On June 30, 2020, the New York State Department of Taxation and Finance issued an advisory opinion stating that a clothing rental company’s monthly subscription fees are exempt from state sales tax. The taxpayer operated a clothing rental business, offering monthly subscriptions with fees ranging from $35 – $159 per month based on the number of garments a customer has in their possession at one time. For example, customers could rent one garment at a time for $35 per month; or five garments at a time for $99; or seven garments at a time for $129.
New York imposes sales tax on receipts from the rental of tangible personal property, however, pursuant to Tax Law § 1115(a)(30), footwear and clothing is exempt from the state sales tax provided that each item is sold for less than $110. The Department evaluated the taxpayer’s monthly subscription fees to see if they fell within the $110 price limit included in the sales tax exemption, and concluded that all of the taxpayer’s subscriptions were within this price limit. The Department noted that although the subscriptions for seven garments or more each month do in fact cost more than $110, those subscriptions include multiple garments and the cost to rent a single garment was below the statutory limit. Finally, the Department noted that local sales tax will still apply to the taxpayer’s subscription fees to the extent garments are delivered to customers in localities that have not elected to adopt this exemption.