A New York trucking corporation is changing its principal business from operating trucks (hauling freight) to leasing trucks, some with drivers and some without, including to a related corporation, a subsidiary, and a related individual. Does that shift move the company out of Article 9's trucking/transportation tax (sections 183 and 184) and into the general Article 9-A corporate franchise tax, does it require filing two different tax returns for the same year, and does sales tax apply to the truck rentals to related parties?

Plain-English summary

Joseph Bucciero Contracting, Inc. was a New York trucking company that, during 1981, shifted its principal business from operating trucks (i.e., hauling freight itself) to leasing trucks out to others -- some with drivers included, some bare (without drivers), including to a related corporation, a subsidiary, and a related individual. That shift raised three separate questions: (1) does the company stay under Article 9's trucking-specific taxes (§§ 183 and 184), or does it move to the general Article 9-A corporate franchise tax; (2) does it have to file two different corporate tax returns for the same year; and (3) does sales tax apply when it leases trucks to related parties.

On classification: New York case law (People ex rel. Peter J. Curran Funeral Service Co. v. Graves) already established that leasing vehicles WITH drivers still counts as "conducting a transportation business." So the answer turns on a receipts test: if more than 50% of Petitioner's receipts during the period it's leasing trucks come from leases WITH drivers, it remains an Article 9 trucking/transportation taxpayer under §§ 183-184 for that period, filing one CT-183/184 return for the whole 1981 year. But if more than 50% of those receipts come from leases WITHOUT drivers, the trucks-without-drivers leasing activity is not a transportation business -- so Petitioner is reclassified as an Article 9-A taxpayer, effective the date it stops operating as a trucking business.

On the two-return question: if that reclassification happens mid-year, Petitioner has to split the year: file a CT-183/184 return (computing the § 184 tax) for the period it was still operating as a trucking business (January 1 through the reclassification date), AND a separate Article 9-A report for the balance of the year once it became a truck-leasing business. (The § 183 annual tax, paid in advance, would already have been paid for 1981 during 1980; no further § 183 tax is owed for 1981 if Petitioner won't be subject to § 183 in 1982.)

On sales tax: regardless of the classification outcome, leasing or renting a truck to a related corporation, a subsidiary, or a related individual is a taxable retail sale under §§ 1105(a), 1101(b)(4), and 1101(b)(5) -- New York's sales tax reaches "any" sale of tangible personal property "to any person for any purpose," including a rental or lease "for a consideration," with no exception for related parties. Petitioner must collect sales tax on the full amount of the lease payments.

What this means for you

Whether you lease trucks WITH or WITHOUT drivers changes your entire tax classification

If your trucking business is shifting toward leasing rather than operating, track what fraction of your leasing-period receipts come from driver-included leases versus bare leases -- crossing the 50% threshold toward bare leases can reclassify your whole business from Article 9 trucking tax to the general Article 9-A corporate franchise tax.

A mid-year business-model change can mean filing two different corporate returns for one year

If your classification changes partway through the year, expect to file both a CT-183/184 return for the trucking-business portion and a separate Article 9-A report for the balance -- not just one combined filing.

Related-party rentals are NOT exempt from sales tax

Don't assume that leasing equipment to your own subsidiary, an affiliated corporation, or a related individual escapes sales tax because the parties are related -- New York's retail-sale definition reaches "any person for any purpose," and the tax applies to the full lease payment amount, which the lessor corporation must collect.

Common questions

Q: If I lease more trucks with drivers than without, do I still owe the general corporate franchise tax?
A: No -- under this ruling, if more than 50% of your leasing-period receipts are from leases WITH drivers, you remain under Article 9 (sections 183 and 184), not Article 9-A.

Q: Does my prepaid section 183 tax get refunded if I stop being a trucking business partway through the year?
A: This ruling doesn't address a refund -- it addresses that no ADDITIONAL section 183 tax is due for 1981 if you won't be subject to it in 1982, since the tax for 1981 was already paid in advance during 1980.

Q: Is there any related-party exemption from sales tax on equipment rentals?
A: Not under Tax Law §§ 1105(a), 1101(b)(4), and 1101(b)(5) as applied here -- rentals to a subsidiary, related corporation, or related individual are taxed the same as rentals to an unrelated party.

