How is a vehicle lessor taxed on the diesel fuel and the various lease charges when it supplies fuel as part of the rental?

Plain-English summary

Quaker Leasing Inc. leases vehicles and, under its lease agreements, supplies the fuel, with a fuel-rate-adjustment line that lets it pass through added fuel costs. It asked two questions: (I) how the diesel fuel it supplies is taxed, and (II) what tax rate applies to the various lease charges.

Issue I — the lessor is a fuel distributor consuming its own fuel. Because Quaker stores diesel and dispenses it into vehicles it owns or leases out, it is a diesel motor fuel distributor (20 NYCRR 560.2(b)(2)(ii)), and transferring fuel into those tanks is a retail sale (Tax Law 1101(b)(4)(ii)). Since the fuel is included in the lease, Quaker is not making a retail sale of fuel to its customers — instead it owes tax on its own use. A distributor consuming its own diesel pays tax on the actual receipt (its purchase price, excluding federal and state diesel taxes) rather than the regional average retail price, at the rate in effect where the fuel is delivered into the tank (Tax Law 1111(e)(6); 20 NYCRR 560.12(b)).

Issue II — the lease is a taxable retail sale, and all charges are in the receipt. Leasing a motor vehicle is a taxable retail sale (Tax Law 1105(a)). A "receipt" is the sale price with no deduction for expenses (Tax Law 1101(b)(3); 20 NYCRR 526.5(e)), so every component — the fixed weekly charge (vehicle, licenses, federal highway use tax, financing), the per-mile charge (maintenance, tires, washing), and the fuel-cost-adjustment charge — is part of the taxable receipt whether or not separately stated. However, where the lessor pays all registration fees and all insurance, the tax may be computed on 82% (90% in New York City) of the total lease charge (20 NYCRR 530.4). The applicable rate depends on the lease term: short-term leases (under 6 months) are taxed at the rate where the lessee takes delivery; long-term leases at the rate where the vehicle is regularly garaged.

If fuel is billed separately instead. If Quaker did not include the diesel in the lease and billed the lessee for it in a separate transaction, it would be making a retail sale of the fuel to the lessee — collecting tax computed on the regional average retail sales price for that region — and would not owe use tax on that fuel.

The opinion notes its cited fuel provisions (Tax Law 1101 and 1111; 20 NYCRR 560.2) applied to the period March 1, 1983 through May 31, 1985.

What this means for you

How you bill the fuel decides who is taxed and on what price. Bundle diesel into the lease and you (the lessor/distributor) owe use tax on your own cost of the fuel. Bill it as a separate line and you're selling fuel to the lessee, taxed on the regional average retail price. Same fuel, different tax treatment.

"Separately stated" doesn't make lease charges non-taxable. Licenses, highway-use tax, finance charges, mileage, maintenance, and fuel adjustments are all part of the taxable lease receipt. New York doesn't let you carve expenses out of the receipt.

The 82%/90% option rewards lessors who cover registration and insurance. If you pay all registration fees and insurance, you can compute the lease tax on 82% of the charge (90% in NYC). And get the sourcing right: short-term by delivery location, long-term by where the vehicle is garaged.

Common questions

Q: I include diesel in my truck leases. Do I charge the lessee tax on the fuel?
A: No — with fuel bundled into the lease, you're not selling fuel to the lessee. You owe use tax on your own cost of the fuel (purchase price excluding federal/state diesel taxes), at the rate where you pump it.

Q: Are separately stated charges like licenses and finance fees taxable in the lease?
A: Yes. All charges are component parts of the lease receipt and taxable whether or not separately stated (1101(b)(3)). But if you pay all registration and insurance, you can use the 82%/90%-NYC computation (530.4).

Q: What if I bill fuel separately from the lease?
A: Then you're making a retail sale of the fuel to the lessee, taxed on the regional average retail price, and you owe no use tax on that fuel.

Q: Which local rate applies to the lease?
A: Short-term leases (under 6 months): the rate where the lessee takes delivery. Long-term leases: the rate where the vehicle is regularly garaged.

Citations and references

Tax Law:

• 1105(a) — a motor-vehicle lease is a taxable retail sale
• 1101(b)(3) — "receipt" is the sale price with no deduction for expenses; all lease charges are included
• 1101(b)(4)(ii) — transfer of automotive fuel (including diesel) by a distributor into its vehicle is a retail sale
• 1111(e)(6) — a distributor consuming diesel pays tax on the actual receipt, not the regional average retail price

Regulation:

• 20 NYCRR 526.5(e) — expenses incurred in making a sale are not deductible from receipts
• 20 NYCRR 530.4 — motor-vehicle lease tax; 82% (90% NYC) computation where lessor pays all registration and insurance; short- vs. long-term sourcing
• 20 NYCRR 560.2(b)(2)(ii) — a person who stores diesel to operate vehicles it owns, leases, or operates is a distributor
• 20 NYCRR 560.12(b) — distributor's tax on diesel consumed is based on actual receipt

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_45s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-85(45)S
Sales Tax
October 16, 1985

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

PETITION NO. S830505A

On May 5, 1983 a Petition for Advisory Opinion was received from Quaker Leasing Inc.,
5950 Fisher Road, East Syracuse, New York 13057.
The issues presented by Petitioner are twofold.
I
Petitioner inquires as to whether diesel motor fuel supplied with a rental vehicle should be
taxed at the regional average retail sales price if all or a portion of the cost of such fuel is included
in the rental rate.
Petitioner is in the business of leasing vehicles. Petitioner's lease agreements provide for the
lessor (Petitioner) to supply fuel, however, since the cost of fuel to the lessor may vary, the lease
agreement contains a fuel rate adjustment provision which allows the lessor to adjust the periodic
billing by a line entry which reflects the lessor's additional fuel costs above the amount used in
computing the costs included in the original leasing agreement.
Section 1105(a) of the Tax Law imposes a tax on "The receipts from every retail sale of
tangible personal property, except as otherwise provided. . ."
Section 1101(b)(4)(ii)(D) of the Tax Law provides that the term retail sale shall ". . . include
the transfer of automotive fuel by a distributor into a motor vehicle . . . of the distributor."
Pursuant to section 1101(b)(4)(ii)(A), automotive fuel is defined to include diesel motor fuel.
Section 560.2(b)(2)(ii) of the Sales and Use Tax Regulations defines a diesel motor fuel
distributor to include "Any person who purchases or stores in bulk diesel motor fuel used in whole
or in part to operate any motor vehicle owned, leased or operated by him." Based on the above, a
retail sale of diesel motor fuel occurs at the time Petitioner transfers diesel motor fuel into the fuel
tanks of vehicles owned by it, including vehicles leased to its customers. Since the diesel motor fuel
is included in the lease, Petitioner is not deemed to be making retail sales of such fuel to its
customers.
Section 1111(e)(6) of the Tax Law and section 560.12(b) of the Sales and Use Tax
Regulations provide for the payment of tax on the actual receipt rather than the regional average
retail sales price where diesel motor fuel is consumed by a distributor of diesel motor fuel.
Therefore, the tax owed by Petitioner on such fuel would be computed at the tax rate in effect in the
jurisdiction where the diesel motor fuel is delivered into the fuel tank of Petitioner's vehicle. The
amount subject to tax would be Petitioner's purchase price of the fuel excluding Federal and State
diesel fuel taxes.
RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

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

-2­
TSB-A-85(45)S
Sales Tax
October 16, 1985

(As to the collection of tax from the lessee on a lease charge which includes fuel, see Section
II below.)
II
Petitioner inquires secondly as to what tax rate should be charged, in connection with a
vehicle rental, on each of the following:
(a) the fixed rental charge per week for the vehicle, licenses, Federal highway use taxes,
financing etc.;
(b) the mileage rental charge per mile for maintenance, tires, washing etc.;
(c) the additional charge to the lessee for fuel cost in excess of the portion included in the
lease.
Section 1105(a) of the Tax Law imposes a tax on "The receipts from every retail sale of
tangible personal property, except as otherwise provided. . ."
Section 1101(b)(3) of the Tax Law defines the term "receipt" as "The amount of the sale price
of any property. . ., valued in money. . ., without any deduction for expenses. . ." Sales and Use Tax
Regulation section 526.5(e), which discusses the elements of a receipt, states: "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."
The lease of a motor vehicle is considered a retail sale within the meaning and intent of
section 1105(a) of the Tax Law and therefore subject to tax. All other charges, including licenses,
other taxes, finance charges and mileage, maintenance, or fuel adjustment charges, whether
separately stated or not, are component parts of the lease payment and accordingly are included in
the receipt subject to tax (Tax Law section 1101(b)(3)). However, in accordance with Sales and Use
Tax Regulation Section 530.4, where the lessor pays all registration fees and all insurance charges,
the amount of tax to be collected on the rental or lease of motor vehicles may be computed on 82%
(90% in New York City) of the total rental or lease charge. The rate of tax to be applied to these
charges depends on the term of the lease. Short term leases (those for less than 6 months), are taxed
at the rate in effect in the taxing jurisdiction where the lessee takes delivery of the vehicle; long term
leases are taxed at the rate in effect where the vehicle is regularly garaged or stored when not in
actual use.
Accordingly, Petitioner must pay the sales tax on his use of diesel motor fuel and must collect
tax on any charge for the lease of the vehicle, even though some of the charges included in the lease
payment already include sales tax or are charges which by themselves would not be subject to tax.

-3­
TSB-A-85(45)S
Sales Tax
October 16, 1985

If Petitioner did not include the diesel fuel as part of the lease and billed the lessee for the
fuel in a separate transaction, Petitioner would then be deemed to be making a retail sale of the diesel
fuel. In this instance, Petitioner would be required to collect the appropriate tax on the sale of the
diesel fuel from the lessee in addition to the appropriate tax on the rental or lease charge. The tax to
be collected on the sale of the diesel fuel would be computed by applying the appropriate tax rate
to the regional average retail sales price for diesel fuel in the region in which the sale occurs. Also,
Petitioner would not be required to pay a use tax on such diesel fuel.
The provisions of section 1101 and 1111 of the Tax Law and section 560.2 of the Sales and
Use Tax Regulations as cited in this Advisory Opinion are applicable to the period from March 1,
1983 through May 31, 1985.

DATED: September 19, 1985

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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