N.Y. Comp. Codes R. & Regs. tit. 20 § 541.9
Current through Register Vol. 46, No. 16, April 17, 2024
Section 541.9 - Contractor's purchase, rental, repair, and use of equipment and vehiclesTax Law, §§ 1105(a), (c)(3), (5); 1110; 1111(b)(1), (2); 1118(2), (7)
(a)General.The purchase, rental, lease or license to use construction equipment and motor vehicles by a contractor is subject to sales and use tax.
(b)Purchase of equipment and motor vehicles.(1) Contractor owned equipment.(i) The purchase of equipment, other than motor vehicles such as trucks, by a contractor is subject to tax on the total purchase price at the combined State and local tax rate in effect in the jurisdiction where the equipment is delivered to the contractor.(ii) Purchases of equipment for both use and rental by the contractor are taxable on the total purchase price. The contractor is liable for tax on the equipment purchased by him and must collect tax on the equipment rented by him to others without credit for any tax paid on the purchase. Only that equipment which is purchased exclusively for rental purposes qualifies for the resale exclusion.(iii) If a contractor uses equipment in a jurisdiction other than where purchased, and the contractor was a resident of the jurisdiction of subsequent use at the time of purchase, and such jurisdiction imposes a higher tax rate than the local tax rate paid at the time of purchase or the State rate is higher in the jurisdiction of subsequent use, then the contractor owes an additional use tax based upon the difference between the State and local tax rates paid at the time of purchase and the State and local tax rates in effect in the jurisdiction where the equipment is subsequently used. Thus, a contractor may owe additional local tax in each jurisdiction in which the equipment is used until the maximum aggregate State and local tax rate is reached. If, however, the jurisdiction in which the equipment is subsequently used imposes a lower tax rate than the local tax rate paid at the time of purchase, no credit or refund may be allowed for the difference between the two tax rates.(iv) Equipment delivered outside of New York State to contractors who are residents of New York State on the date of purchase is subject to the New York State use taxes which become due on the date the equipment is first brought into New York State. (a) The tax is based on the purchase price of such equipment, unless:(1) the equipment was used outside this State by the contractor for more than six months prior to its use within this State, in which case the tax may be based on the current market value of such equipment (but not to exceed its cost) at the time of first use within the State; or(2) the equipment is brought into New York State for use in this State and used in the performance of a contract or subcontract for less than six months, in which case the tax may be based, at the option of the taxpayer, on the fair rental value of such equipment for the period of use within the State.(b) The contractor may be eligible for a reciprocal tax credit against the use tax due.(v) Likewise, the local use tax becomes due on the date a contractor brings equipment into a jurisdiction in which he was a resident at the time of purchase.(a) The tax is based on the purchase price of the equipment, unless: (1) the equipment was used outside such jurisdiction by the contractor for more than six months prior to its use within the jurisdiction, in which case the tax may be based on the current market value of such equipment (but not to exceed its cost) at the time of first use within the jurisdiction; or(2) the equipment is brought into the jurisdiction for use in the jurisdiction and used in the performance of a contract or subcontract for less than six months, in which case the tax may be based, at the option of the taxpayer, on the fair rental value of such equipment for the period of use within the jurisdiction.(b) The contractor may be eligible for a reciprocal tax credit against the use tax due. Cross-reference:
For definition of use, see section 526.9 of this Title.
Example 1:
Acme Builders, which, on April 8th, is performing contracts in Area A (with a five percent combined State and local tax rate) and in Area B (with a seven percent combined State and local tax rate), purchases and takes delivery of a piece of construction equipment in a neighboring state and pays a three percent sales tax in that state. The equipment is used out-of-state and on June 19th is brought into Area A for use there. On August 28th it is brought into Area B for use there and on October 11th it is last used in New York State and subsequently returned to the state where purchased. The contractor, a resident in Area A and B on the date of purchase, owes a use tax. The contractor may base his use tax on the purchase price or on a fair rental value.
If the contractor elects to base the use tax on the purchase price, a five percent use tax is due in Area A. If the neighboring state where the purchase was made allows a corresponding credit for taxes paid to New York State, the rate of five percent may be reduced by the rate of tax paid in the neighboring state (three percent). Upon use in Area B an additional two percent use tax is due.
If the contractor elects to base the use tax on fair rental value, the fair rental value will be subject to use tax at five percent for the period of June 19th through August 27th and from August 28th through October 11th at seven percent. These rates may be reduced by three percent, the neighboring state's sales and use tax rate, if the neighboring state where the purchase was made allows a corresponding credit for taxes paid in New York State.
(vi) If a resident contractor purchases equipment delivered outside New York State and the state in which the equipment was purchased does not have a reciprocal tax credit with New York State, no credit may be allowed for the tax paid to the other state against the New York State and local compensating use taxes due.(vii) If equipment purchased in one jurisdiction is subsequently used in a second jurisdiction imposing a lower tax rate than the tax rate paid at the time of purchase, no credit or refund may be allowed for the difference between the two tax rates.(2) Contractor owned motor vehicles.(i) Purchases of commercial motor vehicles, for example, commercial trucks, tractors and trailers, are subject to the tax based upon the State and local tax rates in effect in the jurisdiction where the vehicle is delivered unless, prior to taking delivery, the contractor furnishes a properly completed affidavit to the motor vehicle dealer stating that the commercial motor vehicle will be garaged and be principally used in other than the jurisdiction where delivered. Principal use means use for over half of the use of the vehicle. Where the contractor furnishes such affidavit to the motor vehicle dealer, the dealer is required to collect the State and local tax at the tax rate for the jurisdiction where the motor vehicle will be garaged or principally used as set forth by the contractor in his affidavit.(ii) If a contractor is a resident of several jurisdictions, the initial tax due is based upon the State and local tax rates in effect in the jurisdiction in which the commercial motor vehicle is delivered to the contractor, except as otherwise provided in paragraph (1) of this subdivision. The contractor owes additional local tax in each jurisdiction in which the motor vehicle is garaged or principally used until the maximum aggregate State and local tax rate is reached. If, however, the jurisdiction in which the motor vehicle is subsequently used imposes a lower tax rate than the local tax rate paid at the time of purchase, no credit or refund may be allowed for the difference between the two tax rates.(iii) Where such an additional local use tax becomes due as provided in clause (a) of this subparagraph, the local tax is based on the purchase price of the motor vehicle, unless: (a) the motor vehicle was used outside such jurisdiction by the contractor for more than six months prior to its use within the jurisdiction, in which case the tax may be based on the current market value of such motor vehicle (but not to exceed its cost) at the time of first taxable use within the jurisdiction; or(b) the motor vehicle is brought into the jurisdiction for use in the jurisdiction and used in the performance of a contract or subcontract for less than six months, in which case the tax may be based, at the option of the taxpayer, on the fair rental value of such motor vehicle for the period of use within the jurisdiction. Cross-reference:
For definition of resident contractor, see section 541.2 of this Part.
(3) Nonresident contractor purchases. (i) If a nonresident contractor purchases equipment within the State, the total charge is subject to the tax at the combined State and local tax rate in effect in the jurisdiction in which such equipment is delivered to the contractor. Where the vendor or a common carrier (other than the purchaser) delivers the equipment to the nonresident contractor outside the State, the charge is not subject to the tax.(ii) If a nonresident contractor purchases a motor vehicle, the charge is not subject to the tax even if delivery to the nonresident contractor is made within the State, providing the contractor-purchaser furnishes a properly completed certificate for purchase of motor vehicle (by nonresident of New York State or nonresident of local taxing jurisdiction) to the motor vehicle dealer. Cross-reference:
For definition of resident contractor, see section 541.2 of this Part.
(iii) Equipment and motor vehicles which are purchases out-of-state by a nonresident contractor are not subject to compensating use tax upon subsequent use within New York State.(iv) Equipment and motor vehicles which are purchased outside of a jurisdiction by a contractor who is not a resident of such jurisdiction at the time of purchase are not subject to that jurisdiction's compensating use tax upon subsequent use within that jurisdiction. Cross-reference:
For taxation of contractor leased and rented equipment and motor vehicles, see subdivision (c) of this section.
(4) Leases with option to buy. If a contractor leases equipment or motor vehicles with an option to buy, each lease payment is subject to tax. If the option is exercised, the amount subject to the tax is the total option purchase price paid for the equipment or motor vehicle.
Cross-reference:
For rentals and leases, see section 526.7 of this Title. For special rules pertaining to certain leases of motor vehicles, vessels and noncommercial aircraft see section 527.15 of this Title.
Example 2:
A lease agreement or contract provides for an option to purchase at a stated purchase price, less total lease payments made, plus one percent per month computed on the outstanding balance after each lease payment. The stated purchase price, less the lease payments, plus the one percent per month is the total option purchase price subject to the tax.
