For-Hire Vehicles (FHVs) serve an array of customers, neighborhoods and needs that reflect the full diversity of New York. Traditionally, FHVs have included three main categories of vehicle services. First is the neighborhood “car service” or Livery vehicles, which take residents to a myriad of everyday destinations, such as doctor appointments, work, shopping and airports. FHVs also include “black cars,” which is a more expensive, premium type service that mostly caters to Manhattan’s business clientele. Finally, FHVs include limousines, the most lavish end of the market.

Over the past 10 years, the lines between each sector have been blurred a bit but the distinction between each class of FHV remains the same.

In 2009, the State of New York had a record shortfall in its budget. To make up for such shortfall, the State decided to hit the FHV industry with a new sales tax. This provision, which is imposed upon passengers in NYC, added a 8.375% tax to rides. The purpose of the tax was to generate about $25.6 million for Albany’s coffers and an equal amount for the city.

As expected, news of the added cost was not well-received by drivers and passengers who use local livery car services, many of which operate in the city’s poorer neighborhoods. The state budget didn’t actually create a new tax but expanded the targets of a service tax to include trips performed by FHVs.

Several key industry organizations – such as the Black Car Assistance Corporation, the New York Limousine Association, the Luxury Based Operators’ Association, and the Western New York Limousine Association – attempted to get a temporary restraining order to halt the new tax until clarifications could be made as to what is included and how it would be collected. A judge ruled against the injunction.

In August 2010, the Legislature passed a bill that amended the tax law, excluding community car services and base stations (the Liveries) from the sales tax. The purpose of the amendment was to correct an error of placing all NYC Livery transportation services in this sales tax provision. The bill specifically excluded from the sales tax those community car services defined as “Livery” and “Base Station” by the NYC Taxi & Limousine Commissions (TLC). A Livery refers to the community FHVs that are not Black Car or Luxury Limousine.

The justification for excluding this sector of the FHV industry is that Livery/community car services are the actual taxicabs of the outer boroughs and upper Manhattan. The NYC Livery car industry developed the last 25 years into the community car services serving communities not serviced by yellow cabs. For these communities, the non-presence of yellow taxis disadvantage seniors, people of color and persons living in underserved communities from attending to simple day-to-day activities.

There are many similarities between Manhattan “Yellow” taxicabs and TLC-defined Livery cabs and Base Stations. From the need for outside markings of both Livery and Yellow cabs, to the need for the display of license, insurance, and the Passenger Bill of Rights inside both Livery and Yellow cabs – and to the structure of fares, none of which exists with Black Cars or Luxury Limousines.

The black car and luxury limousine sectors of the FHV industry were quite upset to say the least, after learning that rival Livery cars were exempted from sales taxes in the revenue bill agreed to by the Legislature. Livery dispatch bases did not have to pay an added 8.375% tax on each trip. In a way, this gave Liveries a distinct advantage in terms of pricing – but, as the legislature rationalized, those who use Black Car service, as opposed to liveries, can I guess afford to pay the added tax.

Eventually, the Black Car sector accepted the tax and as intended, the cost of the tax was passed along to the customer. This did not really impact the Livery sector because, at the time the sales tax was imposed, the TLC has a rule that prohibited cross-class dispatches. In other words, Livery bases could only dispatch to Livery vehicles and Black Car bases could only dispatch to Black Cars (vehicles affiliated with a Black Car base).

Then a few years ago, the TLC removed the prohibition on cross-class dispatches. In other words, Livery bases could legally dispatch to Black Cars.

Since there are many more Black Cars in NYC than Liveries, some Livery base owners saw this as an opportunity to open up their supply of vehicles that would be available to send dispatches to and thus better serve their customer base.

A misunderstanding and a serious problem arose when certain Livery bases started to dispatch to Black Cars once TLC removed the prohibition on cross-class dispatches. Certain Livery base owners believed that since the Liveries were exempt from the sales tax, then if they sent dispatches to Black Cars, no sales tax was due. In other words, some members of the Livery industry believed that a Livery base is not responsible for collecting and remitting sales tax to the State when it sends a dispatch to a Black Car. THIS UNDERSTANDING IS WRONG!

Make no mistake, if a Livery base sends a dispatch to a Livery vehicle, then the Livery base, as the provider of transportation service, is exempt from the sales tax. On the other hand, if a Livery base sends a dispatch to a Black Car or any other vehicle other than a Livery, then the Livery base, as the provider of transportation service, is NOT exempt from sales tax.

If you are a Livery base owner who sends even one dispatch to a Black Car, you MUST register with the State to collect sales tax and MUST remit payment of this tax to the State on each dispatch sent to a Black Car.

The New York State Department of Taxation and Finance TSB-A-13(23)S specifically addresses this situation. It states “a Livery base receives a request from one of its customers for transportation service in New York City. The Livery base does not have an AFV (Affiliated Livery Vehicle) available to provide the service and decides to refer the call to a Black Car (BC) base. The Livery base then calls the BC base, which dispatches the call to a BC driver affiliated with the BC base. And concludes by saying, “Because the service was provided using a Black Car, not an AFV, the service is within the definition of transportation service and is subject to sales tax.”

It is important to note that sales tax liability carries a personal liability to the State. In other words, if your company fails to collect any sales tax required to be collected and fails to pay such to the state, you become personally liable for that tax. In general, states will first seek to collect unpaid sales tax from the business directly. There are instances, however, when the business might not have the funds or assets to pay off the outstanding liability. In such event, owners, officers, directors, members, partners, and managers who are under duty to act for the business in matters of sales and use tax compliance can be held personally responsible for unpaid sales tax. Responsible persons can extend to non-owners and officers such as employees who have check signing authority.

It is also important to note that while the statute of limitations on a New York sales tax audit is three years, if you never filed a sales tax return but were supposed to, then the statute of limitations does not apply. Thus, if an auditor determines that sales tax was due but not paid, then the Livery base owner/operator is liable not only for the unpaid tax, but also late fees and penalties.

In this trying time of the COVID world, when the FHV business is picking up, but there remains a shortage of drivers on the street to send dispatches to, it must be kept in mind that there are no shortcuts in business and no shortcuts in life for that matter. If you are a Livery base owner or operator and you are sending dispatches to Black Cars, you MUST remit sales tax to the state whether you collect such tax from your customer or not. You do not want to find yourself in this predicament. Times are tough, but the Liveries must continue to compete by complying with the law. Failure to do so can lead to dire consequences.