When is a limousine hire an exempt transportation service, and when is it a taxable rental of the vehicle?

Plain-English summary

Limousine Operators of Western New York, Inc. (a trade group) asked how eight common limousine-hire situations are taxed: are they transportation services (not taxable) or rentals of the vehicle (taxable)?

The Department said it turns on dominion and control of the car.

• The test. A "sale" includes a rental, lease, or license to use (Tax Law § 1101(b)(5); 20 NYCRR § 526.7(e)). Borrowing the five-factor test from TSB-M-84(7)S (written for bus companies), the operator keeps dominion and control — and provides an exempt transportation service — when: (1) there's no transfer of possession/control of the vehicle; (2) the operator keeps the right to hire and fire drivers; (3) the operator uses its own discretion and generally picks the routes; (4) the operator keeps responsibility for operating the vehicle; and (5) the operator directs operations and pays all expenses (wages, insurance, tolls, fuel).
• Exempt transportation (situations II–VI). Weddings, bar tours, proms, celebrity/VIP, and airport transfers are exempt if the member keeps dominion and control (they meet factors 1, 3, 4, 5, and factor 2 if they keep the right to hire/fire drivers).
• Taxable rentals (situations I and VII). Funerals (the funeral director sets the route and itinerary) and stand-by/retainer hires (the client controls) are taxable rentals, because the member gives up discretion and route selection. For these, the member may compute tax on 82% of the charge under 20 NYCRR § 530.4(b) (when the lessor pays registration and insurance).
• Driver-only (situation VIII). Hiring just a driver for the client's own car provides no equipment, so it's not taxable.
• Watch the facts. If a customer effectively controls the vehicle for the whole period (dictating routes, schedule, stand-by while at dinner or an event), the hire is a taxable rental no matter what it's called.

What this means for you

"Transportation" vs. "rental" is a control question, not a label. If you (the operator) keep the car under your direction — your driver, your routes, your operating responsibility, your costs — you're selling an exempt transportation service. If the customer effectively takes over the vehicle, you're making a taxable rental.

The same fleet can produce both results. A wedding run where you set the route is exempt; a funeral where the funeral director dictates the itinerary, or a stand-by retainer where the client controls availability, is a taxable rental. Look at each engagement's actual control terms.

Use the 82% method on the rental jobs. When a hire is a taxable motor-vehicle rental and you (the lessor) pay registration and insurance, you can compute the tax on 82% of the total charge under § 530.4(b) instead of separately stating non-taxable items. Driver-only hires of the customer's own vehicle aren't taxable at all.

Common questions

Q: We provide a car and driver and pick the route. Is that taxable?
A: No — that's an exempt transportation service, as long as you keep dominion and control (your driver, your discretion/routes, your operating responsibility and expenses, and ideally the right to hire/fire drivers).

Q: Why are funerals and stand-by retainers taxable rentals?
A: Because you relinquish control — the funeral director dictates the route/itinerary, and the retainer client controls availability. That makes it a rental of the vehicle under § 1101(b)(5), taxable (with the 82% option under § 530.4(b)).

Q: We just supply a driver for the customer's own car. Is that taxed?
A: No. No equipment is provided to the customer, so the driver-only service isn't subject to sales tax.

Citations and references

Statute, regulation, and guidance:

• Tax Law § 1105(a) — imposes sales tax on receipts from sales of tangible personal property
• Tax Law § 1101(b)(5) — "sale" includes any rental, lease, or license to use
• 20 NYCRR § 526.7(e) — transfer of possession for a rental/lease/license to use (custody or possession, the right to possession, or the right to use/control/direct the use)
• 20 NYCRR § 530.4(b) — optional computation of tax on 82% of a motor-vehicle rental/lease charge where the lessor pays registration and insurance
• TSB-M-84(7)S — bus-company transactions: five-factor dominion-and-control test distinguishing an exempt transportation service from a taxable equipment rental

