Is a records-storage company's charge a taxable storage service, or a nontaxable lease of real property?

Plain-English summary

Record Retention Center Corporation runs a computerized records-storage business. It stores customers' financial records in an open warehouse, assigning each customer an area that is not enclosed or secured from other customers' areas, providing storage racks, offering climate-controlled space for tapes and microfiche, and allowing access 24 hours a day but only under security supervision. Its sample agreement has the customer "lease" a number of storage units (one unit = one square foot) in a "common space," with charges based on cubic feet occupied. It asked whether this is a taxable storage service (Tax Law § 1105(c)(4)) or a nontaxable lease of real property.

The Department held it is a taxable storage service.

• The statute taxes storage. Section 1105(c)(4) taxes "storing all tangible personal property not held for sale in the regular course of business and the rental of safe deposit boxes or similar space." Storage is "the provision of a place for the safekeeping of goods, without regard to the manner of payment or length of time" (20 NYCRR 527.6(a)).
• Lease vs. storage — three markers. The tax is not imposed on a lease of real property. A lease is distinguished from a storage service where the tenant (1) contracts for a certain amount of footage in a specific location, (2) has unlimited control of access, and (3) may supply his own racks, cabinets and other physical facilities (527.6(b)(2)).
• Here it's storage. The customers do not lease a specific location, do not have unlimited access (entry is supervised), and do not supply their own racks. So the company provides a storage service, and its charges are taxable.

What this means for you

"Calling it a lease" doesn't make warehouse storage tax-free. New York looks at three concrete facts — specific space, unlimited access, and who provides the racks. If you assign floating space in a common area, control the customer's access, and supply the shelving, you're selling a taxable storage service, no matter what the paperwork says.

To be a nontaxable real-property lease, give real possession. A genuine lease commits a specific, measured location to the tenant, gives unrestricted access, and lets the tenant bring its own fixtures. Fall short on those and the charge is taxable.

This is the same test for many storage settings — mini-warehouses, records vaults, and (as in the companion opinion TSB-A-85(10)S) off-season boat storage all turn on these markers.

Common questions

Q: Our contract says the customer "leases" storage units. Is that a nontaxable lease?
A: Not by itself. If the customer doesn't get a specific location, unlimited access, and the ability to supply its own racks, it's a taxable storage service regardless of the label.

Q: We provide the shelving and supervise entry. Does that matter?
A: Yes — those facts point to a storage service, which is taxable under § 1105(c)(4).

Q: When would records storage be nontaxable?
A: When the arrangement is a true real-property lease: a specific measured space, unlimited tenant access, and the tenant's own fixtures.

Citations and references

Statute:

• Tax Law § 1105(c)(4) — tax on storing tangible personal property not held for sale, and the rental of safe deposit boxes or similar space

Regulation:

• 20 NYCRR 527.6 — defines "storage"; a lease (nontaxable) is distinguished from a storage service by specific footage/location, unlimited access, and tenant-supplied racks/fixtures

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1985.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a85_12s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-85(12)S
Sales Tax
May 20, 1985

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S831128B

On November 28, 1983 a Petition for Advisory Opinion was received from Record Retention
Center Corporation, 208 South Avenue, Rochester 14604.
The issue raised is whether the service provided by the petitioner is the storage of tangible
personal property, taxable pursuant to section 1105(c)(4) of the Tax Law, or the lease of real property
which is excluded from the imposition of sales tax.
Petitioner operates a computerized record storage system, providing warehouse storage space
for financial records and offering related services, such as pick-up and delivery, computer indexing,
filing, copying, and record destruction.
Petitioner states that a customer's records are stored in an open warehouse in an area assigned
and accessible only to that particular customer. The space allocated to each customer is not enclosed
or secured from areas assigned to others. Space for storing computer tapes, discs and microfiche is
available in a controlled climate atmosphere. Customers may use their own record containers, but
storage racks are provided by the petitioner. Access to the premises is available 24 hours a day, but
only under the supervision of security personnel.
In a sample lease agreement supplied by Petitioner the customer agrees to lease a number of
storage units (a unit equals one square foot of storage area) in a "common space". A price schedule
appended to the Petition bases storage charges on cubic feet of warehouse space occupied.
Section 1105(c)(4) of the Tax Law imposes a tax on receipts from the following service:
"Storing all tangible personal property not held for sale in the regular
course of business and the rental of safe deposit boxes or similar space."
Section 527.6 of the Sales and Use Tax Regulations provides, in part, as follows:
"(a) Definition. Storage is the provision of a place for the safekeeping of goods,
without regard to the manner of payment or length of time of the service.
(b) Imposition. (1) The tax is imposed on the sale, except for resale, of the service
of storing tangible personal property, and the rental of safe deposit boxes and similar space.

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

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

-2­
TSB-A-85(12)S
Sales Tax
May 20, 1985

(2) While the tax is imposed on the service of providing storage space, it is not
imposed on the lease of real property for storage. A lease can be distinguished from the
provision of storage space, in that under a lease, the tenant contracts for a certain amount of
footage in a specific location, the tenant has unlimited control of access to the space, and may
supply his own racks, cabinets and other physical facilities.
The facts presented indicate that petitioner's customers do not lease a specific location, do
not have unlimited access to the stored records, and do not supply racks and similar storeroom
fixtures. Accordingly, petitioner provides the services of storage to its customers and its charges
therefor are subject to tax under section 1105(c)(4) of the Tax Law.

DATED: April 30, 1985

FRANK J. PUCCIA
Director
Technical Services Bureau

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