The New York State Department of Taxation and Finance (NYDTF), in TSB-A-18(3)S, stated that the carryout bag fee imposed by Suffolk County is not subject to New York state or local sales and use tax. The Suffolk County law (the Local Law), which took effect January 1, 2018, imposes a 5 cent fee on disposable carryout bags. The objective of the Local Law is to encourage consumers to bring and use their own recyclable shopping bags. The Local Law provides a definition of the covered stores, which generally include retail establishments of personal, consumer or household goods, and excludes food service establishments, grocery stores, supermarkets, convenience stores or food marts. NYDTF reasoned that the fee is not a payment made by a customer to acquire a disposable bag (i.e., making a purchase of tangible personal property), but instead is a locally mandated fee designed to encourage customers to utilize reusable bags. As such, the fee is not part of the sales tax base and is not subject to New York state or local sales or use tax.

Implications

TSB-A-18(3)S confirms that a bag fee imposed by a local government is not subject to New York sales or use tax. The NYDTF guidance may have an influential effect on other states that have enacted similar fees — most notably neighboring New Jersey. Not only does New Jersey have a very similar sales and use tax regime, but a number of its municipalities are proposing similar bag fees. Moreover, New Jersey may eventually enact a statewide bag tax (this past August New Jersey Governor Phil Murphy vetoed such a measure stating that he objected to the current iteration of the tax (a proposed five cent tax) as not powerful enough to dissuade consumers from using disposable bags.) As other state and local taxing jurisdictions implement or consider similar bag taxes in order to address environmental and aesthetic concerns, the question of their inclusion in the sales tax base will become increasingly significant. New York's approach seems to be a clear indication that such taxes should not constitute a taxable event for sales tax purposes.

As other state and local taxing jurisdictions implement or consider similar bag taxes in order to address environmental and aesthetic concerns, the question of their inclusion in the sales tax base will become increasingly significant. New York's approach seems to be a clear indication that such taxes should not constitute a taxable event for sales tax purposes.

———————————————