Understanding New York Sales and Use Taxes
Understanding and complying with the sales tax requirements in the states in which you do business is absolutely essential. More states are taxing services, as well as retail sales, so no business owner can afford to be in the dark. In addition, you may find that you are liable for use taxes for products purchased out of state. This article answers some of the basic questions regarding sales tax in New York.
New York state imposes a 4 percent sales tax on the receipts from retail sales of tangible personal property and on charges for certain services. However, there are 77 other jurisdictions in New York state that can impose a sales tax within their jurisdiction, making it essential that you check to see what rates you must use. The rates are adjusted annually at the end of February. You can locate the most recent rates here.
The following are the general categories that the sales and use tax is applied to:
- retail sales of tangible personal property
- gas, utilities, and telephone and telegraph services
- taxable services
- food and drink sold by restaurants and caterers
- room occupancy (applies to hotels and the like)
- certain admissions charges, social or athletic club dues and roof garden or cabaret charges
Certain transactions subject to surtax. An additional tax of 5 percent is imposed on the receipts from an entertainment service, or an information service, provided or delivered by means of interactive information network, telephony, telephone or telegraph service that is received by the customer exclusively in an aural manner. Also, an additional 5 percent tax is imposed on passenger car rentals within the Metropolitan Commuter Transportation District.
New York Taxes Many Services
New York imposes a sales and use tax on nine categories of services:
- information services
- processing and printing services
- installation, repair, and maintenance services performed upon tangible personal property
- storage and safe deposit rental
- real estate maintenance, service or repair
- motor vehicle parking and garaging services
- interior decorating and designing services
- protective and detective services
- telephonic and telegraphic entertainment and information services
Sellers Are Liable for Sales Tax
In New York, sellers of tangible personal property or services subject to tax, are the ones required to collect the sales tax from the purchaser when they collect the price or rent to which the tax applies. New York holds sellers personally liable for the sales tax. However, if purchaser doesn't pay the tax, the liability for the tax is transferred to the purchaser. Because the seller remains responsible for collecting the tax, the ball is really in his or her court.
Passing on sales tax to customers. New York assesses liability against the seller for paying sales taxes, but the law gives sellers the option of either paying the tax (absorption) or passing it on to the customers. However, New York does not allow the seller to advertise the fact any sales tax will be absorbed or that any part of it will be refunded. So, unless customers specifically ask, a seller cannot use this option as a marketing tool.
New York Has Many Sales Tax Exemptions
The New York sales and use tax on tangible personal property is general in nature. (On the other hand, the tax on services is selective, applying only to specified services. Those services that aren't enumerated are exempt from taxation.) Unless stated otherwise, exemptions, exceptions and exclusions apply to both sales and use taxes. Exemptions may be granted on the basis of the nature of the product (such as food), the type of transaction (such as a resale), or the nature of the entity selling or buying the product (such as a charitable organization).
The principal exclusion from sales tax is property purchased for resale. Sales for resale are not subject to tax, since the sales and compensating use taxes are imposed only upon "retail sales" of tangible personal property and selected services.
Sales for resale include the following sales of tangible personal property:
- sales for resale in the same form as purchased
- sales for resale as a physical component part of tangible personal property
- sales for use by the purchaser in performing certain taxable services where the property sold becomes a physical component part of the property upon which the services are performed or is later actually transferred to the purchaser of the taxable service in connection with that service. (Those services include information services, processing and printing services, installation, maintenance and repair services upon tangible personal property, real estate maintenance, service or repair, interior decorating and designing services, and protective and detective services.)
A book publisher purchases leather for making book bindings and then sells the books directly to the public. The leather has become a physical component part of the books sold to the public and, therefore, has been purchased for resale by the book publisher and is not subject to the tax. Another example is when a service station purchases grease to be used for lubricating cars, without payment of tax, as the grease will be transferred to their customers in connection with the performance of a taxable service.
If you purchase tangible personal property for use in performing a non-taxable service, the purchase is not considered for resale — this is because the service is already nontaxable.
A shoe repairman purchases leather to be used for resoling shoes. The shoe repairman's purchase of the leather is not a purchase for resale even though the leather will be transferred to the customer in connection with the performance of the service, because the service that the shoe repairman is performing is not taxable.
A jeweler sends her customer's watch to a repairman for servicing. The charge by the jeweler to her customer is taxable. The charge to the jeweler by the repairman is not taxable because the service was purchased for resale by the jeweler.
Generally, sales of tangible personal property to a contractor, or repairman, etc. for use or consumption in construction or repairing real property are considered "retail sales" and therefore, not part of the resale exemption. However, an exemption is permitted in certain specific instances. You may want to check with New York to see if your specific category is exempt.
Exemption certificate requirements. Complying with the rules regarding exemptions certificates is essential for most small businesses. The burden of proving exemption from the tax is imposed on the person required to collect tax or the purchaser of the goods or services. 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.
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
- purchaser's name and address
- vendor's name and address
- purchaser's identification number as shown on the certificate of authority
- purchaser's signature and
- 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).
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.
Physical Presence Required for Tax Liability
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.
New York Imposes Use Tax on Out-of-State Purchases
In order to avoid missing out on collecting taxes on sales transactions taking place outside the state, New York imposes a use tax on purchases made outside New York for use in New York. If the use tax applies, then the sales tax does not. A credit is allowed for sales or use tax paid to out-of-state jurisdictions. Again, the seller is responsible for collecting the use tax. The New York use tax is imposed on receipts from the following categories of items or services:
- use of tangible personal property in New York
- use of tangible personal property manufactured, processed, or assembled by the user
- use of information services, interior decorating and designing services, and protective and detective services
- use of tangible personal property upon which certain taxable services are performed (processing or printing, installation, repair, and maintenance services performed on tangible personal property, and interior decorating and designing services)
- use of telephone answering services
- use of computer software written or otherwise created by a user who, in the regular course of business, offers software of a similar kind for sale (whether just the software is sold or the software is sold as a component part of other property)
The use of a passenger car rental is subject to a special use tax as well. (Leases of passenger cars for a year or more aren't subject to the tax.)
Exemptions from use tax. If property and services are not subject to sales tax, then they're not subject to use tax either. Also, no New York compensating use tax is due when tangible personal property is purchased by the user who's a nonresident of New York. (However, the use tax is imposed upon tangible personal property that a user incorporates into real property located in New York in the performance of a contract.) In addition, the following categories are exempt from use tax although they are subject to sales tax:
- retail sales of tangible personal property
- gas, utilities, and telephone and telegraph services
- taxable services
Other exemptions from the use tax include property incorporated into produced articles, paper used in newspapers and periodical publications, and certain exemptions for the sale of thoroughbred and standardbred racehorses (subject to qualifying conditions) and the use of horses purchased outside New York and brought into the state for racing, to the extent that the value of the horse exceeds $100,000.