Citations and references

Statutes and guidance:

• Tax Law § 183
• Tax Law § 184
• Tax Law § 1105(a)
• Tax Law § 1101(b)(4)
• Tax Law § 1101(b)(5)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a81_24s_5c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-81 (24) S
Sales Tax
TSB-A-81 (5) C
Corporation Tax
August 27, 1981

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. Z810506B

On May 6, 1981, a Petition for Advisory Opinion was received from Joseph Bucciero
Contracting, Inc., 15 Smith Avenue, Troy, New York 12180.
The issues raised are:
1)

whether a change in the principal business activity of Petitioner from trucking and
transportation services to truck leasing would necessitate a change in the tax
classification of the corporation from a corporation subject to tax under sections 183
and 184 of Article 9 of the Tax Law to one subject to tax under Article 9-A of the
Tax Law,

2)

whether Petitioner must file two tax returns, a CT-183/184 (Article 9) return and a
CT-3 (Article 9-A) return for the 1981 tax year, and

3)

whether the rental by Petitioner of trucks to a subsidiary corporation, a related
corporation or to a related individual is subject to sales tax.

Petitioner was incorporated in this state pursuant to the provisions of the New York Business
Corporation Law. During the 1981 calendar year, its principal business activity was changed from
the operation of trucks to the leasing of trucks both with and without drivers.
I.

Section 183 of the Tax Law provides, in part, as follows:
"For the privilege of exercising its corporate franchise or of holding property in this state
every domestic corporation . . . formed for or principally engaged in the conduct of . . .
trucking . . . business . . . and every other domestic corporation . . . principally engaged in
the conduct of a transportation . . . business . . . shall pay, in advance, an annual tax to be
computed upon the basis of the a mount of its capital stock during the preceding year. . . . "
Section 184 of the Tax Law provides, in part, as follows:
"Every corporation . . . formed for or principally engaged in the conduct of . . . trucking
business . . . and every other corporation . . . formed for or principally engaged in the
conduct of a transportation . . . business . . . shall pay for the privilege of exercising its
corporate franchise or carrying on its business in such corporate or organized capacity in this
state, an excise tax or license fee which shall be equal to three-quarters of one per centum
upon its gross earnings from all sources with this state . . . . "

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-81 (24) S
Sales Tax
TSB-A-81 (5) C
Corporation Tax
August 27, 1981
It has been held that the leasing of vehicles with drivers is the conduct of a transportation
business subjecting the corporation doing such a business to tax under sections 183 and 184 of
Article 9 of the Tax Law. (People ex rel. Peter J. Curran Funeral Service Co. v. Graves, 1939, 257
App. Div. 888, 12 N.Y.S. 2d 153).
Accordingly, if Petitioner's receipts during the period of 198] in which it engages in leasing
are principally (more than 50%) derived from leasing trucks with drivers then Petitioner will remain
subject to tax under sections 183 and 184 of Article 9 of the Tax Law for such period, and will not
be subject tn tax under Article 9-A of the Tax Law. In such event, Petitioner should file a report on
form CT-183/184 for the entire 1981 tax year.
If more than 50% of Petitioner's receipts during the period of 1981 in which it engages in
leasing are from the leasing of trucks without drivers, Petitioner will be reclassified as a corporation
subject to tax under Article 9-A effective as of the date on which it ceases operations as a trucking
business and begins functioning as a truck leasing business. In that event, Petitioner will be required
to file a report on form CT-183/184 and to compute a tax under section 184 of the Tax Law for the
period January 1, 1981 to the date on which Petitioner ceases to do a trucking business. Petitioner
is also required to file a report and to pay tax under Article 9-A of the Tax Law for the balance of
the year.
Since the tax imposed under section 183 of the Tax Law is an annual tax paid in advance,
Petitioner should have already paid the tax imposed by section 183 for the 1981 tax year during
1980. If Petitioner will not be subject to the tax imposed by section 183 in 1982, no tax will be due
under that section during 1981.
II. Petitioner inquires as to whether a sales tax liability will arise were it to lease its trucks to a
related corporation, a subsidiary or to an individual.
Section l105(a) of the Tax Law imposes a sales tax upon:
"The receipts from every retail sale of tangible personal property, except as otherwise
provided in this article."
Section l101(b)(4) of the Tax Law defines "retail sale" as:
"A sale of tangible personal property to any person for any purpose. . . ."
Section l101(b)(5) includes within "sale":
"Any transfer of title or possession or both, exchange or barter, rental, lease or license to use
or consume . . . for a consideration, or any agreement therefor. . . ."

-3­
TSB-A-81 (24) S
Sales Tax
TSB-A-81 (5) C
Corporation Tax
August 27, 1981
Accordingly, the rental or leasing of a truck to a related corporation, a subsidiary or to an
individual will constitute a retail sale the receipts from which will be subject to tax. Such tax, which
must be collected by Petitioner, will be based upon the total amount of the lease payments.

DATED: July 23, 1981

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau