When one bus company hires buses with drivers from another, is that a taxable equipment rental or a nontaxable transportation service?

Plain-English summary

Inter County Motor Coach, Inc., runs charter and commuter bus service. To meet demand it sometimes hires buses with drivers from other carriers, instructing those drivers on the time and place of pickup, the destination, and the return time. It asked whether the other carrier's charges are a taxable equipment rental or a nontaxable transportation service.

The Department held it depends on dominion and control — specifically, who controls the routes.

• Renting tangible personal property is taxable. A "sale" includes any rental, lease, or license to use (§ 1101(b)(5)), meaning a transfer of possession — including the right to use, control, or direct the use of the property (20 NYCRR § 526.7(c)). A Department information letter confirms that a bus company hiring a bus from another bus company is a taxable rental, whether or not a driver is supplied.
• Equipment with an operator. Under 20 NYCRR § 526.7(e)(5) (and its crane Example 11), when a lease includes an operator, possession passes if the lessee has the right to direct and control the equipment's use; the operator's wages, if separately stated and reasonable, are excluded from the taxable receipt.
• The control test applied. Citing Buckley Funeral Homes v. City of New York (a rental where the funeral director controlled the procession), the Department said the critical question is who controls the routes. If Inter County controls the routes (plus the pickup/destination/return details), the transactions are taxable rentals. If the drivers have complete freedom over the routes, the charge is for a nontaxable transportation service.
• Tax base and out-of-state use. Where the lessor pays registration and insurance, the taxable base is fixed at 82% of the charge (90% if delivery is in New York City) under 20 NYCRR § 530.4(b)–(c). Because sales tax is a transactions tax, a bus leased with possession transferred in New York is taxable here even if part of the trip (such as a charter to Florida and back) occurs out of state (Matter of Vincent S. Jerry & Sons, TSB-H-80(58)S).
• No truck/tractor exemption. The § 1115(a)(22) exemption for renting trucks, tractors, or tractor-trailers does not apply to buses.

What this means for you

"Rental or service?" is a control question. When you hire equipment with an operator, the tax answer turns on who directs the work. If you control how and where the equipment is used (here, the routes), you're renting it — a taxable transaction. If the operator runs it on their own judgment to deliver a result, you're buying a service.

Break out the operator's wages. A separately stated, reasonable driver/operator charge is excluded from the taxable rental receipt. Fold it into a lump sum and the whole amount is exposed.

Possession in New York taxes the whole rental — even for out-of-state trips. Sales tax is a transactions tax tied to where possession transfers. Taking the bus in New York makes the rental New York-taxable even if much of the driving happens elsewhere.

Common questions

Q: I hire buses with drivers from another company. Is that taxable?
A: If you control the routes (and other trip details), it's a taxable rental. If the drivers have complete freedom over the routes, it's treated as a nontaxable transportation service.

Q: Can I keep the driver's pay out of the tax?
A: Yes — a separately stated, reasonable operator charge is excluded from the taxable rental receipt (20 NYCRR § 526.7(e)(5)).

Q: The bus goes from New York to Florida and back. Is the whole rental taxed in New York?
A: Yes, if possession transferred in New York. Sales tax is a transactions tax, so the New York rental is taxable even though part of the use is out of state (subject to the 82%/90% base and the separately stated driver charge).

Citations and references

Statutes:

• Tax Law § 1105(a) — tax on retail sales (including rentals) of tangible personal property
• Tax Law § 1101(b)(5) — a "sale" includes any rental, lease, or license to use
• Tax Law § 1115(a)(22) — exemption for renting trucks/tractors/tractor-trailers (does not apply to buses)

Regulations:

• 20 NYCRR § 526.7(c) — "rental, lease, license to use" means transfer of possession, including the right to use/control/direct use
• 20 NYCRR § 526.7(e)(5) — equipment leased with an operator; possession passes where the lessee directs and controls use; separately stated operator wages excludible (Example 11)
• 20 NYCRR § 530.4(b) and (c) — rental tax base fixed at 82% (delivery outside NYC) / 90% (within NYC)
• 20 NYCRR § 525.2(a)(2) — sales tax is a transactions tax
• 20 NYCRR § 526.7(e)(1) — a sale is taxable where the property/service is delivered or possession transfers

Authority cited:

• Buckley Funeral Homes v. City of New York, 199 Misc. 195, aff'd 277 App. Div. 1096
• Maplecrest Sausage v. Tully, 67 A.D.2d 329; Chartair, Inc. v. Tax Comm., 65 A.D.2d 44
• Matter of Vincent S. Jerry & Sons Inc., State Tax Commission (Feb. 22, 1980), TSB-H-80(58)S
• Sales Tax Information Letter No. 35 (Sales Tax Bureau)

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_30s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-82(30)S
Sales Tax
September 1, 1982

