Sales Tax Obligations of Sellers in New York

April 13, 2006

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In New York, all receipts of tangible personal property and specified services, all rents for occupancy (hotels, etc.) and all amusement charges are presumed taxable unless the established to the contrary. The seller is required to collect the tax and is held personally liable for the tax. The burden of proving exemption from the tax is imposed on the person required to collect tax. However, where a properly completed exemption certificate or statement has been furnished to the seller, the burden of proof as to the nontaxability shifts to the purchaser. A seller isn't required to collect tax from a purchaser who furnishes a certificate of resale, an exempt organization statement or other exemption certificate in a proper form, unless the purchaser's certificate of authority had been suspended, revoked or has expired. Because you will be held liable as the seller, you'll want to make sure you collect the proper tax from a purchaser unless a valid exemption form is presented.

For an exemption to be recognized, a seller must, in good faith, accept a properly completed exemption certificate not later than 90 days after delivery of the property or the rendition of the service. The exemption certificate is considered to be properly completed when it contains the following information:

date prepared
name and address of the purchaser
name and address of the vendor
identification number of the purchaser as shown on its certificate of authority
signature of the purchaser
any other information required to be completed on the particular certificate or document

The principal exemption certificates include: Exempt Organization Certificate (Form No. ST-119), Resale Certificate (Form No. ST-120), Exempt Use Certificate (Form ST-121), Certificate of Capital Improvement (Form No. ST-124), Farmer's Exemption Certificate (Form No. ST-125), and Certificate of Individual Indian Exemption for Certain Taxes on Property or Services Delivered on a Reservation (Form DTF-801).

Procedure for accepting an exemption certificate. We've stated that for an exemption to be recognized, a seller must, "in good faith," accept a properly completed exemption certificate not later than 90 days after delivery of the property or the rendition of the service.

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

Sales and use tax liability for out-of-state mail order and catalogue retailers. If you are an out-of-state vendor, and you make sales to New York residents, you will be required to collect a use tax if you have "physical presence" within New York. To determine if you have physical presence, ask yourself the following:

Do I have retail facilities, a warehouse or any office space in New York? Maintaining retail or warehouse facilities will give you physical presence. Also, having an office for employees, even for business activities unrelated to mail order sales, will give you physical presence.
Do my employees or I enter New York for purposes of taking and transmitting orders from New York? If your employee or independent contractor go into New York to take or transmit orders your business may have physical presence in New York. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence.
Do my delivery vehicles frequently enter New York for purposes of delivering property? Frequent deliveries in New York by your trucks will give you physical presence in New York. An occasional delivery, however, may not constitute physical presence.

Passing on sales tax to your customers. New York assesses liability against you for paying sales taxes, but the law gives you the option of either paying the tax yourself (absorption) or passing it on to your customers.

Using a "no sales tax" advertising strategy to drum up business. New York does not allow you to advertise the fact that you will absorb any sales tax or that any part of it will be refunded. So, unless your customers specifically ask, you cannot use this option as a marketing tool.

Calculating sales and use taxes. The sales tax is determined by taking the sales tax rate, which is 4 percent (previously 4.25 percent) as of June 1, 2005, and multiplying it by the gross receipts from the amount of retail sales, less any exemptions.