Are materials and supplies a federal government contractor purchases in its own name, for use in performing a cost-reimbursement services contract, excluded from sales tax as purchases for resale even though the government takes title to them?

Plain-English summary

Rome Research Corporation held a "technical support" contract with the U.S. Air Force to provide engineering, operations, maintenance, and management services at Rome Laboratory (Griffiss Air Force Base). Under the contract, the government normally supplied any materials Rome Research needed at no charge. But when materials weren't readily available that way, the contract let Rome Research buy them itself — after getting the government's prior approval — with the purchase order and vendor invoice in Rome Research's own name. The materials were shipped straight to the government site, where the government signed for them and took full title and responsibility on delivery; Rome Research never warehoused or inventoried them, and the government reimbursed Rome Research through its normal invoicing.

Rome Research argued these purchases should be treated as purchases "for resale" to the government, which would make them exempt from sales tax at the time of purchase. The Department disagreed. The resale exclusion only protects purchases made exclusively to resell the item as such — here, Rome Research wasn't in the business of reselling materials to the government as standalone goods; it was buying them to use in performing its own contracted services (operating and maintaining the government facility). That the government happened to take title to the materials on delivery, and reimbursed Rome Research for their cost, didn't change what the purchase was really for. The Department relied on its own earlier decision in Matter of West Valley Nuclear Services, involving a materially identical cost-reimbursement government contract structure, which reached the same conclusion and was upheld on appeal. So Rome Research's purchases were ordinary taxable retail purchases, not resale-exempt, unless some other exemption happened to apply.

What this means for you

Government service contractors (federal, state, or local)

Buying supplies "for" the government — even under a cost-reimbursement contract where the government takes title and pays you back — does not automatically make those purchases tax-exempt resales. If you're using the materials yourself to perform contracted services (rather than simply flipping them to the government as a standalone sale), expect to pay sales or use tax on them like any other buyer, unless a specific government-contractor or other exemption applies to your situation.

Accountants and tax professionals advising contractors

The controlling distinction is "purchased for resale" vs. "purchased for use in performing a service," following the Tax Appeals Tribunal's West Valley Nuclear Services precedent. Facts that don't change the outcome: title passing to the government, government reimbursement of cost, and the contractor never warehousing or inventorying the goods. What would matter is whether the contractor is genuinely reselling the item as such, separate from its own service performance.

Public agencies structuring service contracts

If an agency wants a contractor's material purchases to qualify for a tax exemption (e.g., a genuine government-purchase exemption), the contract needs to be structured so the contractor is truly acting on the government's behalf as a resale intermediary or agent — this contract's terms expressly did not make the contractor an agent of the government, which was part of why the resale exclusion failed.

Common questions

Q: If the government reimburses my company for materials and takes title to them, are my purchases tax-exempt as resales?
A: Not automatically. If you're buying the materials to use in performing your own services under the contract — rather than purchasing them purely to resell as goods — the purchases are taxable retail purchases, per this ruling and the Tax Appeals Tribunal's West Valley Nuclear Services decision.

Q: Does it matter that the government takes title and possession of the materials on delivery?
A: The Department said title passing to the government doesn't determine the resale question — what matters is whether the contractor purchased the goods exclusively for resale, versus for its own use in performing the contract.

Q: Would the answer change if the contract made Rome Research an agent of the government?
A: The Department noted the contract did not confer agency status on Rome Research or provide that it makes purchases as the government's agent — a genuine agency/purchasing-agent structure could potentially support a different exemption analysis, but that's a separate question from the resale exclusion addressed here.

Q: Can another government contractor rely on this ruling?
A: No. This advisory opinion binds the Department only for Rome Research Corporation on the facts described, though it applies the same rule the Tax Appeals Tribunal established in West Valley Nuclear Services, which is binding legal precedent beyond just this one taxpayer.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4)(i) (definition of "retail sale"; resale exclusion)
• Tax Law § 1105(a) (tax on retail sales of tangible personal property)

Prior rulings/cases referenced:

• Matter of West Valley Nuclear Services Co., Inc., Dec Tax App Trib, Nov. 13, 1998, TSB-D-98(15)S, confirmed 264 A.D.2d 101, appeal denied 95 N.Y.2d 760

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2000.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a00_47s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-00(47)S
Sales Tax
November 20, 2000