(c)Rentals and leases of equipment and motor vehicles to contractors.(1) Rentals and leases of equipment to contractors.(i) Where a contractor leases equipment, the contractor is liable for the combined State and local sales and use tax on the total charges at the highest rate in effect in any jurisdiction in which the equipment is used during the lease payment period, (e.g., daily, weekly, monthly, depending on the frequency of payment).(a) If a lessor does not collect the proper amount of tax based upon the highest rate in any jurisdiction in which the equipment is used, the contractor is liable for payment of any additional tax which must be reported and paid by the contractor to the Department of Taxation and Finance. The contractor may be entitled to a refund or credit if the equipment is used for the whole of a lease payment period in a jurisdiction having a lower combined State and local tax rate than the rate paid to the lessor. Example 1:
A leasing company delivers equipment to a contractor in a taxing jurisdiction with a combined New York State and local tax rate of six percent. The leasing company charges the six percent tax rate on the weekly billings to the contractor. The contractor uses the equipment during a one-week billing period on a job located within a taxing jurisdiction having a combined New York State and local tax rate of seven percent, and for one complete weekly billing period in a taxing jurisdiction having a combined New York State and local tax rate of five percent. The contractor owes an additional one percent tax on the charge applicable for the use in the seven percent area. However, the contractor may claim a refund or credit of one percent for the complete week of use in the five percent area, based upon the difference between the six percent tax paid and the five percent tax due.
(b) The total amount of the lease charge is subject to tax. Interest and other expenses paid by a lessor on the purchase of tangible personal property leased to a contractor, even though separately stated on the bill to the contractor, must be included in the receipts subject to tax. Example 2:
A lessor purchases equipment on credit for lease or rental to a contractor. The leasing or rental agreement provides that the contractor is to pay $100 per month for equipment rented and $7 per month to reimburse the lessor for interest expense incurred in the purchase of the equipment. The tax is to be collected on the total receipts of $107.
(c) If a contractor cancels a lease on equipment and the lessor charges a cancellation fee, such fee is included as a part of the total receipts upon which the tax is based.(d) The current rate of tax is required to be paid on rented or leased equipment used in the performance of a preexisting lump-sum capital improvement contract. However, the contractor is entitled to apply for a refund or a credit of any difference between the tax paid and the tax due as provided in section 1119 of the Tax Law.(ii) When dominion and control of equipment supplied with an operator or driver remains with the lessor, there is no rental or lease of equipment to the contractor, but the service performed may be subject to the tax pursuant to section 1105(c)(3) and (5) of the Tax Law. The method of payment (for example, a rate per hour, day, week, month, or job or trip) is not relevant in determining whether the transaction is a service or a taxable rental or lease of equipment.(a) If the service performed constitutes a capital improvement to real property, for example, a foundation excavation, the charge for such service is not taxable.(b) If the service performed constitutes a repair, maintenance or service to tangible personal property or to real property, the service is subject to the tax.(c) However, the owner-operator of the equipment must pay tax on the equipment used to perform the foregoing services.(iii) When dominion and control of equipment supplied with an operator or driver transfers to the contractor, there is a rental or lease of tangible personal property and the charge is subject to the tax. If the operator's or driver's wages are separately stated and reasonable in relation to prevailing wage rates, such wages may be excluded from the receipts subject to the tax. If the operator's or driver's wages are not separately stated the total charge is subject to the tax. If the operator's or driver's wages are not reasonable in relation to prevailing wage rates, the "wages" must be included in the receipts subject to the tax until the contractor satisfies his burden, under section 1132(c) of the Tax Law, or proving that the taxable receipts are less than the total charge.(iv) All expenses incurred by a lessor in determining the amount charged for rental of tangible personal property to a contractor, such as: setting up, assembling, installing and/or dismantling, are elements of the total receipt subject to tax, regardless of their taxable status and whether they are separately billed to the lessee. Cross-reference:
For definition of expenses as an element of taxable receipts, see section 526.5(e) of this Title. For definition of dominion and control, see section 541.2 of this Part. For refunds and credits, see Part 534 of this Title.
(2) Contractor rentals and leases of motor vehicles. (i) If a contractor rents or leases a motor vehicle, whether with or without a driver, the contractor is liable for the combined State and local sales and use tax on the total charges at the highest rate in effect in any jurisdiction in which the motor vehicle is used during the lease payment period, ( e.g., daily, weekly, monthly, depending on the frequency of payment). For special rules pertaining to certain leases of motor vehicles, vessels and noncommercial aircraft, see section 527.15 of this Title.(ii) If a lessor does not collect the proper amount of tax based upon the highest rate in any jurisdiction in which the motor vehicle is used, the contractor is liable for payment of any uncollected tax which must be reported and may be entitled to refund or credit if the motor vehicle is used for the whole of a lease payment period in a jurisdiction having a lower combined State and local tax rate than the tax paid.(iii) When dominion and control of a motor vehicle furnished with an operator or driver remains with the lessor, there is no rental or lease of a motor vehicle. Cross-reference:
For definition of rental, lease and license to use, see section 541.2 of this Part.