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S811117C

On November 17, 1981 a Petition for Advisory Opinion was received from Inter County
Motor Coach, Inc., 243 Deer Park Ave., Babylon, New York 11702.
The issue raised is whether charges to Petitioner by another carrier for the use of equipment
(with operators) constitute receipts from the rental of equipment or the purchase of a transportation
service, for purposes of the sales tax imposed under Article 28 of the Tax Law.
Petitioner is engaged in the business of providing bus transportation and maintains a fleet of
vehicles to provide both charter and commuter route service. At times Petitioner contracts with other
carriers to augment its own fleet so it can meet its transportation commitments. Such other carriers
furnish Petitioner with the necessary vehicles and drivers. Petitioner instructs the drivers as to the
time and place of pickup, the destination and the return time.
The sales tax imposed under section 1105(a) of the Tax Law is applicable to the "rental, lease
and license to use" of tangible personal property. Tax Law, §1101(b)(5). The Sales and Use Tax
Regulations provide that "The terms 'rental, lease, 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." 20 NYCRR 526.7(c)(1).
The Regulations further provide that:
"(3)

Transfer of possession with respect to a rental, lease or license to use, means that one
of the following attributes of property ownership has been transferred:

(i)

custody or possession of the tangible personal property, actual or constructive;

(ii)

the right to custody or possession of the tangible personal property;

(iii)

the right to use, or control or direct the use of tangible personal property."

Paragraph 3 of Sales Tax Information Letter Number 35, issued by the Sales Tax Bureau of
the Department of Taxation and Finance, addresses the issue raised as follows:
"Where a bus company hires a bus from another bus company, this constitutes a rental, lease
or license to use. The charges for such transactions are subject to sales tax. The rental charges are
taxable, whether or not a driver is supplied, and even if the bus is rented for use for tours or for

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

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

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TSB-A-82(30)S
Sales Tax
September 1, 1982

charter operations. If the charge for the driver is separately stated and is reasonable in view of the
prevailing wage rates for the services of a driver, such charge may be excluded from the charges
subject to tax. In addition, where all registration fees and all insurance charges are paid by the lessor,
the amount of tax to be collected on charges for the rental of the bus may be computed pursuant to
section . . .[530.4], subdivisions (b) and (c), of the Sales and Use Tax Regulations (20 NYCRR . .
. [530.4] (b) and (c)). Such provisions fix the tax base for such rentals at 82% of the total rental or
leasing charge where delivery of the rented property occurs outside New York City, and at 90%
where delivery occurs within New York City.
Whether the transactions at issue constitute rentals rather than the furnishing of transportation
turns upon the question of dominion and control. In Buckley Funeral Homes v. City of New York,
199 Misc. 195, aff'd 277 App. Div. 1096, the court found a rental agreement to exist where a funeral
director ordered cars, with drivers, from an auto rental agency for use in a funeral possession. This
holding turned in large part on a finding that "the funeral procession was under the direction and
control of the funeral director." Id., at 196. Cf., Maplecrest Sausage v. Tully, 67 AD 2d 329;
Chartair, Inc. v. Tax Comm., 65 AD 2d 44. This same approach is reflected in section 526.7(e)(5)
of the Sales & Use Tax Regulations, which provides as follows:
(5) When a lease of equipment includes the services of an operator,
possession is deemed to be transferred where the lessee has the right
to direct and control the use of the equipment. The operator's wages,
when separately stated, are excludible from the receipt of the lease
provided they reflect prevailing wage rates.
Example 11: A company enters into an agreement to lease a crane,
together with the services of the operator of the crane. The operator
will take instructions from the company's foreman, and the company
determines the working hours and locations. The operator's wages are
separately stated. This transaction is within the definition of sale, and
the transfer of possession has occurred by reason of the company's
right to direct and control the use of the equipment by the operator.
The taxable receipt excludes the operator's wages.
In the present instance Petitioner contracts with charter groups and operates commuter lines.
The commuter routes are presumably pre-established. With respect to charter groups, Petitioner
states that it instructs the drivers as to time and place of pick-up, place of destination, and time of
return. As in Buckler, supra, the critical question here is the identity of the party controlling the
routes utilized by the buses. If Petitioner controls the routes followed, in addition to the foregoing
factors, then the subject transactions constitute rentals, the receipts from which are subject to tax.
Where, however, the drivers are given complete freedom with regard the routes to be followed in

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Sales Tax
September 1, 1982

transporting the passengers to their desired destinations, then the receipts would be derived from the
provision of the service of transportation, and thus not subject to tax.
Petitioner's reference to section 1115(a)(22) of the Tax Law is inappropriate, because such
provision provides for an exemption from sales tax with respect to the rental or lease of trucks,
tractors or tractor-trailer combinations only, in certain cases, and is not in any event applicable to
buses.
Petitioner also inquires as to whether rental charges to Petitioner for use of another carrier's
bus would be subject to tax if the bus were used to fulfill its contract to transport a group from New
York to Florida and back, with a layover in Florida. 20 NYCRR 526.7(e)(1) provides that "A sale
is taxable at the place where the tangible personal property or service is delivered or the point at
which possession is transferred by the vendor to the purchaser or has designee. 20 NYCRR
525.2(a)(2) states that "the sales tax is a 'transactions tax', liability for the tax occurring at the time
of the transaction." Accordingly, the leasing of a bus for a stipulated transaction period with
possession transferred in New York subjects the charge for use of the bus to the applicable New
York State and local sales tax (less any separately stated reasonable charge for the driver, and subject
to the limitations set forth in 20 NYCRR 530.4(b) and (c)), even though a portion of the use occurs
outside New York State. See Matter of Vincent S. Jerry & Sons Inc., State Tax Commission,
February 22, 1980, TSB-H-80(58)S).

DATED: August 13, 1982

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau