How does New York sales tax apply to the many different services and equipment rentals an executive office suite provider bills to its tenants -- phone answering, copying, word processing, mail handling, catering, and pass-through charges?

Plain-English summary

An accountant asked the Department to sort out sales tax treatment for "Company A," which leases fully furnished business offices and also arranges or provides a long menu of business services tenants need to actually run an office: phone answering and paging, clerical work, copying and faxing, mail handling, reception, word processing, catering, and rentals of equipment like TVs, typewriters, and binding machines. Company A bills tenants separately for space, equipment, and each category of service, mostly at hourly rates (with per-call or per-page rates for some "Miscellaneous Service Charges," and cost-plus-20%-plus-clerical-charge for "Pass-Through Service Charges").

The Department's answer turns on a recurring theme: taxability depends on the end result of each specific service, and whether it's separately contracted for and billed. If a service is just an incidental part of general, non-itemized clerical/office support, it's not separately taxable at all. But once Company A specifically contracts for or separately bills a particular service, that service's own taxability rules kick in:

• Telephone-related services (paging, reading messages to voice mail, call screening, message relaying, assisted faxing, call patching) are generally taxable telephone/telegraph or telephone-answering services under § 1105(b) -- except interstate/international telephone/telegraph service, which is never taxed.
• Copying, faxing, and binding turn on who supplies the equipment: if Company A only supplies personnel to run a tenant's own machine, that's a taxable service under § 1105(c)(2); if Company A supplies the machine and materials too, it's instead treated as selling the resulting tangible copies/output under § 1105(a).
• Word processing is not taxable at all (following an existing ruling on temporary service contractors), even when it incorporates a tenant's own graphic designs -- but if Company A creates an original graphic design itself and hands it over in tangible form (like a diskette), that transfer can be taxed as a sale of property.
• Equipment rentals (TVs/VCRs, overhead projectors, typewriters, easels, binding machines) are straightforwardly taxable under § 1105(a) as rentals of tangible personal property.
• Catering and guest coffee service are taxable under § 1105(d), the same rule that taxes restaurant and catered food generally.
• Pass-through charges carry the same tax treatment as the underlying charge, including Company A's 20% markup and any clerical fee -- vendor expenses aren't deductible from taxable receipts, so a markup on an already-taxable charge stays taxable, and a markup on an exempt charge (like postage or a genuine transportation-only car service) stays exempt.
• Moving furniture can become a taxable installation service if it involves actually installing items, not just relocating them.
• Bundling matters: if Company A provides both taxable and nontaxable services to one tenant, the whole charge is taxable unless the taxable portion is separately stated and could be purchased on its own.

On the purchasing side, Company A must pay tax on equipment and supplies it uses itself to perform a nontaxable service, but can buy tax-free for resale anything that becomes part of a taxable service's output, gets transferred to the tenant, or is purchased purely to be rented out to tenants (with tax then collected on the rental itself).

What this means for you

Executive office suite, coworking, and business-center operators

Build your service menu and invoicing around this ruling's item-by-item table: telephone/answering services, equipment-based copying/faxing/binding, and equipment rentals are generally taxable; word processing and pure personnel-only clerical/mailing support generally aren't. Whether a service is separately contracted for and billed -- versus folded into general non-itemized office support -- can change its tax treatment, so review your billing structure, not just your service list.

Businesses billing "pass-through" costs with a markup

A markup (and any handling/clerical fee) on a pass-through cost inherits the tax status of the underlying charge -- you can't neutralize a taxable pass-through by labeling your markup separately, but a genuinely exempt pass-through (like actual postage, or a real transportation-only car service) keeps its exempt status even with a markup layered on.

Accountants and tax professionals

This ruling is an unusually detailed line-item template for a business-services provider with a mixed service menu -- useful any time a client bills tenants or customers for a combination of equipment-based services, personnel-only services, and pure equipment rental, since each category follows a different Tax Law subsection.

Common questions

Q: Is word processing taxable?
A: No -- word processing services are not subject to sales tax, following the Department's existing ruling on temporary service contractors, even when the work incorporates a tenant's own graphic content.

Q: Does it matter who owns the copier or fax machine?
A: Yes. If the tenant's own equipment is used and Company A just supplies the operator, that's a taxable service; if Company A supplies its own equipment and materials, the output (the copies) is instead taxed as a sale of tangible property.

