When a service provider bills a customer for travel, hotel, meals, and other expenses, are those reimbursements part of the taxable charge?

Plain-English summary

Helmel Engineering Products Inc. installs and services exempt manufacturing machinery for New York customers. When it bills a job, it adds the expenses its employees incur — mileage, hotel, auto rental, and meals — plus any sales tax it paid on those. Customers accept tax on the installation/service labor but object to paying tax on the reimbursed expenses. Helmel asked whether it must collect tax on those expense amounts.

The Department said the expenses are taxable:

• A "receipt" includes expenses. Under Tax Law § 1101(b)(3) and Regulation § 526.5, a receipt is "the amount of the sale price ... without any deduction for expenses." Regulation § 526.5(e) is explicit: all expenses incurred by a vendor in making a sale — including travel and similar service charges — are not deductible from the receipts, regardless of their own taxable status and regardless of whether they are billed to the customer. The regulation's Example 2 shows a repairman's travel and meal charges folded into the taxable receipt. So Helmel's entire billing, expenses included, is the taxable sale price under § 1105(a).

The Department then laid out how the production-machinery rules affect the same transaction:

• The machinery itself — if used directly and predominantly to produce tangible personal property for sale — is exempt under § 1115(a)(12) (this covers parts with a useful life of more than one year).
• Short-life parts (one year or less), tools, supplies, and the service of installing/repairing/maintaining that machinery are exempt from the 4% statewide tax under § 1105-B(a) and (b).
• Local tax: the short-life parts, tools, and supplies are exempt from local sales tax except New York City (§ 1210(a)(1)); but the service of installing/repairing/maintaining the machinery remains subject to New York City tax and all other applicable local taxes.

In short: the reimbursed expenses can't be stripped out of the taxable charge — but for genuine production machinery, the state-level tax on the service is eliminated under § 1105-B, leaving mainly local (and NYC) tax on the service.

What this means for you

Billed expenses are part of the taxable charge — separately stating doesn't help

A recurring misunderstanding: businesses assume that passing through travel, lodging, and meals as reimbursements makes them non-taxable, especially if itemized. New York says the opposite. The "receipt" for a taxable service is the whole price, and § 526.5(e) refuses any deduction for expenses even when separately billed. If the underlying service is taxable, the expense line items are taxable too.

Production machinery gets a rate break — but watch the local layer

For machinery used directly and predominantly to make goods for sale, the analysis has layers: the machine is exempt (§ 1115(a)(12)); the service and short-life parts are exempt from the 4% state tax (§ 1105-B); short-life parts escape local tax except in NYC (§ 1210(a)(1)); but the installation/repair service stays subject to NYC and other local taxes. Don't assume "production machinery" means fully tax-free — the service can still carry local tax.

Accountants and tax professionals

Two independent rules are in play. First, the receipt rule (§ 1101(b)(3), § 526.5): no deduction for expenses, billed or not. Second, the § 1105-B rate structure for production machinery, which zeroes the state rate on qualifying parts and services but preserves local/NYC tax on the service. Apply them in sequence: compute the full taxable receipt, then apply the correct state/local rates based on whether the machinery qualifies as production equipment.

Common questions

Q: Are the travel, hotel, and meal charges the servicer bills taxable?
A: Yes. Under § 1101(b)(3) and Regulation § 526.5, expenses are part of the taxable receipt and can't be deducted, even if separately billed.

Q: Does itemizing the expenses on the invoice make them non-taxable?
A: No. The regulation disallows any deduction for expenses "regardless of whether they are billed to a customer."

Q: Is the service on production machinery taxable?
A: It's exempt from the 4% statewide tax under § 1105-B when the machinery is used directly and predominantly to produce goods for sale, but it remains subject to New York City and other applicable local sales taxes.

Q: What about the machinery itself and small parts?
A: Qualifying production machinery is exempt under § 1115(a)(12); short-life parts, tools, and supplies are exempt from the state tax under § 1105-B and from local tax except in New York City (§ 1210(a)(1)).

Citations and references

Statutes, regulations, and authorities:

• Tax Law § 1101(b)(3) (receipt = sale price with no deduction for expenses)
• Tax Law § 1105(a) and § 1105(c)(3) (tax on retail sales and on installing/servicing/repairing tangible personal property)
• Tax Law § 1105-B(a), (b) (reduced-then-eliminated state tax on production-machinery short-life parts and on installing/repairing/maintaining § 1115(a)(12) machinery)
• Tax Law § 1115(a)(12) (exemption for machinery/equipment used directly and predominantly in producing tangible personal property for sale)
• Tax Law § 1210(a)(1) (local taxes must exclude production machinery; NYC exception noted)
• Sales and Use Tax Regulations § 526.5(a), (e) (definition of receipt; expenses not deductible; Example 2)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1992.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a92_15s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-92 (15)S
Sales Tax
February 26, 1992

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK

COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S911016A

On October 16, 1991 a Petition for Advisory Opinion was received from Helmel Engineering
Products Inc., 6520 Lockport Road, Niagara Falls, New York 14305.
The issue raised by Petitioner, Helmel Engineering Products Inc., is whether it is liable for
collecting sales tax from customers on the total itemized charges for installing or servicing exempt
machinery or equipment when the charges include expenses incurred by Petitioner's employees such
as mileage charges, hotel expenses, auto rental charges and meal expenses plus any applicable sales
tax paid by Petitioner.
Petitioner installs and services exempt manufacturing machinery for customers located within
New York State. Petitioner's customers do not object to paying sales tax on amounts billed for the
actual installation or service but do object to paying sales tax on the amounts billed for the various
incurred expenses enumerated above.
Section 1101(b)(3) of the Tax Law defines "receipt" as the amount of the sale price of any
property and the charge for any service taxable under Articles 28 and 29, without any deduction for
expenses.
Section 526.5 of the Sales and Use Tax Regulations states, in part:
Receipt. [Tax Law, §§1101(b)(3), 1111(h)] (a) Definition. The word receipt
means the amount of the sale price of any property and the charge for any service
taxable under articles 28 and 29 of the Tax Law, valued in money, whether received
in money or otherwise. . . .
(e) Expenses. All expenses, including telephone and telegraph and other
service charges, 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.
Example 2:

