Is a photographer's separately billed 'rush service' charge — for speeding proofs to the customer for approval — taxable, or is it an excluded delivery charge?

Plain-English summary

Bachrach, Inc., a photography company, offers a "rush service" to speed proofs to its New York customers from its Boston processing plant. The proofs remain Bachrach's property and are shown to the customer solely for approval before the finished photographs are made; the customer is separately invoiced for the rush service. Bachrach asked whether it must collect sales tax on that rush-service charge.

The Department held the rush-service charge is part of the taxable receipt from the sale of the photographs.

• Receipts include the vendor's expenses. "Receipt" is the amount of the sale price plus any taxable service charge (§ 1101(b)(3)), and 20 NYCRR § 526.5(e) provides that all expenses a vendor incurs in making a sale — regardless of taxable status and regardless of whether they are billed to the customer — are not deductible from receipts.
• The transportation exclusion doesn't fit. Section 526.5(g) lets a vendor exclude the cost of transporting the property sold to the purchaser (when separately stated). But the rush charge here is not that: the proofs being rushed are not the property being sold — they stay Bachrach's and are only shown for approval. So the charge can't be an excluded transportation charge.
• Result — taxable, but only if a sale happens. The rush charge is therefore an expense incurred in making the sale, part of the taxable receipt from the photograph sale, whether or not separately billed. However, if presenting the proofs does not result in a sale of finished photographs, there is no "receipt" and no tax is due.

What this means for you

Separately billing an expense doesn't make it tax-free. New York includes your costs of making the sale in the taxable receipt even when you itemize them. Model fees, travel, handling, and "rush" charges ride along with the taxable sale.

The delivery-charge exclusion is only for shipping the actual product. You can exclude separately stated transportation of the property you're selling to the buyer. Charges for moving something else — like proofs you retain — don't qualify.

No completed sale, no tax. Because the tax attaches to the "receipt" from a sale, if the job falls through and no finished photographs are sold, the rush charge isn't taxed.

Common questions

Q: I separately bill a rush or handling fee. Is it taxable?
A: Generally yes — it's an expense of making the sale and is part of the taxable receipt (20 NYCRR 526.5(e)), even if itemized separately.

Q: Isn't delivery excludable from tax?
A: Only the cost of delivering the property you're selling to the buyer, separately stated (526.5(g)). Rushing proofs you keep isn't delivery of the product sold, so it's taxable.

Q: What if the customer never buys the finished photos?
A: Then there's no "receipt" from a sale, and no tax is due on the rush charge.

Citations and references

Statutes:

• Tax Law § 1105(a) — tax on retail sales of tangible personal property
• Tax Law § 1101(b)(3) — "receipt" is the sale price plus taxable service charges

Regulations:

• 20 NYCRR § 526.5(e) — all expenses of making a sale are non-deductible from receipts, even if separately billed
• 20 NYCRR § 526.5(g) — transportation-cost exclusion, limited to delivery of the property sold

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1982.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a82_11s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-82(11)S
Sales Tax
March 12, 1982

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S811110A

On November 10, 1981 a Petition for Advisory Opinion was received from Bachrach, Inc.,
44 Hunt Street, Watertown, Massachusetts 02172.
The issue raised is whether Petitioner is responsible for the collection of sales tax on "rush
service" charges to customers.
Petitioner is a corporation engaged in the business of photography. Petitioner has instituted
a "rush service" for the delivery of proofs to its New York (and other) customers from its processing
plant in Boston, Massachusetts. The proofs remain the property of Petitioner and are submitted to
the customer solely for approval prior to the preparation of the finished photographs. The customer
is invoiced for the "rush service."
Section 1105(a) of the Tax Law imposes the State sales tax on the" . . . receipts from every
retail sale of tangible personal property . . . ." Section 1101(b)(3) of the Tax Law defines the
term"receipt" as 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 . . . . "
Section 526.5 of the Sales and Use Tax Regulations provides that: "All expenses 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 $50.00
each in addition to expenses. The customer is billed as follows:
Photographs (2)

$100.00

Model fees

60.00

Meals

10.00

Travel

25.00

Props (Flowers)
Total Due
Receipt subject to tax is $200.00

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

5.00
$200.00
(20 NYCRR 526.5(e))

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

-2­
TSB-A-82(11)S
Sales Tax
March 12, 1982

The same provision describes the manner in which transportation charges may be excluded
from tax, as follows: "(1) The cost of transportation of tangible personal property, sold at retail,
which is separately stated in the written contract, if any, and on the bill rendered to the purchaser is
excluded from the receipts subject to the tax.
(2) To qualify for the exclusion, transportation costs must be for the delivery of the tangible
personal property to the purchaser. Any charge made to a retail purchaser, whether labeled
transportation, handling or some other designation, which represents the cost of transportation
between a supplier, manufacturer, warehouse, or catalog or other distribution point, and the vendor's
place of business constitutes part of the receipt subject to tax." 20 NYCRR 526.5(g).
Petitioner's charge for "rush service" cannot be construed to be an excluded transportation
charge, because the proofs transported do not ordinarily constitute the tangible personal property
being sold to the customer. Accordingly, the charge is "an expense incurred by a vendor in making
a sale," whether or not billed directly to the customer, as described in section 526.5 of the Sales and
Use Tax Regulations, and as such is part of the taxable receipt from the sale of photographs. In the
event that the presentation of the proofs to the customer does not result in the sale of finished
photographs, there is no "receipt" for sales tax purposes, and consequently no tax would be due.

DATED: February 22, 1982

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau