N.Y. Comp. Codes R. & Regs. tit. 20 § 532.4

Current through Register Vol. 46, No. 45, November 2, 2024

Section 532.4 - Presumption of taxability

Tax Law, § 1132(c)

(a)General.

(1) It is presumed that all receipts for property or service of any type mentioned in subdivisions (a), (b), (c) and (d) of section 1105 of the Tax Law, all rents for occupancy of the type mentioned in subdivision (e) of said section, and all amusement charges of any type mentioned in subdivision (f) of said section, are subject to tax until the contrary is established.

(2) Prepaid sales tax on motor fuel.

[Tax Law 1132 (h)]

In addition to the receipts taxable under section 1105 of the Tax Law, it is presumed that all motor fuel imported, manufactured, sold, received or possessed in the state, other than motor fuel which is in interstate or foreign commerce, is intended for use, distribution or sale in the state and subject to the tax required to be prepaid under section 1102 of the Tax Law until the contrary is established. For other regulations applicable to motor fuel, see Part 561 of this Title.

(b)Burden of proof.

(1) The burden of proving that any receipt, amusement charge, or rent is not taxable shall be upon the person required to collect the tax and the customer.

(2) A vendor who in good faith accepts from a purchaser a properly completed exemption certificate or, as authorized by the Department, other documentation evidencing exemption from tax not later than 90 days after delivery of the property or the rendition of the service is relieved of liability for failure to collect the sales tax with respect to that transaction. The timely receipt of the certificate or documentation itself will satisfy the vendor's burden of proving the nontaxability of the transaction and relieve the vendor of responsibility for collecting tax from the customer.

(i) A certificate or other document is "accepted in good faith" when a vendor has no knowledge that the exemption certificate or other document issued by the purchaser is false or is fraudulently presented. If reasonable ordinary due care is exercised, knowledge will not be imputed to the seller required to collect the tax.

Example 1:

During the course of an audit of a liquor store's books and records, an auditor, in verifying the amount of nontaxable sales reported on the vendor's quarterly returns, discovered certain sales taxes were not collected on certain allegedly exempt transactions by reason of exemption certificates on file that were actually received from customers other than the customers to whom the sales were made. It was revealed that two store clerks would make sales to friends and acquaintances without charging tax and charged the sales against certain of the certificates on file. The lack of internal control by the store owner which allowed the two clerks to perpetrate a fraudulent practice over a period of time without detection indicates that reasonable ordinary due care was not exercised by the store owner. Accordingly, the owner is liable for the tax due on the disallowed exempt sales.

Example 2:

The Brown Manufacturing company purchased machinery and equipment which could be used for production or distribution for its New York plant from Ajax company, a multistate business. Brown Manufacturing purchased the machinery and equipment, which Brown intended to be used in its distribution area, from Ajax's New York State sales representative. By virtue of its size and weight, the machinery and equipment cannot be completely assembled prior to delivery to the customer's place of business. Ajax company sent its New Jersey based installation crew to the Brown Manufacturing company location to perform the on-site assembly. Within 90 days of the date of the completion of the on- site assembly, the Brown Manufacturing company issued an exemption certificate to the Ajax company's Accounts Receivable Department located in Ohio, and did not pay the tax on the purchase of the machinery and equipment. The Ajax company's Accounts Receivable Department accepted, in good faith, the completed exemption certificate as it was not in a position to determine whether or not the machinery and equipment was really being used in the production of tangible personal property for sale and had no reason to question the claimed exempt status. Therefore, Ajax is not liable for the uncollected tax.

Example 3:

Mr. Jones, who was not a registered sales tax vendor, purchased vinyl siding from XYZ Building and Supply company to install on a house which he owns. Upon picking up the siding, Mr. Jones improperly issued a contractor's exempt purchase certificate to the vendor, complete with an apparently valid identification number, and did not pay the tax on the purchase price. Subsequently, the Tax department audited XYZ's nontaxable sales and determined Mr. Jones had issued a false contractor's exempt purchase certificate. Although the certificate issued by Mr. Jones was false, XYZ Building and Supply company accepted the completed certificate in good faith as it appeared to be properly completed and XYZ had no knowledge that the certificate was false. XYZ Building and Supply company is therefore relieved of liability for failure to collect tax on this transaction.

