Care, Custody and Control: the Three Cs of Sales Tax

Many New York State commercial horse boarding facility owners do not know that the majority of their boarding services are taxable.

This means that facility owners must charge and collect sales tax from their boarding customers.  Penalties, interest and in some cases criminal charges for not reporting and remitting sales tax can be quite severe.

Taxable boarding services fall under what New York State calls Care, Custody and Control:  I call this the Three Cs of Sales Tax  

So what’s Taxable in New York State under The Triple C Rule? 

Taxable services include, but are not limited to (In alphabetical order, not in order of importance):

• Administration of  Shots
• Blanketing
• Burial of dead animals
• Buying and Administration of  special feeds or supplements
• Calling the Farrier or Vet
• De-Worming
• Exercising
• Feeding
• Grooming
• Holding for Farrier or Vet
• Maintenance of tack
• Mucking Stalls
• Resale of tack
• Spraying for Flies
• Watering

These taxable items should be addressed in your boarding contract that has been signed by each of your boarding customers.  If you charge an all-inclusive monthly fee for boarding which includes these services you need to make sure that this is addressed in the boarding contract.   Sometimes these items are a separate charge and should be addressed separately.  For example, you charge $10 for every de-worming.  This fee is taxable and is not included in the basic monthly boarding fee.  Whatever arrangement you have with your boarding customers make it clear, in writing what is included and what isn’t included in your monthly boarding fee.

In addition, your boarding customers need to know that you will be charging sales tax for the boarding services as set forth in the boarding contract.  New York State has a 4% sales tax rate and each county within New York State has a sales tax rate.  Add these two rates together and this is the rate you charge your customers.

For example, if a facility’s full board rate is $500 per month and the facility is in Schenectady County, the rate is 8% (4% state plus 4% county).  The sales tax amount that is charged is $40 per month (.08 X $500).

The sales tax amount would be written in the boarding contract and can be shown as a separate line item, such as,

Tax every month of 8% ($40 in addition to $500 boarding fee per month).

For a complete listing of sales tax rates by county in New York State you may refer to New York State Department of Taxation and Finance Publication 718,  “New York State Sales and Use Tax Rates by Jurisdiction.” http://www.tax.state.ny.us/pdf/publications/sales/pub718_809.pdf

Now for some good news!  Some horse boarding related services are not taxable to your customers. 

Non-Taxable in New York State:  What I call the ITS

I – Instruction
T – Training
S – Showing

Some items Included under the ITS rule:
teaching and/or training/retraining of horses;
teaching group or individual lessons;
use of indoor arena by non-boarders;
trailering to shows;
use of tack and
animal prep for show.

Now for some bad news. 

Once you have collected sales tax from your boarding customers, you must pass this money on to New York State.  You are not allowed to keep this money.  Contrary to popular belief, sales tax money that you collect is not yours!  How do you go about submitting sales tax?  The simplest way is by going to www.tax.state.ny.us and filing online.  Does this require that you keep track of your sales?  Absolutely.  (We’ll leave this topic for another day.)

New to the horse boarding business?  Contact your state’s department of taxation and finance, get registered and pay your taxes.

For those of you who have been in business for a number of years and have not been paying sales tax and should be,  there is the Voluntary Disclosure and Compliance Program
Per New York State’s taxation and finance website – http://www.tax.state.ny.us/e-services/vold/default.htm

Voluntary Disclosure and Compliance Program:

“Under the Tax Department’s new Voluntary Disclosure and Compliance program, eligible taxpayers who owe back taxes can avoid monetary penalties and possible criminal charges by:
• telling the Department what taxes they owe;
• paying those taxes; and
• entering an agreement to pay all future taxes.

It’s easy to apply. Just follow the prompts, answer a few questions, and submit your application electronically. Once we receive your application, we’ll review it and contact you.”

While this may not seem like a plan of action you want to take, it certainly beats the alternative of having the Tax department find out from a competitor or a disgruntled boarding customer.  Anyone can go to the New York State website and report someone for not reporting and/or paying sales tax.

If you operate a commercial horse boarding facility within New York State, you must charge your boarding customers the applicable sales tax rate for the county in which you operate.  Otherwise, when the New York State Department of Taxation and Finance comes to your house or boarding stable they will not be very lenient with penalties and interest.  This can add up to a significant amount of money especially if you have been operating your horse boarding facility for several years.

Triple C rule – If it is a service that is considered care, custody and control it is taxable and your boarding customers pay you sales tax, which you then remit to New York State.

Its rule – Instruction, training and showing is not taxable and you do not have to collect sales tax.

Horses know when we are stressed.  Be proactive, follow these simple rules to keep the burden of tax auditors off your withers.  Your horses will appreciate it.

 

Disclaimer – most states have similar requirements and programs.  For questions regarding sales tax laws in your state, you should contact your state’s taxation and finance department.