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1988.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a88_55s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-88 (55)S
Sales Tax
October 27, 1988

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S880801A

On August 1, 1988, a Petition for Advisory Opinion was received from Limousine Operators
of Western New York, Inc., c/o Mark S. Klein, Esq., Hodgson, Russ, Andrews, Woods and
Goodyear, 1800 One M&T Plaza, Buffalo, New York 14203.
The issue raised is whether services provided by Petitioner's members are a rental, lease, or
license to use tangible personal property pursuant to section 1101(b)(5) of the Tax Law.
Petitioner represents various operators of limousine services. Through their operations,
Petitioner's members provide several different types of service to their clients. The specific services
provided by Petitioner's members depend on the situation.
The eight most common situations are:
I.

Funerals. A client hires the services of a limousine and driver to transport
family and close friends to and from the funeral. The funeral director
determines the route to be taken by the limousine. The itinerary is set prior
to the funeral by the funeral director. Any deviation from the itinerary is
solely within the discretion of the funeral director as is the route to be taken.

II.

Weddings. A client hires the services of a limousine and driver to provide
transportation for members of the wedding party. The client predetermines
the itinerary. The route is determined by the driver.

III.

Bar Tours.
a.

Destinations determined by passengers en route:

A client hires the services of a limousine and driver to provide
transportation for a given period of time. The passengers determine
destinations while en route and there is no predetermined itinerary. The route
taken between destinations is determined by the driver.
b.

Stag-tours.

A client hires the services of a limousine and driver to provide
transportation to predetermined destinations for a fixed period of time.
Although the destinations are predetermined, the itinerary is flexible and
determined by the passengers. The route taken between destinations is
determined by the driver.
TP-9 (9/88)

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Sales Tax
October 27, 1988

IV.

Proms. The client hires the services of a limousine and driver to pick up the
couple(s) at home, drive the couple(s) to dinner, and then drive the couple(s)
to the location of the prom. During the prom, the driver and vehicle are free
to drive for other clients. At a prearranged time, the limousine and driver will
return to the location of the prom and pick up the couple(s) and deliver the
couple(s) to their final destination. The route taken between destinations is
determined by the driver.

V.

Celebrity/VIP/As Pre-Directed. The client hires the services of a limousine
and driver to shuttle a particular person to certain places or events. The
itinerary is determined at the time that the agreement is executed. For
example, a concert promoter hires a limousine to pick up a rock star at the
airport, drive him (her) to the hotel, drive him (her) to the show, drive him
(her) back to the hotel after the show is over, and drive him (her) back to the
airport the next morning. All of the pick up and delivery times are
prearranged by the parties prior to the execution of the agreement subject to
minor alterations of the schedule if required (e.g., late arrival of the airplane).
The route taken between destinations is determined by the driver.

VI.

Airport Transfers. The client hires a limousine and driver to pick up a
traveler at a predetermined location and time, and deliver the traveler to the
airport. Alternatively, the limousine and driver are hired to pick up a traveler
at the airport and deliver him (her) home. The route taken is determined by
the driver.

VII.

Stand by/Retainer. The client pays a flat rate to secure the services of a
limousine and driver at short notice. The client's right to use the service is
limited by some predetermined variable (e.g. time, distance). The client does
not have the right to choose a particular driver or limousine.

VIII.

Driver Only. The client hires the services of a driver only, to drive a car
owned by the client.

Petitioner also states that:
In all situations where the services of a limousine and driver are hired
(all situations except VIII) the petitioner's members are solely
responsible for the operation of their vehicles and pay all registration
fees, insurance fees and miscellaneous expenses (repair, fuel,
maintenance, tolls, etc.) as well as the driver's wages.
Petitioner does not indicate whether its members retain the right to hire and fire drivers.

