Does the 5% special tax on passenger-car rentals apply when a taxi company leases cabs to drivers by the shift?

Plain-English summary

BEJ Taxi Corp. leases cabs to drivers in Albany County on a shift basis — shifts of 6 to 12 hours — and pays the registration fees, insurance, and other nontaxable charges itself. It already collects ordinary sales tax on these leases, computed on 82% of the charge. It asked whether the 5% special tax on passenger-car rentals under § 1160 (in effect since June 1, 1990) also applies.

The Department said yes:

• The cabs qualify. They are motor vehicles (§ 1160(b)(1)) and passenger cars (§ 1160(b)(2)), and transferring them to drivers for 6-to-12-hour shifts for consideration is a "rental" under § 1160(b)(3). So the 5% special tax applies to BEJ's shift-lease receipts under § 1160(a)(1).
• The 82% computation option applies to the special tax too. Under 20 NYCRR § 541.9(c)(2)(iii), when the lessor pays all registration, insurance and other nontaxable items, tax may be figured on 82% of the total charge. Because § 1165 makes the Article 28 definitions and exemptions apply to the § 1160 tax, that 82% option carries over to the special tax.
• Bottom line: in Albany County, BEJ should collect 7% ordinary sales tax plus the 5% special tax, each on 82% of the rental charge.
• Caveat: the 82% option exists only in the regulation, not the statute, so if that regulation were repealed BEJ would lose the exclusion.

What this means for you

Shift-leasing cabs to drivers is a taxable "rental" — including the 5% surcharge

A taxi company that hands cabs to drivers for a shift fee is renting passenger cars. That triggers both ordinary sales tax and the 5% § 1160 passenger-car rental tax, even though it looks like an in-house driver arrangement rather than a consumer car rental.

The 82% base reduction flows through to the special tax

Because § 1165 imports Article 28's rules into the § 1160 tax, the same 82% computation you use for ordinary sales tax (when you, the lessor, cover registration and insurance) applies to the 5% tax. Both taxes are figured on the reduced base.

That 82% break is regulatory, not statutory

The Department flagged that § 541.9(c)(2)(iii) is not backed by statute — so it could be repealed, which would put tax back on 100% of the charge. Don't treat the 82% figure as permanent.

Common questions

Q: Does the 5% passenger-car rental tax apply to taxi shift leases?
A: Yes. The cab is a passenger car and a shift-basis transfer for consideration is a rental under § 1160, so the 5% tax applies.

Q: What rate does BEJ actually collect?
A: In Albany County, 7% ordinary sales tax plus 5% special tax, each computed on 82% of the rental charge.

Q: Why can tax be figured on 82% instead of the full charge?
A: Because the lessor pays the registration, insurance and other nontaxable items, § 541.9(c)(2)(iii) allows an 82% base — and § 1165 extends that option to the § 1160 tax.

Citations and references

Statutes and regulation:

• Tax Law § 1160 — 5% special tax on passenger-car rentals (effective June 1, 1990); definitions of motor vehicle, passenger car, rental
• Tax Law § 1165 — § 1160 administered/collected like the § 1105/§ 1110 taxes, with Article 28 definitions and exemptions applying
• 20 NYCRR § 541.9(c)(2)(iii) — 82% computation option when the lessor pays registration, insurance and other nontaxable items

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a91_20s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-91 (20)S
Sales Tax
February 13, 1991

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S910117B

On January 17, 1991 a Petition for Advisory Opinion was received from BEJ Taxi Corp., 137
Lark Street, Albany, New York 12210.
The issue raised by Petitioner, BEJ Taxi Corp., is whether the 5% special tax on passenger
car rentals imposed by Section 1160 of the Tax Law applies to the lease of cars by Petitioner to taxi
drivers on a shift by shift basis.
Petitioner is a taxi company. It leases cars to taxi drivers in Albany County on a shift basis,
the shifts ranging in time from 6 to 12 hours. Petitioner pays the registration fees, insurance fees and
other nontaxable charges. Historically, Petitioner has charged and collected sales tax due on such
leases pursuant to Section 1105 of the Tax Law at 82% of the total lease charge pursuant to Section
541.9(c)(2)(iii) of the Sales and Use Tax Regulations.
Section 1160 of the Tax Law provides in part that:
(a)(1) On and after June first, nineteen hundred ninety, in addition to any tax imposed under
any other article of this chapter, there is hereby imposed and there shall be paid a tax of five percent
upon the receipts from every rental of a passenger car which is a retail sale of such passenger car.
*
(b)

*

*

For purposes of this section, the following definitions shall apply:
(1)

Motor vehicle. A motor vehicle as defined in section one hundred twenty­
five of the vehicle and traffic law, but not including a motorcycle.

