Does a college owe sales tax when a graduating student forfeits a deposit to keep an assigned computer instead of returning it?

Plain-English summary

Clarkson College of Technology assigns each incoming freshman a personal computer, financed through tuition. The computer stays college property during attendance, and each student posts a $200 maintenance deposit (repair charges are drawn from it and must be replenished). At graduation, the college values the computer and software at $200, and the student may either return it for a refund of the deposit or forfeit the deposit in exchange for title. Clarkson asked whether a student's forfeiture of the deposit to keep the computer is a taxable sale.

The Department held no sales tax is due — the transfer isn't made through a shop or store.

• Educational-institution exemption. Section § 1116(a)(4) exempts the receipts from sales by educational institutions like Clarkson, except where the sale is made in a shop or store operated by the institution.
• No shop or store here. The transfer of title for the forfeited deposit clearly does not occur in a shop or store.
• Result. Because the sale falls within the exemption and outside the shop/store exception, no sales tax is due on the receipts.

What this means for you

A college's incidental sale of equipment to its own students is generally tax-exempt. New York exempts sales by educational institutions, so a one-off transfer like converting a deposit into ownership of an assigned computer isn't taxed — as long as it isn't run through a campus shop or store.

The shop/store exception is the thing to watch. The exemption for educational institutions (and other exempt organizations) doesn't reach sales made through a shop or store they operate. A bookstore or computer store selling to the public — or students — is a different situation from an administrative transfer like this one.

Structure matters more than labels. Whether money moves as a "deposit," "forfeiture," or "sale price," the tax question is whether an exempt institution made the sale outside a shop or store. Here it did, so the receipts are exempt.

Common questions

Q: Our college lets graduating students keep assigned laptops by forfeiting a deposit. Is that taxable?
A: On these facts, no. Sales by an educational institution are exempt under § 1116(a)(4) unless made through a shop or store it operates, and this administrative transfer isn't.

Q: When would such a sale be taxable?
A: If the institution sold the equipment through a shop or store it operates. That's the exception to the § 1116(a)(4) exemption.

Q: Does it matter that the college called it a "maintenance deposit"?
A: No. Even treating the forfeiture as a sale for $200, the receipts are exempt because the sale isn't made in a shop or store.

Citations and references

Statutes:

• Tax Law § 1116(a)(4) — exemption for sales by educational institutions (except sales in a shop or store)

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_4s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-84 (4) S
Sales Tax
February 21, 1984

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S830909B

On September 9, 1983 a Petition for Advisory Opinion was received from Clarkson College
of Technology, Potsdam, N.Y. 13676.
The issue raised is whether the relinquishing of a $200.00 "Maintenance Deposit" in lieu of
returning a personal computer for the refund of such deposit results in a sale the receipts from
which are subject to sales tax.
Petitioner has recently commenced a program of assigning a personal computer to each
incoming freshman student, financing this operation by tuition increases. The computers remain
the property of Petitioner throughout the student's attendance at Clarkson. Petitioner requires each
individual student to make a maintenance deposit of $200.00. Any charges for repairs to a
student's computer will be applied against such maintenance deposit, and are to be replaced by the
student, in order to maintain a $200.00 balance in such account.
When a student graduates, Petitioner declares the value of that student's computer and its
software to be $200.00. At that point the student has the option of returning the equipment for a
refund of the maintenance deposit, or of forfeiting the maintenance deposit in return for title to the
equipment.
Section 1116(a)(4) of the Tax Law exempts from sales tax the receipts from sales by certain
educational institutions, in which class Petitioner is included, except where such sales are made in
a shop or store operated by such institution. The sales at issue herein clearly do not occur in such
a shop or store. Accordingly, no sales tax is due on the receipts from such sales.

DATED: February 2, 1984

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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