Are a family-run sailboat charter operator's day-cruise fees (including a boxed lunch) subject to New York sales tax?

Plain-English summary

Henry Geerken runs a small, family-operated day-charter sailing business on his 36-foot boat on Lake Champlain, with cruises running 9am to 3pm and no employees beyond himself, his wife, and daughter. He charges a flat rate per trip (covering up to three passengers, sailing, and a boxed lunch), plus a per-person surcharge for additional passengers up to the boat's six-person capacity. Passengers pick from a few predetermined destinations, but Geerken himself sails the boat, chooses the specific route, and never turns over the helm or the boat's operation to his customers. Geerken asked whether his charges are subject to New York sales tax.

Chartering a boat is generally a taxable rental of tangible personal property if the charterer (the customer) gets direction and control over how the boat is operated. But New York applies the same "dominion and control" analysis used for bus charters: if the operator retains full control -- no transfer of possession or operational control to the customer, the operator keeps the right to hire/fire any crew, exercises discretion over the route, stays responsible for operating the vehicle, and pays all the operating costs -- then what's really being sold is a nontaxable transportation service, not a rental. Geerken checks every one of those boxes: passengers' rights are limited to boarding, sailing to an agreed destination, and disembarking, while Geerken alone determines the specific route, retains possession of the boat throughout, would have the right to hire or fire any crew he chose to add, and bears all operating costs and responsibility. Because Geerken never relinquishes dominion and control of his boat, his day-charter fees (boxed lunch included, since it's part of one nontaxable transportation charge, not a separate restaurant sale) are a nontaxable transportation service.

What this means for you

Boat charter operators, especially owner-operated day-cruise businesses

If you personally captain the vessel, choose the route, and never hand over operational control to your passengers, your charter fees are likely a nontaxable transportation service rather than a taxable rental -- even though the boat itself is tangible personal property.

Charter and excursion businesses that also serve food

A meal included as part of one flat charter fee (not billed or sold as a separate restaurant transaction) can ride along with the underlying nontaxable transportation charge, rather than triggering a separate tax on food service.

Accountants and tax professionals

This ruling extends the bus-charter "dominion and control" test from TSB-M-84(7)S to boat charters, following the same approach the Department has used for limousines and hot-air balloon rides -- useful precedent for any owner-operated vehicle or vessel charter business questioning whether it's making a taxable rental or a nontaxable transportation service.

Common questions

Q: Is chartering a boat with a captain always a nontaxable transportation service?
A: Not automatically -- it depends on whether the boat's owner/operator retains full dominion and control (choosing the route, staying responsible for operation, paying all costs) rather than turning that control over to the charterer.

Q: Does providing a meal as part of the charter package create a separate taxable charge?
A: Not here -- because the boxed lunch is included in one flat charter fee rather than sold as a separate restaurant transaction, it's treated as part of the overall nontaxable transportation charge.

Q: What test does New York use to tell a taxable rental from a nontaxable charter/transportation service?
A: Whether the vehicle or vessel owner retains "dominion and control" -- no transfer of possession/control to the customer, retained hire/fire rights over any crew, the owner's own discretion over routes, and the owner bearing all operating costs and responsibility.

Q: Does this ruling apply to my boat charter or similar owner-operated excursion business?
A: Not automatically. An Advisory Opinion binds the Department only for the taxpayer and facts it was issued to, and it can't be relied on by anyone else. Your own operating arrangement would need its own analysis.

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_52s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(52)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S970513A