(2)

Passenger car. A motor vehicle having a gross vehicle weight of nine
thousand pounds or less with a seating capacity of nine persons or less
designed for passenger transportation.

(3)

Rental. The transfer of possession of a motor vehicle, whether or not the
motor vehicle is required to be or is registered by this state, for a
consideration, without the transfer of the ownership of such motor vehicle,
but not including a lease described in subdivision (i) of section eleven
hundred eleven of this chapter.

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TSB-A-91 (20)S
Sales Tax
February 13, 1991

Section 1165 of the Tax Law provides in part that:
The tax imposed by section eleven hundred sixty of this article shall be
administered and collected in a like manner as and jointly with the taxes imposed by
sections eleven hundred five and eleven hundred ten of article twenty-eight of this
chapter. All of the provisions of such article twenty-eight (except sections eleven
hundred seven, eleven hundred eight and eleven hundred nine) relating to or
applicable to the administration, collection, review and disposition of the taxes
imposed by such sections eleven hundred five and eleven hundred ten, including, but
not limited to, the provisions relating to definitions, exemptions, returns, personal
liability for the tax, collection of tax from the customer, collection of tax at the time
of registration of a motor vehicle and payment of tax by a person required to file a
return, shall apply to the tax imposed by this article so far as such provisions can be
made applicable to the tax imposed by this article with such limitations as set forth
in this article and such modifications as may be necessary in order to adapt such
language to the tax so imposed. Such provisions shall apply with the same force and
effect as if the language of those provisions had been set forth in full in this article
except to the extent that any provision is either inconsistent with a provision of this
article or is not relevant to the tax imposed by this article. For purposes of this
article, any reference in article twenty-eight to the tax or taxes imposed by such
article shall be deemed to refer to the tax imposed by this article also unless a
different meaning is clearly required . . ..
Section 541.9(c)(2)(iii) of the Sales and Use Tax Regulations provides that:
Where the lessor pays all registration fees, insurance charges, and other nontaxable
items, the tax to be collected from the contractor on the charges for the rental or lease
of a motor vehicle may be computed on 82% of the total rental or lease charge, unless
a charge is subject to the sales tax in New York City in which case the tax on each
such charge may be computed on 90% of the total charge. When the exclusion is
claimed, the registration fees, insurance charges and other nontaxable items charged
the contractor (other than the driver's and helper's wages if separately stated) must be
included in the total rental or lease charges. If the lessee has an option to pay for
additional insurance coverage, such charge, if separately stated is exempt from the
tax.
The taxicabs leased by Petitioner to drivers are motor vehicles as defined in Section
1160(b)(l) of the Tax Law. They are also passenger cars as defined in Section 1160(b)(2) of the Tax
Law. The transfer of the taxicabs to drivers for shifts ranging in time from 6 to 12 hours for a
consideration constitutes a rental as defined in Section 1160(b)(3) of the Tax Law. Therefore the
5% special tax on passenger car rentals imposed by Section 1160(a)(1) of the Tax Law is

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TSB-A-91 (20)S
Sales Tax
February 13, 1991

applicable to receipts received by Petitioner from the rental of taxicabs on a shift basis to drivers.
Furthermore the provisions of Section 541.9(c)(2)(iii) of the Sales and Use Tax Regulations
providing for the computation of tax at an 82% rate where the lessor of a motor vehicle pays all
registration fees, insurance charges and other nontaxable items are applicable to the 5% special tax
on passenger car rentals imposed by Section 1160(a)(1) of the Tax Law. This is true because Section
1165 of the Tax Law provides that all of the provisions relating to definitions and exemptions
concerning taxes imposed by Section 1105 of the Tax Law will apply to the tax imposed by Section
1160(a)(l) of the Tax Law.
Therefore Petitioner in computing the tax due on its rental of taxicabs to drivers should
collect sales tax in Albany County at the rate of 7% plus 5% times 82% of the rental charge.
It should be noted that Section 541.9(c)(2)(iii) of the Regulations is not provided for by
statute and therefore if this section of the Regulations was to be repealed, the Petitioner would not
be entitled to the exclusion provided by said Section.

DATED: February 13, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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