If an owner buys a vehicle to rent out but also uses it personally, is the purchase tax-free as a purchase for resale?

Plain-English summary

May Associates leases recreational vehicles. For a fee, it rents out vehicles owned by private owners when those owners aren't using them, handling reservations, records, storage, cleaning, advertising and sales-tax collection. Under its agreements, each owner keeps some personal use — limited to 14 days a year (to preserve the owner's federal Investment Tax Credit and Accelerated Cost Recovery deductions) — and is charged a rental fee for that own use. It asked whether an owner's purchase of such a vehicle is exempt from sales tax as a purchase for resale.

The Department held the purchase is taxable — the resale exclusion doesn't apply.

• Resale includes buying to rent — but only if that's the exclusive purpose. A "retail sale" is a sale for any purpose other than resale (§ 1101(b)(4)), and buying for subsequent rental or leasing counts as buying for resale (20 NYCRR 526.6(c)). But only purchases made for the exclusive purpose of resale come within the exclusion (Michelli Contracting, TSB-H-83(107)S; Jacobs v. Joseph).
• Personal use breaks the exclusivity. Because the private owner does not buy the vehicle exclusively for rental, the purchase falls outside the exclusion.
• "Charging yourself" rent is not a rental. The owner's paying a rental fee to himself through May Associates "does not alter the fact that no actual rental transaction has taken place."
• Result. The owner's original purchase of the vehicle is a taxable retail sale under § 1105(a), plus applicable state and local taxes.

What this means for you

"I'll rent it out" doesn't make a purchase tax-free if you also use it yourself. New York's resale exclusion is strict: the purchase must be for the exclusive purpose of resale (here, rental). Any meaningful personal use of the item defeats the exclusion, and the original purchase is taxed.

Paper rent to yourself changes nothing. Running a self-use rental fee through a management company doesn't create a real rental transaction, so it can't convert your own use into "resale."

This companion to TSB-A-84(16)S applies the same rule. The Department issued a near-identical opinion, TSB-A-84(16)S, to the same petitioner reaching the same result — retained personal use defeats the exclusive-resale purpose. It also lines up with other "bought for use" rulings such as TSB-A-85(4)S, where an item bought for the owner's use rather than exclusively for resale is taxable.

Common questions

Q: I buy an RV to rent out but also use it myself sometimes. Is the purchase tax-free for resale?
A: No. The resale exclusion requires that you buy exclusively for resale (rental). Personal use makes the purchase a taxable retail sale.

Q: What if I pay a rental fee to myself for the days I use it?
A: That doesn't help. The Department said charging yourself rent through the management company is not an actual rental transaction, so it doesn't create a resale.

Q: Are the rentals to actual customers still taxable?
A: Yes. Rentals of tangible personal property are taxable to the renters. This ruling addresses the separate question of the owner's own purchase, which is taxable here.

Citations and references

Statutes:

• Tax Law § 1105(a) — tax on retail sales of tangible personal property
• Tax Law § 1101(b)(4) — definition of "retail sale" and the resale exclusion

Regulations:

• 20 NYCRR 526.6(c) — purchases for resale

Cases and prior guidance:

• Michelli Contracting Corporation, TSB-H-83(107)S
• Jacobs v. Joseph, 282 A.D. 2d 622

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1984.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a84_15s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-84(15)S
Sales Tax
April 10, 1984

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S840202A

On February 2, 1984 a Petition for Advisory Opinion was received from May Associates, 49
Wilelen Road, Rochester, New York 14624.
The issue raised is whether the purchase of a vehicle, with the intention of leasing the vehicle
for consideration as well as applying it to self-use, is exempt from sales tax.
Petitioner states that its primary business activity involves the leasing of recreational
vehicles. Petitioner, for a fee, will rent vehicles on behalf of private owners when such vehicles are
not in use by the owner. Petitioner states that in the agreements it enters into with the private owner,
the owner is responsible for licensing and registration, the cost of servicing, replacement of parts and
insurance. Petitioner is responsible for the maintenance of leasing records, reservations, credit
verification and collections, maintenance and cleaning, storage, advertising, and the collection of
sales tax.
Petitioner also states that the owner's personal use will not exceed 14 days a year (in order
to maintain the owner's right to utilize the Federal Investment Tax Credit and Accelerated Cost
Recovery Deduction) and that a rental fee would be charged to the owner for his use.
Section 1105(a) of the Tax Law imposes a sales tax on the receipts from every retail sale of
tangible personal property unless otherwise excluded or exempt.
Section 1101(b)(4) of the Tax Law defines the term "retail sale," in part, as a "sale of
tangible personal property to any person for any purpose other than (A) for resale as such " A
purchase for resale would include one for subsequent rental or leasing.
Section 526.6(c) of the Sales and Use Tax Regulations provides, with respect to the resale
exclusion, as follows:
"(1) Where a person, in the course of his business operations, purchases tangible personal
property or services which he intends to sell, either in the form in which purchased, or as a
component part of other property or services, the property or services which he has purchased will
be considered as purchased for resale, and therefore not subject to tax until he has transferred the
property to his customer."
Only purchases made for the exclusive purpose of resale come within the resale exclusion
provided for in section 1101(b)(4) of the Tax Law. Michelli Contracting Corporation, State Tax
Commission, TSB-H-83(107)S; Jacobs v. Joseph, 282 A.D. 2d 622. Since the private owner herein
does not purchase the vehicle exclusively for rental purposes, such purchase does not come within
RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-84(15)S
Sales Tax
April 10, 1984

the resale exclusion provided for in Section 1101(b)(4). The fact that the private owner will "charge
himself" a rental fee for his own use, through the Petitioner, does not alter the fact that no actual
rental transaction has taken place. Therefore, the original purchase of the vehicle constitutes a retail
sale and, therefore, the receipts therefrom are subject to the sales tax imposed under Section 1105(a)
of the Tax Law, as well as other applicable State or locally imposed sales taxes.

DATED: March 23, 1984

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.