On May 13, 1997, the Department of Taxation and Finance received a Petition
for Advisory Opinion from Henry F. Geerken, RD#1 Box 70, Worcester, NY 12197­
9706. Petitioner, Henry F. Geerken, provided additional information pertaining
to the petition on May 20, 1997.
The issue raised by Petitioner is whether his charges for day charter
sailing excursions are subject to sales tax.
Petitioner submitted the following facts as the basis for this Advisory
Opinion.
Petitioner operates a passenger charter sailing excursion business with his
thirty-six-foot clipper cutter ketch on the waters of Lake Champlain. This is
a family-owned business run by Petitioner, his wife and their daughter; they have
no other employees or crew. The business is a day charter business only. The
cruises begin at 9:00 a.m. and end at 3:00 p.m. Petitioner charges $150 for
three people, which includes sailing for six hours and a box lunch consisting of
sandwiches, soda and chips. Petitioner makes advance ticket sales, requiring a
deposit of $75 and payment of the balance due upon boarding the boat. The ketch
can carry up to six passengers, for which Petitioner charges the $150 plus $50
for each person more than three.
Passengers are given a choice of sailing the broad reaches of Lake
Champlain, visiting Cole Island which is in New York State waters, or of
traveling up Otter Creek to Vergennes, Vermont. All cruises include sailing in
both New York State and Vermont waters.
The sailing season is from May 29 to September 7. Petitioner and his family
live aboard the boat during the season only, and their legal residence is in New
York State. When Petitioner began business last year, he was unable to procure
dock space in New York and therefore the principal berth and home port for the
boat is in Point Bay Marina, Charlotte, Vermont. From this port, Petitioner
picks up and discharges his passengers for the day cruises. Petitioner conducts
his business operations from within New York State. The $75 deposits are mailed
to his New York address.
Applicable Law and Regulations
Section 1105(a) of the Tax Law imposes sales tax on the receipts from sales
(including rentals) of tangible personal property.
Section 1101(b)(5) of the Tax Law defines the terms "sale, selling or
purchase," in part, to mean:

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TSB-A-97(52)S
Sales Tax

Any transfer of title or possession or both, exchange or barter,
rental, lease or license to use or consume . . . for a
consideration, or any agreement therefore, including the rendering
of any service, taxable under this article, for a consideration or
any agreement therefor.
Section 1105(d)(i) of the Tax Law imposes sales tax on the receipts 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
. . . in all
instances where the sale is for consumption on the premises where sold . . ."
Section 526.7(e) of the Sales and Use Tax Regulations provides, 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.
Technical Services Bureau Memorandum TSB-M-84(7)S, dated April 10, 1984,
entitled Bus Company Transactions -- Transportation Service vs. Equipment Rental,
provides, in part:

1. Where a bus company conducts a tour for which it determines the
   time and destination and sells tickets at a predetermined price, the
   company is providing a transportation service which is exempt.
   2.
   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. A chartering party’s rights are
   limited to boarding the bus and riding to the agreed destination. .
   . .
   Dominion and control remains with the owner of a vehicle when
   pursuant to an agreement or contract:
2. 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 . .
   . and generally selects his own routes; and

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TSB-A-97(52)S
Sales Tax

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.
   Opinion
   Petitioner is engaged in the business of providing the use of his boat,
   including his service as a navigator, for day cruises both in and outside New
   York State waters to predetermined destinations for a fixed period of time. The
   chartering of a boat constitutes a rental of tangible personal property that is
   subject to tax if the charterer has direction and control over the boat’s
   operation. While the provisions of TSB-M-84(7)S, supra, do not specifically
   apply to the chartering of a boat, the criteria set forth therein are useful in
   determining whether Petitioner has relinquished dominion and control of his boat
   within the meaning of Sales Tax Regulation Section 526.7(e) (see Limousine
   Operators of Western New York, Inc., Adv Op Comm T&F, October 27, 1988,
   TSB-A-88(55)S).
   In Petitioner’s case, the chartering party’s rights are limited to boarding
   the boat at the home port, sailing to the agreed upon destination and returning
   to the home port for disembarkation.
   Although the destinations are
   predetermined, they are tailored to the wishes of the passengers. Petitioner
   determines the route taken between destinations. Petitioner retains possession
   of the boat, has the right to hire and fire any "drivers" should he choose to do
   so, uses his own discretion in operating the boat, pays all operating expenses
   and retains the responsibility for the operation of the boat at all times. In
   fulfilling all of the requirements listed in TSB-M-84 (7)S, supra, Petitioner
   is deemed to retain dominion and control over the boat and is thus providing a
   nontaxable transportation service to his passengers (see Limousine Operators of
   Western New York, Inc., supra; 1000 Island Balloon Co., Adv Op Comm T&F, May 28,
   1986, TSB-A-86(22)S).

DATED: August 25, 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.