Q: Can a business center avoid tax by bundling taxable and nontaxable services into one price?
A: No -- bundling actually works against the taxpayer here: if taxable and nontaxable services aren't separately stated (and separately purchasable), tax applies to the entire combined charge.

Q: Can another business-center operator rely on this ruling?
A: No. This advisory opinion binds the Department only as to the specific petitioner and the detailed service menu and billing structure described.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4)(i) (definition of retail sale)
• Tax Law § 1105(a) (tax on retail sales of tangible personal property)
• Tax Law § 1105(b) (tax on gas/electricity/telephone/telegraph service, including telephone answering service)
• Tax Law § 1105(c)(2) (tax on producing, fabricating, processing, printing or imprinting)
• Tax Law § 1105(c)(3) (installation services)
• Tax Law § 1105(c)(5) (maintaining, servicing or repairing real property)
• Tax Law § 1105(d) (tax on food and drink sold by restaurants, caterers, etc.)
• 20 NYCRR § 526.5(e) (vendor expenses not deductible from receipts)
• 20 NYCRR § 527.2(d), § 527.5(a)(4) (telephone/telegraph service and equipment)
• 20 NYCRR § 541.2(p) (rental vs transportation service; dominion and control)

Prior guidance referenced:

• Taxability of Services Provided by Temporary Service Contractors, TSB-M-87(13)S, October 28, 1987
• Department Publication 831 (mass mailings)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1997.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a97_11s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(11)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S941020A

On October 20,1994, a Petition for Advisory Opinion was received from
Richard W. Genetelli, C.P.A., 400 Madison Avenue, Suite 907, New York, New York
10017.
The issues raised by Petitioner, Richard W. Genetelli, C.P.A., are: (1)
whether separately stated charges for each of the below listed services are
subject to sales tax and (2) whether petitioner’s client is required to pay sales
or use tax on tangible personal property purchased for rental and/or consumed as
part of the service being provided or if such purchases are exempt as sales for
resale.
Petitioner submits the following facts as the basis for this Advisory
Opinion.
Petitioner’s client, Company A, is in the business of leasing completely
furnished business offices.
Company A also provides for and arranges for
services which are necessary to operate a business office. The services arranged
for or provided by Company A are enumerated below.
Company A provides each
tenant with a monthly bill separately stating the charges for the rental of the
office space, rental of the office equipment, as well as for the various business
services.
Petitioner submitted a sample rate schedule which indicates that,
generally, one hourly rate is charged for each category of services.
For
example, an hourly rate is charged for "Phone" services as a group, rather than
separate charges being made for each phone service. Different hourly rates,
however, are charged for each of the word processing services. Company A bills
for the clerical services listed below in increments of six minutes.
"Miscellaneous Service Charges" are, for the most part, not hourly rates but are
computed on a per call basis (for call patching) or per page basis (for copying
or faxing services). "Pass-Through Service Charges" are billed at cost plus 20
percent plus clerical charges when applicable. The charges for equipment rentals
are based on an hourly rental rate.
Petitioner submitted a list of the services and equipment provided by
Company A, which appears later in this Advisory Opinion.
Section 1101(b)(4)(i) of the Tax Law defines the term "retail sale" as
"[a] sale of tangible personal property to any person for any purpose, other than
(A) for resale as such or as a physical component part of tangible personal
property, or (B) for use by that person in performing the services subject to tax
under paragraphs (1), (2), (3), (5), (7) and (8) of subdivision (c) of section
eleven hundred five where the property so sold becomes a physical component part
of the property upon which the services are performed or where the property so
sold is later actually transferred to the purchaser of the service in conjunction
with the performance of the service subject to tax...."

-2TSB-A-97(11)S
Sales Tax

Section 1105 of the Tax Law provides, 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
property, except as otherwise provided in this article.

personal

(b) The receipts from every sale, other than sales for resale, of
gas, electricity, refrigeration and steam, and gas, electric,
refrigeration and steam service of whatever nature, and from every
sale, other than sales for resale, of telephony and telegraphy and
telephone and telegraph service of whatever nature except interstate
and international telephony and telegraphy and telephone and
telegraph service and from every sale, other than sales for resale,
of a telephone answering service.
(c) The receipts from every retail sale, except for resale, of the
following services:
*

*

*

(2) Producing, fabricating, processing, printing or imprinting
tangible personal property, performed for a person who directly or
indirectly furnishes the tangible personal property, not purchased
by him for resale, upon which such services are performed.
*

*

*

(5) Maintaining, servicing or repairing real property, property or
land, as such terms are defined in the real property tax law,
whether the services are performed in or outside of a building, as
distinguished from adding to or improving such real property,
property or land, by a capital improvement as such term capital
improvement is defined in paragraph nine of subdivision (b) of
eleven hundred one of this chapter, but excluding services rendered
by an individual who is not in a regular trade or business offering
his services to the public.
*

*

*

(d)(i) The receipts from every sale of beer, wine or other alcoholic
beverages or any other drink of any nature, or from every sale of
food and drink of any nature or of food alone, when sold in or by
restaurants, taverns or other establishments in this state, or by
caterers, including in the amount of such receipts any cover,
minimum, entertainment or other charge made to patrons or customers
(except those receipts taxed pursuant to subdivision (f) of this
section):

-3TSB-A-97(11)S
Sales Tax

(1) in all instances where the sale is for consumption on the
premises where sold;
(2) in those instances where the vendor or any person whose services
are arranged for by the vendor, after the delivery of the food or
drink by or on behalf of the vendor for consumption off the premises
of the vendor, serves or assists in serving, cooks, heats or
provides other services with respect to the food or drink ... .
The taxability of the services provided by Company A, which are listed
below, depends on the end result of the service contracted to be performed. For
example, assume that Company A contracts for its employees to provide general
clerical or office support services.
The employees may perform some of the
services listed below, such as recording messages or copying, as an incident of
providing general office support, but Company A does not make separate charges
to its tenants for these specific services.
In this example, Company A is
providing general clerical or office support services, which are not taxable
services.
However, if Company A contracts with its tenants to specifically
provide a particular service, or separately charges for a particular service
(e.g., the "Miscellaneous Service Charges" and "Pass-Through Service Charges"
described above), then Company A must collect tax on the receipts from the sale
of such service if the service is taxable.
The following is a list of the services and equipment provided by Company
A, an indication of whether the services, if separately contracted for, and
equipment may be taxable, and, if taxable, the section of the Tax Law which taxes
them.
Clerical Services
Phone
Paging
Appointment setting and confirmations
Reading messages to voice mail
Assisted Faxing out
Call-outs
Car Service
Courier Service
Florist Orders
Restaurant Reservations
Others
Call Patching
Call Screening
Message Relaying
Assisted Faxing In

Taxable

Exempt

§1105(b)
x
§1105(b)
§1105(b)
x
x
x
x
x
x
§1105(b)
§1105(b)
§1105(b)
§1105(b)

Office
Filing
Copying
Office Organization
In-house Deliveries

x
§1105(c)(2) or
§1105(a)
x
x

-4TSB-A-97(11)S
Sales Tax

Binding
Special Requests

§1105(c)(2)
Note

Concierge
Catering
Guest Coffee Service
Opening Offices
Audio/Visual Set-up

§1105(d)
§1105(d)

Conference Room/Office Cleanup
Miscellaneous Errands

§1105(c)(5)
Note

x
§1105(a)
(only
if
related to equipment
rentals)

Taxable

Exempt

Special Mail Handling
Federal Express
UPS
Mass Mailings

x
x
§1105(c)(2)
See: Pub 831

Registered/Certified Mail

x

Reception Services
Greeting and Announcing Visitors
Announcing Deliveries
Recording Phone Messages
Scheduling Conference Room Time

x
x
§1105(b)
x

Word Processing (additional charges are made for rush orders and overtime work)
Basic Word Processing
Enhanced Word Processing
Graphical Design

x
x
Note

Miscellaneous Service Charges
Call Patching
Self Service Copying
Faxes In
Faxes Out
Binding (covers available)

§1105(b)
§1105(a)
§1105(b)
§1105(b)
§1105(a),(c)(2)

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Sales Tax

Additional Courtesy Office/Conference room time
Moving of Furniture, Pictures & Plants

x
Note

Pass-Through Service Charges

Catering
Postage
Federal Express
UPS
Messenger Service
Car Service
Printing
All Others

Taxable
§1105(d)

Exempt
x
x
x
x

Note
§1105(a),(c)(2)
Note

Equipment Rental
TV/VCR
Overhead Projector
MemoryWriter Typewriter
Easel with Paper
Binding Machine
Special Requests

§1105(a)
§1105(a)
§1105(a)
§1105(a)
§1105(a)
§1105(a)

Note: These transactions contain insufficient information to determine their
taxability. See discussion below for further explanation of these transactions.