(iv) When dominion and control of a motor vehicle furnished with a driver transfers to the contractor, there is a rental or lease of tangible personal property and the charge is subject to the tax. If the driver's and any helper's wages are separately stated and reasonable in relation to prevailing wage rates, such wages may be excluded from the receipts subject to the tax. If the driver's and helper's wages are not separately stated the total charge is subject to the tax. If the driver's and helper's wages are not reasonable in relation to prevailing wage rates, the "wages" must be included in the receipts subject to the tax until the contractor satisfies his burden, under section 1132(c) of the Tax Law, of proving that the taxable receipts are less than the total charge.(v) Leased motor vehicles are subject to tax at the rate due at the point of delivery of the vehicle to the lessee-contractor and the lessor is required to collect the tax on each lease or rental payment. If the lessor does not collect the proper State and local tax on the use of the vehicles in a jurisdiction other than the jurisdiction in which delivery is made, the lessee is entitled to a refund or credit, or is liable for payment of the compensating use tax, for the lease period(s). For special rules pertaining to certain leases of motor vehicles, vessels and noncommercial aircraft, see section 527.15 of this Title.(vi) The total amount of the lease or rental charge is subject to tax. However, if nontaxable items such as insurance (including collision damage waivers) and driver's wages (if reasonable in relation to prevailing wage rates) are sold outright to the lessee in conjunction with the lease or rental, the charges for such items are not subject to tax if they are separately stated.(vii) If a contractor cancels a lease on a motor vehicle and the lessor charges a cancellation fee, such fee is included as a part of the total charges upon which the tax is based.(viii) The current rate of tax is required to be paid on rented or leased motor vehicles used in the performance of a preexisting lump-sum capital improvement contract. However, the lessee is entitled to apply for a refund or credit of any difference between the tax paid and the tax due as provided in section 1119 of the Tax Law. Cross-reference:
For refunds and credits, see Part 534 of this Title. For definition of rental, lease and license to use, see section 541.2 of this Part. For special rules pertaining to certain leases of motor vehicles, vessels and noncommercial aircraft, see section 527.15 of this Title.
(d)Repairs to equipment and motor vehicles owned, rented, or leased by contractors.(1) The term repairs, as used in this section, includes maintaining, servicing or repairing equipment or vehicles owned by or rented or leased to contractors.(2) The total charge for repairs, including parts, materials, and labor, to a contractor's equipment or motor vehicles is subject to tax:(i) when the repaired equipment or motor vehicle is delivered to the contractor in this State; or(ii) if the repaired equipment or motor vehicle is delivered to a resident contractor in another state, when the equipment or motor vehicle is subsequently returned to this State.(3) When equipment or motor vehicles owned by a contractor are repaired by the contractor's employees, the wages, salaries and other compensation paid by the contractor to the employees are not subject to the tax. However, the cost of the parts and materials is subject to the tax.(4) Charges for repairs on rented or leased equipment and motor vehicles are taxable to the contractor-lessee when the contractor is responsible or any repairs incurred. The contractor owes the tax due on repairs performed on the equipment and motor vehicles made within this State and, if such equipment or motor vehicle is repaired outside this State for a resident contractor, when the equipment or motor vehicle is subsequently returned to this State.(5) Repair parts and services to equipment or motor vehicles that are used exclusively for rental or lease purposes may be purchased by the lessor for resale. (i) When the lessor is responsible for any repairs to the equipment or motor vehicles incurred by the contractor, the repair charges are exempt when the equipment or motor vehicles are purchased exclusively for rental.(ii) If the contractor has repairs made to rented or leased equipment or motor vehicles and is fully reimbursed by the lessor, the lessor may claim a refund or credit for the tax that was reimbursed to the contractor.(iii) Charges for repairs to equipment or motor vehicles that have a mixed use (for self use and for rental or lease purposes) are taxable.(6) If another state's sales tax was paid by the contractor to an out-of-state vendor on repairs, which are not reimbursed by the lessor, and the other state has a reciprocal agreement with New York State, a claim for credit may be submitted by the contractor for the other state's tax rate paid against (but not to exceed) the New York State and local compensating use tax rate due. Cross-reference:
For use tax liability and reciprocity, see section 531 of this Title.
N.Y. Comp. Codes R. & Regs. Tit. 20 § 541.9