Is a 'marking service' — attaching price tickets to merchandise — a taxable enumerated service, and is it exempt as work on goods held for sale?

Plain-English summary

Morton L. Coren, P.C. asked about a "marking service" — the service of ticketing merchandise by attaching price-ticket labels to garments or other goods. The service is sometimes provided by the manufacturer but often by a company that also performs other garment-handling. The tickets carry price, size, color, brand, and return information; they stay with the item after purchase, and have no intrinsic value. Modern single-part price tickets are permanently attached by a special device and remain on the garment after it's sold. Coren asked whether marking is a taxable enumerated service and, if so, whether it's exempt when performed on merchandise held for sale.

The Department's answer, under Tax Law § 1105(c):

• Marking is a taxable enumerated service. Section 1105(c) taxes, among others, processing tangible personal property (§ 1105(c)(2)) and installing, maintaining, or servicing tangible personal property not held for sale (§ 1105(c)(3)). Affixing ticket labels to merchandise is one of the services subject to sales tax under § 1105(c).
• It can't be bought for resale. Drawing on Niagara Lubricant Company v. State Tax Commission (where the contents of containers were sold but not the containers, so services on the containers were taxable), the Department reasoned that here it is the merchandise that is sold — not the tickets. Because the tickets are not held for sale, the service of affixing them may not be purchased for resale, so no resale exclusion applies (citing the prior Morton L. Coren, TSB-A-92-23(S)).
• Result: taxable. The marking/ticketing service is subject to sales tax.

What this means for you

Ticketing, marking, and garment-handling services

If you attach price tickets or labels to a customer's merchandise, that's a taxable service under § 1105(c). You should be collecting sales tax on your marking charges.

The resale exclusion doesn't apply

You might expect that servicing goods held for sale would be exempt as a service bought for resale. But the Department focuses on what is actually sold — the merchandise, not the tickets. Because the tickets aren't held for sale, the service performed on them can't be purchased for resale, so it stays taxable.

The tickets' lack of value doesn't help

The tickets have no intrinsic value and remain on the goods after sale, but that doesn't convert the marking into a nontaxable step. It's still a taxable service performed on tangible personal property.

Accountants and tax professionals

The opinion treats ticket-marking as a § 1105(c) processing/servicing of tangible personal property and denies the resale exclusion using the Niagara Lubricant container analysis: the sold item is the merchandise, not the tickets, so servicing the (unsold) tickets isn't a service purchased for resale. Consistent with the earlier Morton L. Coren, TSB-A-92-23(S).

Common questions

Q: Is a price-ticketing (marking) service taxable in New York?
A: Yes. Attaching ticket labels to merchandise is one of the services taxed under § 1105(c).

Q: Isn't it exempt because it's done on goods held for sale?
A: No. The merchandise is sold, but the tickets are not held for sale. Because the service is performed on the (unsold) tickets, it can't be purchased for resale, so no resale exclusion applies.

Q: Why compare tickets to shipping containers?
A: In Niagara Lubricant, the container contents were sold but not the containers, so services on the containers were taxable. Likewise, the merchandise is sold here, not the tickets.

Q: Does it matter that the tickets have no intrinsic value?
A: No. The tickets' lack of value and their staying on the goods after sale don't change the taxability of the marking service.

Q: Who should collect the tax?
A: The provider of the marking service should collect sales tax on its charges for affixing the tickets.

Citations and references

Statutes and authorities:

• Tax Law § 1105(c)(2) (tax on processing tangible personal property furnished by the customer, not purchased for resale)
• Tax Law § 1105(c)(3) (tax on installing, maintaining, or servicing tangible personal property not held for sale in the regular course of business)
• Niagara Lubricant Company v. State Tax Commission, 120 A.D.2d 885; Morton L. Coren, Adv. Op. Comm. of T&F, Mar. 16, 1992, TSB-A-92-23(S)

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_46s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-92 (46) S
Sales Tax
June 16, 1992

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S920318A

On March 18, 1992 a Petition for Advisory Opinion was received from Morton L. Coren,
P.C., 638 Meadow Court, Westbury, New York 11590.
The issue raised by Petitioner, Morton L. Coren, P.C., is whether marking services are one
of the enumerated services subject to sales tax, and if so, are they exempt if performed upon tangible
personal property held for sale.
According to the Petitioner the service of ticketing merchandise is called a "marking service."
The service may be provided by the manufacturer, but is often provided by a company that performs
other garment handling services as well.
Companies use a marking service to attach ticket labels to garments or other merchandise.
The primary reasons for this type of service to persist is the relatively high price of the item. Since
the merchandise is easily damaged, special handling is required to insure that the tickets are attached
correctly.
The tickets includes information of value to the customer in addition to price including size,
color store/brand name, mens/women/unisex identification and return information. The tickets are
attached to garments or other merchandise for sale and remain with the items after the purchaser
obtains possession the merchandise. The tickets have no intrinsic value.
A multi-part ticket was in use by many large retail stores at one time. Part of the ticket was
removed at the time of sale and retained by the vendor to keep track of the merchandise sold in more
detail than was possible on a cash register (style, color, seasonal information). Part of the ticket was
also removed during inventory, for tallying on special machines.
Recent developments in computer technology have resulted in the development of point-of­
sale (POS) terminals. These terminals have replaced cash registers at most large retail stores. The
details of each sales transaction are entered into a terminal (Point-of-Sale cash register) at the time
of sale. This information then is electronically transmitted to a central computer for processing.
POS terminals have enabled retailers to eliminate many laborious steps formerly necessary
to keep track of sales by item, customer charge information, inventory levels and other relevant data.
Multi-part price tickets are no longer used for this reason. With the development of the POS
terminals came single part "price" tickets. These tickets are permanently attached by a special device
and cannot easily be removed without destroying the device. The ticket remains with the garment
after it is sold.
Section 1105(c) of the Tax Law provides, in part, that the receipts from every sale, except
for resale, of the following services shall be taxable:

-2­
TSB-A-92 (46) S
Sales Tax
June 16, 1992

(2)
[p]rocessing. . .tangible personal property, performed for a person who
furnishes the tangible personal property, not purchased for resale, upon which such
services are performed; and
(3) installing Tangible personal property. . .or maintaining, servicing. . .tangible
personal property, not held for sale in the regular course of business.
In considering the question of the taxability of services performed upon containers holding
tangible personal property for sale the Appellate Division held in Niagara Lubricant Company v.
State Tax Commission, 120 AD 2d 885, that the contents of the containers were sold but not the
containers themselves and thus the services performed upon the containers were subject to sales tax.
Similarly in the instant case it is the merchandise and not the tickets that are sold.
Accordingly the service of affixing ticket labels to merchandise is one of the services subject
to sales tax under section 1105(c) of the Tax Law. In addition, the service of affixing the tickets to
the merchandise may not be purchased for resale since the tickets are not held for sale. (See: Morton
L. Coren, Adv Op Comm of T&F, March 16, 1992, TSB-A-92-23(S))

DATED: June 16, 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.