With respect to the "Phone" services listed above, services such as reading
messages to voice mail, call screening and message relaying may be taxable under
Section 1105(b) of the Tax Law as telephone answering services. Other services
such as paging, faxing and call patching may be taxable under Section 1105(b) as
telephone and telegraph service.
It should be noted that interstate or
international telephone and telegraph service is not subject to tax. If, in
addition to the "Phone" services, Company A purchases telephone and telegraph
service from a utility and resells this service to its tenants, and also provides
its tenants with related equipment,
Company A is considered to be selling
telephone and telegraph service, and, depending on the circumstances, tangible
personal property as well. See Sections 527.2(d) and 527.5(a)(4) of the Sales
and Use Tax Regulations. Company A must collect sales tax on charges made to its
tenants for such telephone and telegraph service and related equipment.
The application of sales tax to some of the services provided by Company
A may vary, depending on whether Company A only provides personnel to operate
equipment owned or leased by its tenants, or whether Company A also provides the
equipment and supplies necessary for performance of the service. For example,
if Company A contracts to provide a copying service to its tenants and only
provides personnel to operate the tenant's copying machine, then Company A is
considered to be performing a service for the tenant which is taxable under
Section 1105(c)(2) of the Tax Law. If Company A furnishes a copying machine and
supplies, as well as personnel to operate the machine, then Company A is

-6TSB-A-97(11)S
Sales Tax

considered to be selling tangible personal property (i.e., the copies) to the
tenant. The receipts from the sale of tangible personal property are taxable
under Section 1105(a) of the Tax Law. Similarly, binding services performed by
Company A's employees may be considered to be either a taxable service under
Section 1105(c)(2) of the Tax Law or the sale of tangible personal property,
depending on whether Company A only provides personnel to run a tenant's binding
machine, or also provides a binding machine and supplies.
Word processing services are not subject to tax.
See Taxability of
Services Provided by Temporary Service Contractors, TSB-M-87(13)S, October 28,
1987. Services performed by Company A that are similar to word processing and
which incorporate graphic designs provided by a tenant into a document are also
nontaxable. However, graphical design performed by Company A may be taxable as
the sale of tangible personal property if Company A develops an original design
for use by a tenant and transfers the design to the tenant in a tangible format
such as a diskette.
"Miscellaneous Service Charges" for moving furniture may be taxable under
Section 1105(c)(3) of the Tax Law if installation services are performed in
connection with moving the furniture.
Petitioner indicates that the Pass-Through Service Charges are billed at
cost plus 20% and clerical charges. Section 526.5(e) of the Sales and Use Tax
Regulations provides that
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.
Consequently, Company A's 20% mark-up and
clerical charge (Pass-Through charges) carry the same tax consequence as the cost
component of the charge. For additional information concerning temporary service
contractors, see TSB-M-87(13)S, Taxability of Services Provided by Temporary
Service Contractors.
It should be noted that Pass-Through charges for "Car
Service" are not taxable if Company A is providing a transportation service. If,
however, dominion and control of the vehicle are transferred to the customer,
Company A may be considered to be renting tangible personal property.
See
Section 541.2(p) of the Sales and Use Tax Regulations.
It is further noted that Company A is required to pay sales or use tax on
tangible personal property used by it in rendering non-taxable services to its
tenants. Company A may purchase for resale tangible personal property used in
performing a taxable service if such property becomes a component part of the
property on which the service is performed, or such property is transferred to
the tenant in conjunction with the performance of the service.
See Section
1101(b)(4)(i) of the Tax Law. If Company A purchases tangible personal property,
such as office furniture, fax machines, photocopying machines, word processing
equipment, televisions, VCR's, etc., for the sole purpose of resale, as such, by
leasing the property to its tenants, then Company A may purchase such property
for resale without the payment of sales tax. In that case, Company A would
collect tax on such rentals to its tenants.
If Company A purchases such
equipment to use to provide fax service, copy service, word processing service,
etc., then Company A would be using the equipment itself and not for resale, as
such. In that case, Company A would be required to pay tax on its purchase of
the equipment.

-7TSB-A-97(11)S
Sales Tax

When Company A provides taxable and nontaxable services to a tenant, sales
tax must be collected on the entire charge, unless the charges for the taxable
services are separately stated and such services may be purchased separately from
the nontaxable services.

DATED: March 6, 1997

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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