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S961118B

On November 18, 1996, the Department of Taxation and Finance received a Petition for
Advisory opinion from the Rome Research Corporation, 314 South Jay Street, Rome, New York
13440.
The issue raised by Petitioner, Rome Research Corporation, is whether certain materials and
supplies it purchases for use under its contract with the United States ("U.S.") government are
excluded from sales and compensating use taxes as purchases for resale.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner entered into a contract with the U.S. government, Department of the Air Force,
in direct support of government testing, maintaining and operating government facilities, and to
perform research, at Rome Laboratory, Griffiss Air Force Base. Petitioner submitted a copy of the
contract, entitled "Rome Laboratory Technical Support Contract"( the "Contract"). The Contract
provides that Petitioner "shall provide engineering, technical, operations and maintenance (O&M)
and management services to support Rome Laboratory." The Contract provides for cost
reimbursement to Petitioner, plus a fixed fee.
Under the Contract, the government must provide at no charge the base support necessary
for Petitioner to fulfill its obligations. Such base support includes all necessary materials and
supplies. If such materials and supplies are not available, Petitioner, following procedures contained
in the Contract, purchases materials and supplies for use at Rome Laboratory. In these transactions,
Petitioner’s purchase orders and vendor invoices name Petitioner as the purchaser. Petitioner has
a substantially "dependent" role in making contract purchases. Petitioner is contractually required
to obtain prior approval from the U.S. government for all contract related purchases. When materials
and supplies are required, a U.S. Government authorization form must be completed and approved
by the Rome Laboratory Program Manager, a U.S. Government employee. All approved purchase
requisitions are then delivered to Petitioner for processing and ordering of the goods. The materials
and supplies purchased are then delivered directly from the vendor to the Government site. Upon
receipt, the government signs for the materials and supplies and accepts full responsibility and title.
Petitioner is then reimbursed by the government for the purchases via its normal invoicing process.
The U.S. government is liable to Petitioner for all purchases that have been approved by the Program
Manager. Petitioner does not warehouse the items purchased in any part of its facility, and the cost
associated with these items is never carried financially in a company inventory account.
The Contract does not confer agency status on Petitioner or provide that Petitioner shall make
purchases as the agent of the U.S. government.

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November 20, 2000

The following are portions of Petitioner's contract with the U.S. government:
SECTION H - SPECIAL CONTRACT REQUIREMENTS
(3) BASE SUPPORT (JUL 1992) Base support will be provided by the
government to the contractor in accordance with the provisions of this clause . . .
(a) Base support includes government -controlled working space, material,
equipment, services (including automatic data processing), or other support
(excluding use of the Defense Switched Network (DSN)) which the government
determines can be made available at, or through, any Air Force installation where
this contract will be performed. All Government property in the possession of the
contractor, provided through the base support clause, will be used and managed in
accordance with the Government Property Clause.
*

*

*

(c) Unless otherwise stipulated in the contract schedule, support will be
provided on a no-charge-for use basis and the value will be a part of the
Government's contract consideration.
(d) . . . the contractor (or authorized representative) will not purchase, or
otherwise furnish any base support requirement provided by the clause (or
authorize others to do so), without prior written approval of the Contracting
officer regarding the price, terms, and conditions of the proposed purchase, or
approval of other arrangements.
Applicable Law
Section 1101(b) of the Tax Law provides, in part:
When used in this article for the purposes of the taxes imposed by
subdivisions (a), (b), (c) and (d) of section eleven hundred five and by section
eleven hundred ten, the following terms shall mean:
*

*

*

(4) Retail sale. (i) A sale of tangible personal property to any person for
any purpose, other than (A) for resale as such or as a physical component part of
tangible personal property, or (B) for use by that person in performing the services
subject to tax under paragraphs (1), (2), (3), (5), (7) and (8) of subdivision (c) of

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November 20, 2000

section eleven hundred five where the property so sold becomes a physical
component part of the property upon which the services are performed or where
the property so sold is later actually transferred to the purchaser of the service in
conjunction with the performance of the service subject to tax. . . .
Section 1105(a) of the Tax Law imposes a tax upon:
The receipts from every retail sale of tangible personal property, except as
otherwise provided in this article.
Opinion
Petitioner's role is essentially that of a service provider while the U.S. government's role is
to provide Petitioner with the materials and supplies necessary to fulfill its function as such service
provider. When materials are not readily available, the Contract contains a mechanism for Petitioner
to procure such materials and supplies. Using this procedure, Petitioner purchases materials and
supplies in its name and has them delivered to the U.S. government's job site where the U.S.
government takes title and possession. Although the U.S. government takes title to these materials
and supplies, they are purchased by Petitioner for use in performing its contractual obligations.
Petitioner does not purchase materials and supplies exclusively for resale to the U.S. government,
since Petitioner uses them to provide services required under the Contract. Therefore, Petitioner’s
purchases are not excluded from sales tax under Section 1101(b)(4)(i) of the Tax Law. See Matter
of West Valley Nuclear Services Co., Inc., Dec Tax App Trib, November 13, 1998, TSB-D-98(15)S;
determination confirmed, 264 A.D.2d 101, appeal denied 95 N.Y.2d 760. In West Valley, as in the
present case, the contractor had entered into a cost reimbursement contract with the U.S.
government, under which the contractor purchased materials and supplies necessary to perform its
contractual obligations and the government took title to materials and supplies purchased by the
contractor upon delivery by the supplier. It was held in West Valley that under these circumstances
the contractor’s purchases of materials and supplies were not excluded from tax as purchases for
resale. Accordingly, Petitioner’s purchases of materials and supplies pursuant to the Contract are
retail purchases which are subject to sales and compensating use tax unless some other exemption
applies.

DATED: November 20, 2000

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist III
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.