In a chain of selling, leasing and using coin-operated lockers, which transactions are taxable and who collects the tax?

Plain-English summary

AVM Corporation (Jamestown, New York) manufactures coin-operated checking lockers. It sells the lockers to a wholly-owned subsidiary, which leases them to various lessees (in and out of New York). The lessees use the lockers to provide locker-storage service to the public. The leases require the lessee to install and maintain the lockers, indemnify the lessor, and pay either a flat fee or a flat fee plus a percentage of revenues. AVM asked how sales tax applies across this chain.

The Department sorted the transactions into a tax-free resale, a taxable lease, and a taxable storage service.

• AVM → subsidiary: a tax-free resale. A "sale" includes a lease (§ 1101(b)(5)), and the subsidiary buys the lockers to lease them out. So AVM's sale to the subsidiary is a purchase for resale, excluded from taxable retail sales under § 1101(b)(4). AVM need not collect tax if the subsidiary gives it a resale certificate (Form ST-120) under § 1132(e).
• Subsidiary → lessees: a taxable lease. The lessees don't resell the lockers — they use them to provide the taxable service of storage under § 1105(c)(4). So the subsidiary's lease is not a resale; the subsidiary is a vendor of tangible personal property and must collect sales tax on the full rental payments (flat fee, or flat fee plus a percentage of revenue).
• The subsidiary doesn't tax the lessees' whole income. It's the lessee — not the subsidiary — that is the vendor of the taxable storage service, so the lessee (not the subsidiary) collects tax on the receipts from providing that service.

What this means for you

"Sale" includes leasing — so buying to lease is buying for resale. A lessor that acquires equipment in order to rent it out is making a purchase for resale and can buy tax-free with a resale certificate (Form ST-120). The tax attaches when the equipment is leased.

A lease down the chain is taxable unless the lessee re-leases the item. The resale exclusion runs out when the lessee uses the equipment to provide a service rather than re-renting the equipment itself. Here the lessees provide storage service, so the subsidiary's lease to them is a taxable rental of tangible personal property — tax on the full rent, however it's structured.

Each level taxes its own receipts. The subsidiary collects tax on the rent it charges lessees; the lessees collect tax on the storage service they sell to the public. One party doesn't collect the other's tax.

Common questions

Q: Our leasing company buys equipment to rent out — is that purchase taxable?
A: No. Because a lease is a "sale," buying equipment to lease it is a purchase for resale, excluded under § 1101(b)(4). Give your supplier a resale certificate (Form ST-120) so it doesn't charge you tax.

Q: Do we charge tax on the rent when we lease the lockers to operators?
A: Yes. The operators use the lockers to provide storage service, not to re-lease the lockers, so your lease to them is a taxable rental. Collect tax on the full rental payment (flat fee or flat fee plus a percentage).

Q: Do we also collect tax on what the operators earn from customers?
A: No. The operator is the vendor of the taxable storage service (§ 1105(c)(4)) and collects tax on those receipts. You collect only on the rent you charge the operator.

Citations and references

Statutes, regulations and authority:

• Tax Law § 1105(a) — imposes sales tax on receipts from every retail sale of tangible personal property
• Tax Law § 1101(b)(4) — excludes purchases for resale (as such or as a physical component part) from taxable retail sales
• Tax Law § 1101(b)(5) — defines "sale" to include a rental, lease or license to use
• Tax Law § 1105(c)(4) — imposes tax on the service of storage (including locker storage)
• Tax Law § 1132(e) — a purchaser claiming resale must give the vendor a properly completed resale certificate (Form ST-120)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/h81_21s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-H-81(21)S
Sales Tax
February 11, 1981

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S800722A

On July 22,1980, a Petition for Advisory Opinion was received from AVM
Corporation, P.O. Box 1000, Jamestown, New York 14701.
The issues raised by the Petition relate to the application of the sales
tax provisions of the Tax Law to a series of transactions involving the sale and
leasing of coin-operated checking lockers.
Petitioner is the parent company of a wholly-owned subsidiary. Petitioner
has a division which manufactures coin-operated checking lockers. The
wholly-owned subsidiary purchases the lockers from the manufacturing division of
Petitioner for the purpose of leasing the lockers to various lessees both within
and without New York State.
The leases entered into between Petitioner's subsidiary and its lessees
include the following terms, among others:
1.
2.
3.

the lessee is required to install and maintain the lockers;
the lessee is required to indemnify the lessor for damage claims
arising from the use of the lockers;
The lessee is required to pay either a flat fee or a flat fee plus
a percentage of revenues.

Petitioner inquires, first, whether the sale of the lockers by Petitioner
to its subsidiary is subject to sales tax. Section 1l05(a) of the Tax Law imposes
a tax on the "...receipts from every retail sale of tangible personal
property...." Section 1101(b)(4) of the Tax Law defines the term "retail sales"
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) and (5) of subdivision (c) of section eleven
hundred five ...." Section 1101(b)(5) of the Tax Law defines the term "sale" to
include a rental or lease. Accordingly, when Petitioner's subsidiary purchases
the lockers from Petitioner it makes such purchase for the purpose of "selling",
i.e. leasing, the lockers to others. Therefore, the sale by Petitioner to its
subsidiary is a sale for resale and consequently comes within the exclusion from
the definition of retail sale contained in section 1101(b)(4) of the Tax Law.
Petitioner is therefore not required to collect tax on its sale of the lockers
to its subsidiary where the subsidiary furnishes to Petitioner a properly
completed resale certificate (Form ST-120), as required by section 1132(e) of the
Tax Law.
Petitioner next inquires whether its subsidiary is required to collect a
tax on the receipts from the leasing of the lockers. The subsidiary's lessees
provide their customers with the service of storage in lockers, a service the
receipts from which are subject to tax under section 1105(c)(4) of the Tax Law.
They do not "sell" the lockers themselves.

TP-8 (4/80)

JAMES H. TULLY, JR., COMMISSIONER
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

2
TSB-H-81(21)S
Sales Tax
February 11, 1981

Hence, the subsidiary's sale (i.e. lease) of the lockers to its lessees does not
constitute a sale for resale so to come within the exclusion contained in section
1101(b)(4) of the Tax Law. The subsidiary is thus a vendor making sales of
tangible personal property and must collect sales tax on the full amount of the
rental payments made under the leases, whether flat fee or flat fee plus a
percentage of revenue. The subsidiary is not required to collect tax on the
entire income derived from the locker operation, understanding this to include
all of the revenues received by a lessee from the locker service, because it is
the subsidiary's lessee, and not the subsidiary itself, which is the vendor of
the taxable service of storage and which must collect tax on the receipts from
the provision of that service.

DATED: January 9,1981

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau