leased tangible personal property are subject
to sales tax.
We conclude that the amounts Petitioner optionally pays its lessor for theft and damage waiver
protection of leased tangible personal property are not receipts from the sale of tangible personal property or
services subject to tax pursuant to the provisions of section 1105 of the Tax Law.
Facts
In conjunction with its rental of equipment, Petitioner purchased rental protection from the
equipment’s lessor. The rental protection plan was a waiver by the lessor limiting the amounts that could be
collected from Petitioner for replacement or repairs to the equipment arising out of theft of or direct physical
damage to the leased equipment. Charges for the rental protection were separately stated and the purchase of
the protection plan was optional (i.e., Petitioner could choose not to participate in the plan). The rental
protection plan was not provided by or through an insurance carrier and the lessor’s rental protection plan
addendum to the rental agreement contract specifically informs that the rental protection plan is not
insurance.
Analysis
Pursuant to section 1105 of the Tax Law, the sales tax is imposed on all sales other than for resale of
tangible personal property and certain enumerated services.
Fees paid for the purchase of insurance contracts are not subject to tax. The reimbursement of a
lessor’s or service provider’s insurance expenses as an added cost of the rental of equipment (and other
tangible personal property) or as an added cost of the purchase of services is a part of the receipt for such
rental/services and will be considered included in the receipt subject to tax, regardless of whether those
expenses are separately stated on the bill or invoice, if the rental/service is otherwise taxable. Adv Op Comm
Tx & Fin December 7, 2009, TSB-A-09(56)S).
In the present case, the optional charge for the rental protection plan providing a waiver and
limitation on damages for theft and equipment damage, though similar in substance to insurance, is not paid
by customers under an insurance policy with a licensed insurance carrier, and in fact is not insurance. This
rental protection plan providing a waiver and limitation on damages in respect of the theft or damage to the
equipment is not a warranty or service plan providing for taxable maintenance and repair services. Similarly,
the charge to the customer for the rental protection plan is not an expense of the equipment lessor being
passed through in the cost of the lease to Petitioner. The charge for the rental protection plan is not a charge
for the purchase of tangible personal property and is not a charge for any of the enumerated services subject
to tax pursuant to section 1105 of the Tax Law, and therefore is not subject to State and local sales and use
taxes. Provided the charges for the property protection plan are separately stated when billed to
the customer, there is no sales tax due on these charges. See Alamo Rent A Car, Inc., Adv Op Comm T&F,

-2-

TSB-A-10(18)S
Sales Tax
April 27, 2010

April 15, 1991, TSB-A- 91(33)S; Pro Net, Inc., Adv Op Comm T&F, October 2, 1991, TSB-A-91(65)S;
ELRAC, Inc. Adv Op Comm T&F, June 12, 2003, TSB-A-03(26)S; and SAM (Store and Move), LLC, Adv
Op Comm T&F, November 19, 2008, TSB-A-08(64)S.

DATED: April 27, 2010

NOTE:

/S/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel

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.