Example 4:

Same as example 3, except Mr. Jones issued a capital improvement certificate to the vendor in lieu of paying the tax. As stated on the capital improvement certificate, the certificate may not be used by a contractor or a property owner/tenant to purchase building materials or other tangible personal property without payment of the tax. Therefore, acceptance of the capital improvement certificate by the vendor on this sale was improper and results in the vendor being held liable for the tax due as reasonable ordinary due care was not exercised. (See also paragraph [4] of this subdivision, Audit Compliance Verification Procedures.)

(ii) An exemption certificate or other document is considered to be properly completed when it contains the:

(a) date prepared;

(b) name and address of the purchaser;

(c) name and address of the vendor;

(d) identification number of the purchaser as shown on its certificate of authority, or exempt organization number as shown on the exempt organization certificate, if any such numbers are required by the certificate or document. The farmer's exemption certificate does not have such a number. Also, the exemption certificate for tractors, trailers or semitrailers does not require the number of the purchaser's certificate of authority in all instances. However, if the purchaser completing an exemption certificate for tractors, trailers or semitrailers does not have a certificate of authority, such exemption certificate must show the purchaser's highway use tax identification number unless the purchaser is a certificated household goods mover, in which instance it must show its Interstate Commerce Commission or New York State Department of Transportation identification number. Absent such identifying numbers, the exemption certificate for tractors, trailers or semitrailers is incomplete.

(e) signature of the purchaser or the purchaser's authorized representative; and

(f) any other information required to be completed on the particular certificate or document.

(iii) A certificate or document in substantiation of an exempt sale is considered timely received by the vendor when it is received within 90 days after the delivery of the property or the rendition of the service.

(a) For the purposes of this section, the term 90 days after the delivery of the property means that day which is 90 days after the date actual possession of the property or a portion thereof is transferred to the purchaser. If actual possession is not transferred to the purchaser (such as in a "sale and lease back" transaction or where the property is delivered by the vendor at the direction of the purchaser to a third party) it shall mean that day which is 90 days after the earlier of transfer of title or constructive transfer of possession to the purchaser. Provided however, where due to size, weight, complexity, or a requirement of fitness or suitability for a specific purpose, the tangible personal property sold must be assembled or installed by the vendor or a subcontractor thereof at the delivery site before acceptance of the property by or passing of title to the purchaser, it shall mean that day which is 90 days after such property is so assembled or installed.

(b) For the purposes of this section, the term 90 days after the rendition of the service means:

(1) with respect to the utility services described in subdivision (b) of section 1105 of the Tax Law, that day which is 90 days after the earlier of the completion of the service or the last day of the first month in which the vendor first commences performing or providing the particular service for or on behalf of the purchaser;

(2) with respect to the information services described in paragraph (1) of subdivision (c) of section 1105 of the Tax Law, that day which is 90 days after the date any information is first transferred to the purchaser;

(3) with respect to the services of producing, fabricating, processing, printing or imprinting as described in paragraph (2) of subdivision (c) of section 1105 of the Tax Law, that day which is 90 days after the date that actual or constructive possession of the tangible personal property upon which such services are performed is transferred to the purchaser of the service;

(4) with respect to the services of:

(i) installing, repairing, servicing and maintaining tangible personal property;

(ii) storage of tangible personal property;

(iii) rentals of safe deposit boxes and similar space;

(iv) and maintaining, servicing and repairing real property or land described in paragraphs (3), (4) and (5) of subdivision (c) of section 1105 of the Tax Law; that day which is 90 days after the completion of the service provided however, with respect to warranty services or services to be preformed on a periodic or seasonal basis, the last day of the first month in which the vendor first commences performing or providing the particular service for or on behalf of the purchaser or the last day of the first month for which the vendor is liable for performing or providing the service, if earlier;

(5) with respect to the rents for hotel occupancy as described in subdivision (e) of section 1105 of the Tax Law, that day which is 90 days after the last day of the first period of occupancy (day, week or month determined by whether the rent charged is on a daily, weekly or monthly basis).

