Relates to sales of rental vehicles

◆ The sponsor's argument

Why Andrew Gounardes says this is needed

Currently, the retail sale of tangible personal property to any person for any purpose is subject to the state's 4% sales tax in Section 1105 of Tax Law. There are two exemptions to the definition of "retail sale," contained in clauses (A) and (B) of subparagraph (i) of paragraph (4) of subdivision (b) of Section 1101 of Tax Law: the first, in clause (A), is a sale for resale, which typically applies when a retailer is buying inventory to then immediately sell it to a customer, such as a shoe vendor buying a pair of boots to immediately put on the shelf. The second exception, in clause (B) of § 1101(b)(4)(i), is for a "business input" wherein the property exempted from sales tax is being manufac- tured into a physical component of the product sold at retail. One exam- ple of this is a lumber supplier giving wood to a furniture manufactur- er, or a wholesaler providing flour to a baker to make into a cake. Because the lumber and flour are being immediately used as physical inputs to create the piece of furniture or the cake, the retailer does not have to pay sales tax on them, as the retail sale of the furniture or cake to the end consumer is subject to sales tax instead. Fleet purchases by car rental companies in New York also qualify for the sale for resale exemption, due to an advisory opinion issued by the Department of Taxation and Finance in 1991, and have thus been able to escape many millions of dollars in sales tax liability for the past three decades. Upon closer scrutiny, however, these fleet purchases do not neatly qualify as true sales for resale. While a rental vehicle may eventually be resold by a car rental company to another user at the end of its useful life, that is only after the vehicle's value has signif- icantly depreciated such that it is no longer profitable for the rental company to maintain it. The rental company will have derived significant economic value from the vehicle before this point, by renting it out to customers over many years while retaining title to the vehicle. The shoe vendor qualifying for a sale for resale exemption as outlined above, for example, isn't renting its boots to different customers over several years and then selling them once they've been worn down. While car rental companies will argue that they should be exempt from sales tax since they must charge and remit a special 12% passenger car rental tax at the point of the rental (a 6% baseline special tax on passenger car rentals in Tax Law § 1160 on top of a 6% special supple- mental tax in Tax Law § 1166-A or § 1166-B), this excise tax is imposed only on the rental customer and ignores the fact that the car rental company itself is also a consumer of the car, in that it derives econom- ic value from the act of the rental as part of its business. The Oregon Supreme Court recently made this same argument in EAN Holdings v. Oregon Department of Revenue (2020), when it found that Oregon's "use tax" should apply to the purchases of rental fleets there because car rental companies are consumers of the goods they purchase and are not purchas- ing them for resale ("Taxpayer (e.g, Enterprise) does not seriously contend that it is not a 'consumer' of the vehicles, a term that it acknowledges means one who 'utilizes' or 'uses' something...The court has concluded above that the legislature's intent in using the term 'at retail' was to distinguish purchases 'for resale.' The court sees no need to determine the 'ultimate' user or consumer of the vehi cles, as among Taxpayer as licensor to customers, the rental customers as driv- ers, the secondary purchasers once Taxpayer decides to replace them, or the steel recycler at the end of their life. It is sufficient that Taxpayer uses the vehicles and does not buy them for resale in the ordi- nary course of its business.") Moreover, at least five other states, Hawaii, North Dakota, Georgia, Oregon, and Florida, apply both a sales tax on car rental companies at the point of purchase and a rent

This is the sponsor's own case for the bill, quoted from their memorandum. It is not Agora's description of what the bill does.