An appliance repairman charges $10 per hour plus expenses when on
a service call. The customer is billed as follows:
3 hrs. at $10
Travel
Parts
Meals
Total Due
Receipt subject to tax is $70

$30.00
15.00
20.00
5.00
$70.00

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TSB-A-92 (15)S
Sales Tax
February 26, 1992

Section 1105 of the Tax Law states, in part:
Imposition of sales tax.--. . .there is hereby imposed and there shall be paid
a tax. . .upon:
(a) The receipts from every retail sale of tangible personal property, except
as otherwise provided in this article.
(c) The receipts from every sale, except for resale, of the following services:
(3) Installing tangible personal property. . .or maintaining, servicing or
repairing tangible personal property. . .
Section 1105-B of the Tax Law states, in part:
Reduced tax rates on certain parts, tools, supplies and services relating to
tangible personal property used or consumed in production.-­
(a) Notwithstanding any other provisions of this article, but not for purposes
of the taxes imposed by section eleven hundred seven or eleven hundred eight or
authorized pursuant to the authority of article twenty-nine of this chapter, the taxes
imposed by subdivision (a) of section eleven hundred five on the receipts from the
retail sales of parts with a useful life of one year or less,. . .for use or consumption
directly or predominantly in the production of tangible personal property. . .for sale
by manufacturing. . .shall be paid at the rate of two percent. . .commencing
September first, nineteen hundred eighty. . ., and such retail sales shall be exempt
from such tax on and after March first, nineteen hundred eighty-one.
(b) Notwithstanding any other provisions of this article, but not for the
purposes of the taxes imposed by section eleven hundred seven or eleven hundred
eight or authorized pursuant to the authority of article twenty-nine of this chapter, the
taxes imposed by subdivision (c) of section eleven hundred five on receipts from
every sale of the services of installing, repairing, maintaining or servicing the
tangible personal property described in paragraph twelve of subdivision (a) of section
eleven hundred fifteen, including the parts with a useful life of one year or less,. .
.described in subdivision (a) of this section, to the extent subject to such tax, shall be
paid at the rate of two percent. . .commencing September first, nineteen hundred
eighty. . ., and such receipts shall be exempt from the tax. . .imposed under
subdivision (c) of section eleven hundred five on and after March first, nineteen
hundred eighty-one.
Section 1115 of the Tax Law states, in part:
Exemptions from sales and use taxes.

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TSB-A-92 (15)S
Sales Tax
February 26, 1992

(a) Receipts from the following shall be exempt from the tax on retail sales imposed under
subdivision (a) of section eleven hundred five and the compensating use tax imposed under
section eleven hundred ten:
(12) Machinery or equipment for use or consumption directly and predominantly in
the production of tangible personal property. . .for sale. . ., but not including parts
with a useful life of one year or less or tools or supplies used in connection with such
machinery, equipment. . . .
Section 1210 of the Tax Law states, in part:
Taxes of Cities and Counties Administered by State Tax Commission.
(a)(1). . .Any local law, ordinance or resolution, enacted by any city of less than 1
million or by any county or school district imposing the taxes authorized by this
subdivision, shall exclude from the operation of such local taxes all sales of tangible
personal property for use or consumption directly and predominantly in the
production of tangible personal property. . .for sale by manufacturing. . .
In the instant matter, the portion of receipts billed by Petitioner as expenses which are
incurred in the performance of Petitioner's employees' installation or service assignments, under the
provisions of Section 1101(b)(3) of the Tax Law and Section 526.5(a) and (e) of the Sales and Use
Tax Regulations cannot be excluded from the total receipts subject to tax. The entire billing,
including any expenses incurred by Petitioner's employees, is considered to be the sales price paid
by Petitioner's customers for the installation or servicing of machinery or equipment and therefore
is subject to the sales tax imposed under Section 1105(a) of the Tax Law.
However, where such machinery or equipment is used directly and predominantly to produce
tangible personal property for sale, the receipts from the sale of such machinery or equipment,
including parts with a useful life of more than one year, will qualify for the exemption from New
York State and local sales tax as provided under Section 1115(a)(12) of the Tax Law.
The receipts from the sale of parts with a useful life of one year or less, tools and supplies
and the sale of the service of installing, repairing or maintaining such machinery or equipment
including the parts with a useful life of one year or less, tools and supplies will be exempt from the
statewide tax of 4% under the provisions of Section 1105-B (a) and (b) of the Tax Law, respectively.
The receipts from the sale of parts with a useful life of one year or less, tools and supplies
will be exempt from all local sales and use taxes except the New York City tax where applicable,
under the provisions of Section 1210(a)(1) of the Tax Law.

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TSB-A-92 (15)S
Sales Tax
February 26, 1992

However, the receipts from the service of installing, repairing, maintaining or servicing such
machinery and equipment, including parts, tools and supplies used in connection with such
machinery or equipment will be subject to the New York City tax, where applicable, and subject to
all other local sales and use tax, where applicable.

DATED: February 26, 1992

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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