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Sales Tax
October 27, 1988

Section 1105(a) of the Tax Law imposes a sales tax on "the receipts from every retail sale
of tangible personal property, except as otherwise provided in this article".
Section 1101(b)(5) defines "sale" as "[a]ny transfer of title or possession or both, exchange
or barter, rental, lease or license to use...".
Section 526.7(e) of the Sales and Use Tax Regulations states, in part:
(4) 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.
(5) It is not essential for a transfer of possession to include the right to move the tangible
personal property which is the subject of a rental, lease or license to use." 20 NYCRR
526.7(e)(4) & (5).
In Technical Services Bureau Memorandum TSB-M-84(7)S, Bus Company Transactions,
Transportation Service v. Equipment Rental, it was determined that:
Where a bus company charters a bus to a group, and the bus company retains dominion and
control over the bus, the bus company is engaged in providing a transportation service and,
therefore, the charges are exempt from sales tax. ... Dominion and control remains with the
owner of a vehicle when pursuant to an agreement or contract:
1.

there is no transfer of possession, control and/or use of the vehicle during the terms
of the agreement or contract; and

2.

the owner maintains the right to hire and fire the drivers; and

3.

the owner uses his own discretion in performing the service (even though the
customer may designate the area where passengers will be picked up and delivered)
and generally selects his own routes; and

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4.

the owner retains the responsibility for the operation of the vehicle; and

5.

the owner directs the operation, pays all operating expenses, including drivers' wages,
insurance, tolls and fuels.

While the provisions of TSB-M-84(7)S do not specifically apply to limousine services, the
criteria set forth therein are also useful in determining whether a limousine service has relinquished
dominion and control of the vehicle within the meaning of regulation section 526.7(e).
In situations II, III, IV, V and VI, Petitioners' members meet requirements 1, 3, 4 and 5 set
forth above. If, in addition, Petitioner's members maintain the right to hire and fire the drivers, they
will fulfill requirement #2, as well. If Petitioner's members fulfill all five requirements, Petitioner's
members will be deemed to retain dominion and control over the limousines and thus to be providing
an exempt transportation service.
In situations I and VII, Petitioner's members relinquish dominion and control over the
limousines inasmuch as Petitioner's members do not use their own discretion in performing the
service and do not select their own routes. Accordingly, situation I and VII are rentals of tangible
personal property the receipts from which are subject to sales tax as further described below.
The final service which Petitioner's members provide is a driver only service (situation VIII).
In this situation, no equipment is provided to the customer. Accordingly, this transaction would not
be subject to sales tax.
Additionally, Sales and Use Tax Regulation section 530.4(b) provides in part:
(b) State and local sales and use tax schedule covering certain rentals
or leases of motor vehicles. Except as set forth in subdivision (c) of
this section, [regarding New York City rentals] provided all
registration fees and all insurance charges are paid by the lessor, the
amount of tax to be collected on charges for the rental or lease of
motor vehicles may be computed under article 28 or pursuant to
articles 28 and 29 of the Tax Law on 82 percent of the total rental or
lease charge, and such method of computation shall be in lieu of
separately stating a charge for these or other nontaxable items, such
as vehicle parking (including any amounts separately stated on
billings, other than charges for chauffeurs and helpers).

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Sales Tax
October 27, 1988

Accordingly, in those instances when Petitioner's members are deemed to be renting tangible
personal property (situations I and VII), Petitioner's members may avail themselves of the provisions
of regulation section 530.4(b) and compute their taxable receipts based upon 82% of the total rental
or lease charge.
Additionally, it should be noted that the results described above are based upon the facts
described by Petitioner in its Petition for Advisory Opinion. If a customer enters into an agreement
for the use of a limousine (e.g. for a prom or for a "night on the town") and the customer is able to
dictate the routes, schedule the time of arrival and departure, have the driver and limousine stand
by while the customer is having dinner or attending a function and for all intents and purposes have
the limousine available to the customer and subject to the customer's direction for the entire period
of rental, then the customer is exercising dominion and control over the vehicle and the transaction
would properly be deemed a taxable rental of tangible personal property.

DATED: October 27, 1988

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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