(c) For the purposes of this section, the term 90 days after the delivery of the property or the rendition of the service means:

(1) with respect to the sale of beer, wine or other alcoholic beverages, food and drink as described in subdivision (d) of section 1105 of the Tax Law, that day which is 90 days after the day such alcoholic beverages, food or drink is provided to the purchaser;

(2) with respect to admission charges as described in paragraph (1) of subdivision (f) of section 1105 of the Tax Law and charges of a roof garden, cabaret or other similar place as described in paragraph (3) of subdivision (f) of section 1105 of the Tax Law, that day which is 90 days after the earlier of the first day the patron is granted admission to such a place, or the day any ticket or other evidence of entitlement to admission to the place of amusement or roof garden, cabaret or other similar place is transferred to the patron;

(3) with respect to dues as described in paragraph (2) of subdivision (f) of section 1105 of the Tax Law, that day which is 90 days after the last day of the first month such member becomes entitled to any membership privileges.

(3) When a vendor has met the criteria in paragraph (2) of this subdivision, it is protected from liability for failure to have collected tax from the purchaser and the burden of proving the nontaxability of such transaction rests solely on the purchaser.

(4) Audit compliance verification procedures. Verification of the exemption certificates and documents received by a vendor will occur during an audit of its records. The verification shall include a review for proper completion and the timeliness of and receipt in good faith of such exemption certificates and other documents.

(i) When the department decides to examine a vendor's records substantiating sales claimed as exempt from tax, the vendor will be notified by the department as to what records, exemption certificates and other documents are to be presented. The department will then grant the vendor a reasonable period of time in which to retrieve the requested records, exemption certificates or other documents from its recordkeeping system. The responsibility for developing and maintaining a recordkeeping system which is capable of retrieving and substantiating any claimed exemption is on the vendor.

(ii) Where an exemption certificate or document timely received by the vendor is found to be deficient in its completion, the vendor will be allowed a reasonable period of time prior to the conclusion of the audit to obtain the necessary information to correct the deficiency. When the deficient certificate or document is corrected within such time allowed, the exemption certificate will be accepted as having been properly completed and received by the vendor within 90 days of the transaction and is deemed to satisfy the vendor's burden of proof as to the taxability of the particular transaction.

(iii) Requested exemption certificates and documents which are not submitted to the department within the allotted time period and exemption certificates and documents determined to be deficient which are not corrected within the additionally allotted time period prior to the conclusion of the audit are deemed not to have been properly completed and timely received by the vendor. Any such exemption certificates or documents later presented by the vendor will not, in and of themselves, be considered sufficient to satisfy the vendor's burden of proof concerning the taxability of the subject transactions.

(iv) Exemption certificates or documents not received by the vendor within 90 days after the delivery of the property or the rendition of the service will likewise not, in and of themselves, be considered as satisfying the vendor's burden of proof concerning the taxability of the subject transaction.

(v) The failure of a vendor to have timely received a properly completed exemption certificate or other document (including certificates or documents which as described in subparagraph [iii] of this paragraph are deemed not timely received or properly completed) does not necessarily mean that the vendor is to be held liable for taxes it failed to collect from the purchaser. Prior to the completion of the audit, the vendor will be given the opportunity to submit additional information and other documentation to prove that the transaction was not subject to tax if this may be done within a reasonable period of time. Such additional information and documentation that may prove that a transaction was not subject to tax might be nothing more in certain circumstances than the purchase contracts and sales invoices. Bills of lading or other evidence of delivery showing sales and delivery may substantiate exempt sales of property to governmental or other tax exempt purchasers. Verification may consist of documentation from the purchaser, under the purchaser's letterhead, attesting to why a purchase was exempt or any other documentation which the department determines may substantiate the exemption claimed. In the event the purchaser has paid the tax, the vendors' tax liability for this transaction would be satisfied. The department has the right to review and challenge all information and documentation submitted. If the vendor cannot provide adequate documentation, the transaction will be considered taxable.

(5) A vendor is not relieved of the burden of proof when it failed to obtain an exemption certificate or accepted an improper certificate, or had knowledge that the exemption certificate issued by the purchaser was false or fraudulently presented.

(6) The fact that a vendor has failed to receive timely or proper documentation of the claimed exempt status of any particular transaction does not change the tax status of the transaction. Thus, a vendor which has timely protested a determination of tax always has the right to prove the nontaxability of any transaction through the presentation of proper documentation. However, the vendor has lost the opportunity to rely solely upon the receipt of the exemption certificate or document in satisfaction of its burden of proof as to its responsibility to collect tax.

Example 5:

A resale certificate is not on file for a sale made to an entity which has since ceased doing business and it is determined from information available that the sale was for resale. The sale will be considered not taxable.

Example 6:

A building material supplier sells materials to a contractor. The contractor is purchasing these materials for the construction of a building for an exempt organization. The contractor issues a capital improvement certificate to the supplier within 90 days in lieu of payment of the sales tax. Upon audit, the supplier is notified that this is an improper certificate (a capital improvement certificate may not be issued to purchase uninstalled tangible personal property). The department will allow the supplier a reasonable amount of time to obtain a properly completed contractor's exempt purchase certificate from the contractor together with a statement from the contractor that the materials were used in performing a capital improvement for an exempt organization with substantiation of that fact. Such substantiation may consist of a copy of the exempt organization certification together with a copy of the contract or a statement by the exempt organization evidencing that a capital improvement was performed for it. If this information is obtained within the reasonable time period and has been reviewed and verified by the department, the exemption will be allowed. Otherwise, lacking proper documentation, the sale will be considered a taxable transaction.

Example 7:

During an audit of a registered art dealer's books and records, a copy of a sales invoice on file made out to an individual c/o an exempt organization's name and address was discovered. The individual paid cash and took delivery of the art work at the dealer's place of business. The sale of the art work was reported as a nontaxable (2) sale on the art dealer's return although the art dealer did not have an exempt organization certification on file covering this sale. As more than 90 days had lapsed since the date of sale, the auditor requested that the art dealer obtain an exempt organization certification covering the sale and also a written document, dated and signed by an authorized official of the exempt organization, verifying that the purchase of the art work was for the benefit of the exempt organization and that the individual paid for the purchase of the art work with the exempt organization's funds. The art dealer requested and received a copy of the exempt organization certification but not the written documentation. Additional time prior to the conclusion of the audit was allowed for the art dealer to obtain the additional documentation. Subsequently, the exempt organization provided a statement written on its own letterhead, dated and signed by the president of the exempt organization, attesting to the fact that the art work was purchased for the benefit of the organization by the treasurer of the organization and was paid for with the exempt organization's funds. The sale will be considered nontaxable.

(c)Use of exemption certificates.

(1) To enable purchasers entitled to an exemption from the sales and compensating use tax to avail themselves of the exemption and for administrative purposes, the Department of Taxation and Finance provides various exemption certificates. Examples of exemption certificates are forms for:

(i) purchases for resale;

(ii) capital improvements;

(iii) transactions involving exempt organizations; and

(iv) exempt use. The use of exemption certificates is governed by the conditions under which they are issued. A vendor is not required to collect tax from a purchaser who timely furnishes a properly completed form which is issued for the designated purpose and accepted in good faith.

(2)

(i) Sales tax exemption certificates currently authorized for use may be reproduced without prior permission from the department provided they are reproduced in their entirety.

(ii) Prior approval must be obtained from the Technical Services Bureau of the Taxpayer Services Division of the department if a person wishes to use an exemption certificate which has modified language. Where approval is obtained, the certificate must indicate on the face of the exemption certificate the fact of such approval and the date approval was obtained from the Technical Services Bureau. If prior approval is not obtained, a vendor accepting such certificate will not be relieved of its liability for failure to collect the tax.

(3) Any purchaser issuing a false or fraudulent resale or other exemption certificate or document may be subject to such penalties as:

(i) penalty of 100 percent of the tax that would have been due had the misuse of the certificate or document not occurred; and

(ii) $50 penalty for each certificate or document issued; and

(iii) other monetary penalties as imposed under the Tax Law; and

(iv) the criminal penalties as prescribed by section 1817 of the Tax Law and the Penal Law.

Cross-reference:

For penalties and interest, see Part 536 of this Title.

(d)Resale certificate.

(1) A resale certificate is used to claim exemption from tax on purchases of tangible personal property or services which will be resold or transferred to a customer when the:

(i) tangible personal property is for resale as such or as a physical component part of tangible personal property;

(ii) tangible personal property is for use in performing taxable services under paragraph (1), (2), (3) or (5) of subdivision (c) of section 1105 of the Tax Law where such property becomes a physical component part of the tangible personal property upon which the services are performed or will be actually transferred to the purchaser of the service in conjunction with the performance of the service; or

(iii) service is for resale.

Example 1:

A retail shoe store vendor will give his supplier a resale certificate when he purchases shoes from him for resale.

Example 2:

A furniture manufacturer will give a lumber supplier a resale certificate covering the purchase of lumber which will be manufactured into furniture for resale.

Example 3:

An auto service station operator will give his parts supplier a resale certificate covering the purchase of repair parts incorporated into customers' cars.

Example 4:

An appliance retailer contracts with an appliance serviceman to repair appliances for his customers. The serviceman charges the retailer $7 per hour, and the retailer charges his customers $10 per hour. The retailer provides the serviceman with a resale certificate and does not pay tax on the $7 per hour charge.

(2) A resale certificate is properly completed when it complies with the provisions of subparagraph (b)(2)(ii) of this section.

(3) When property or services are intended for resale and purchased tax exempt with a resale certificate, but later are used or consumed rather than resold, the purchaser must pay a tax on the purchase price.

(4) A blanket resale certificate may be filed with the vendor by a purchaser to cover additional purchases of the same general type of property or service. Each vendor accepting a resale certificate must, for verification purposes, maintain a method of associating a sale made for resale with the resale certificate on file.

(5) Contractors who are purchasing tangible personal property for use in performing capital improvement work or repairs on real property are not permitted to use a resale certificate.

(e)Exempt use certificate.

(1) An exempt use certificate is used to claim exemption from State and local sales tax on purchases of tangible personal property or services to be used for an exempt purpose.

(2) The certificate may be used when purchasing:

(i) tangible personal property exempt from sales and use tax under subdivisions (a) and (c) of section 1105-B of the Tax Law and paragraphs (8)-(10), (12), (19)-(21) of subdivision (a) of section 1115 of the Tax Law;

(ii) utilities and utility services exempt under subdivision (b) of section 1115 of the Tax Law, and fuel, utilities and utility services exempt under subdivision (c) of section 1115 of the Tax Law;

(iii) the service of storing tangible personal property held for resale in the ordinary course of business;

(iv) information services excluded under paragraph (1) of subdivision (c) of section 1105 of the Tax Law used by newspapers, radio broadcasters and television broadcasters in the collection and dissemination of news;

(v) tangible personal property exempt from local taxes under section 1210 (a)(1) of the Tax Law;

(vi) tangible personal property or services exempt under section 1105 (c)(3) of the Tax Law when performed upon commercial vessels or commercial aircraft; or

(vii) services exempt under section 1105-B (b) of the Tax Law when performed upon machinery, equipment or apparatus, or parts, tools or supplies, exempt under sections 1115 (a)(12) and 1105-B of the Tax Law.

(3) An exempt use certificate is properly completed when it complies with the provisions of subparagraph (b)(2)(ii) of this section.

Cross-references:

Contractor's exempt purchase certificate, see Part 541 of this Title; farmer's exemption certificate, see section 528.7 of this Title; exempt organization certificate, certificate of diplomatic and consular tax exemption, see Part 529 of this Title; tax exemption certificate, for use by employees of this State or its political subdivisions, see section 527.9(d) of this Title; and exemption certificate, tax on occupancy of hotel rooms, see section 527.9(d) of this Title.

(f)Certificate of capital improvement.

(1) A certificate of capital improvement is used to claim exemption from State and local sales tax on the purchase of a capital improvement as defined in section 527.7(a)(3) of this Title.

(2) A certificate of capital improvement is properly completed when it complies with the provisions of subparagraph (b)(2)(ii) of this section.

Cross-references:

Contractor exempt purchase certificate, see Part 541 of this Title. Farmer's exemption certificate, see section 528.7 of this Title. Exempt organization certificate; certificate of diplomatic and consular tax exemption, see Part 529 of this Title.

Tax exemption certificate, for use by employees of this State or its political subdivisions, see section 527.9(d) of this Title. Exemption certificate, tax on occupancy of hotel rooms see section 527.9(d) of this Title.

Exemption certificate for tractors, trailers or semi-trailers, see section 528.26 of this Title.

N.Y. Comp. Codes R. & Regs. Tit. 20 § 532.4