When a building owner lets another company occupy a whole floor for a monthly fee to store its own equipment, is that a taxable 'storage service' or an exempt real-property lease?

Plain-English summary

A soft-drink manufacturer and bottler ("the Client") had an unoccupied floor in one of its Long Island City buildings, and let a separate company ("Company A") use it -- under an oral agreement, for a monthly fee -- to store whatever it wanted (trucks were being considered, but nothing restricted what could go there). Company A got the whole floor except one boiler room, could send employees in and out at any time of day, and could add its own tenant improvements (though anything permanent would stay with the building). The question: is the Client's monthly fee a taxable "storage" charge, or rent for a real-property lease that isn't taxed?

New York taxes the service of storing tangible personal property -- providing a place to safely keep goods, regardless of how payment is structured or how long the goods stay. But the Department's own regulations distinguish that taxable service from an exempt lease of real property: under a lease, the tenant gets a specific location, has unlimited control over access to it, and can bring in its own racks, cabinets, and fixtures. The regulation's own example of taxable storage is someone dropping goods off at a warehouse and getting "whatever space the warehouse company has available" -- the warehouse operator picks the spot and controls access, not the customer.

Here, Company A got a specific, identified floor (not "whatever space is available"), had unrestricted round-the-clock access, and could install its own improvements. That combination is the textbook lease fact pattern, not textbook storage. So the Client's charges to Company A are rent for real property, and not subject to sales tax.

What this means for you

Building owners renting out warehouse or industrial space

Whether your arrangement is a taxable "storage service" or a tax-exempt real-property lease turns on control, not on what you call the deal or how you invoice it. Give the occupant a specific, identified space, unrestricted access, and the ability to bring in their own fixtures, and you're looking at a lease. Assign "whatever space is available" and control who gets in and out, and you're looking at taxable storage.

Businesses renting out space to store goods for others

If you want to be treated as a landlord rather than a taxable storage-service provider, structure the deal around a specific space and hands-off access for the tenant -- the details of the agreement, not the label on it, decide the tax result.

Accountants and tax professionals

This ruling is a clean illustration of 20 NYCRR § 527.6(b)(2)'s three-factor lease/storage line: (1) a specific location, (2) unlimited tenant control of access, and (3) the tenant's ability to supply its own racks/cabinets/fixtures. All three point toward "lease" here; a warehouse deal assigning "whatever space is available" would point the other way.

Common questions

Q: What makes this a lease instead of taxable storage?
A: The tenant got a specific, named floor (not just "available space"), unrestricted round-the-clock access, and the ability to add its own tenant improvements -- the exact factors the regulation uses to distinguish a real-property lease from a storage service.

Q: Would the answer change if the building owner instead assigned "whatever space happens to be free" and controlled access?
A: Very likely yes -- that's the regulation's own example of taxable storage. The specific-space-plus-full-access combination is what tips this deal into "lease" territory.

Q: Does it matter that the agreement was oral rather than a written lease?
A: The opinion doesn't hinge on that -- it analyzes the actual terms and control the parties agreed to, not the form of the agreement.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4) (retail sale)
• Tax Law § 1101(b)(5) (sale, selling or purchase)
• Tax Law § 1105(a) (tax on retail sales of tangible personal property)
• Tax Law § 1105(c)(4) (tax on storage of tangible personal property)
• 20 NYCRR § 526.8(c) (tangible personal property excludes real property)
• 20 NYCRR § 527.6(a), (b) (definition and imposition of tax on storage service)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1999.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a99_32s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-99(32)S
Sales Tax
June 24, 1999

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S990114B

On January 14, 1999, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Sales Tax Solutions, Inc., 575 Madison Avenue, 10 th Floor, New York, New York 10022.
Petitioner, Sales Tax Solutions, Inc., furnished additional information on March 15, 1999.
The issue raised by Petitioner is whether the provision of storage space in a building as described
below is subject to New York State and local sales and use taxes.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner’s client (hereinafter the "Client") entered into an oral agreement with a non-related
company (hereinafter "Company A") to provide unoccupied storage space in one of the Client’s
buildings located in Long Island City, New York. Company A pays a monthly fee and has full rights
to one specific floor of the building, except for one room used by the Client as a boiler room. There are
no restrictions as to what items can or cannot be stored in the building. Currently the space is being
considered for storage of trucks, although Company A is free to use the space for other purposes based
on its needs. Company A’s employees can enter and leave the building at their discretion throughout
the day. Company A may make tenant improvements, but any permanent improvements shall remain
with the building and shall not be removed at the end of the lease. The primary business of the Client
is manufacturing and bottling soft drink beverages within New York State.
Applicable Laws and Regulations
Section 1101(b) of the Tax Law provides, in part:
When used in this article for the purposes of the taxes imposed by subdivisions
(a), (b), (c) and (d) of section eleven hundred five and by section eleven hundred ten, the
following terms shall mean:
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(4) Retail sale. (i) 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 . . .
(5) Sale, selling or purchase. Any transfer of title or possession or both,
exchange or barter, rental, lease or license to use or consume . . . conditional or
otherwise, in any manner or by any means whatsoever for a consideration . . .

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TSB-A-99(32)S
Sales Tax
June 24, 1999

Section 1105 of the Tax law imposes sales tax, in part, on:
(a) The receipts from every retail sale of tangible personal property, except as
otherwise provided in this article.
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(c) The receipts from every sale, except for resale, of the following services:
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(4) Storing all tangible personal property not held for sale in the regular course
of business and the rental of safe deposit boxes or similar space.
Section 526.8(c) of the Sales and Tax Regulations provides, in part:
Tangible personal property does not include:
(1) Real property.
Section 527.6 of the Sales and Use Tax Regulations provides, in part:
(a) Definition. Storage is the provision of a place for the safekeeping of goods,
without regard to the manner of payment or length of time of the service.
(b) Imposition. (1) The tax is imposed on the sale, except for resale, of the
service of storing tangible personal property, and the rental of safe deposit boxes and
similar space.
(2) While the tax is imposed on the service of providing storage space, it is not
imposed on the lease of real property for storage. A lease can be distinguished from the
provision of storage space, in that under a lease, the tenant contracts for a certain amount
of footage in a specific location, the tenant has unlimited control of access to the space,
and may supply his own racks, cabinets and other physical facilities.
*

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Example 2: A person stores his goods in a warehouse, in whatever space the
warehouse company has available. The charges for such storage are taxable.

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TSB-A-99(32)S
Sales Tax
June 24, 1999

Opinion
Storage is the service of providing a place for the safekeeping of goods, without regard to the
manner of payment or length of time of the service. A lease of real property can be distinguished from
the service of providing storage space provided the lessee enters into a lease for a specific location, the
lessee has unlimited control of access to the space, and the lessee may supply his own racks, cabinets
and other physical facilities. See Section 527.6(b)(2) of the Sales and Use Tax Regulations. The Client
has entered into an oral agreement with Company A for the use of one specific floor of the Client’s
building, for a monthly fee, whereby Company A has full rights to this floor without restrictions as to
what items can or cannot be stored and Company A’s employees can enter and leave the building at
their discretion throughout the day. Accordingly, the Client’s charges to Company A for occupancy
of space in the Client’s building are for the lease of real property and, therefore, are not subject to sales
tax.

DATED: June 24, 1999

NOTE:

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

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