In a multi-tier supply chain for prepaid telephone calling cards, who owes New York sales tax on sales made from 1998-2000, and what happens when resale certificates were never issued between the companies?

Plain-English summary

This opinion untangles a dispute running through a four-tier prepaid calling card supply chain: Company A (a New York manufacturer/telecom provider) sold cards to Company B (a New York reseller), which resold to other resellers (in and outside New York), who sold to retail outlets, who sold to end users. Across 1998, 1999, and 2000, Company A never charged Company B sales tax and never received a resale certificate from Company B; Company B likewise never obtained resale certificates from its own customers. Years later, Company A claimed Company B owed it back sales tax on those card sales. The Department answered eight specific questions raised by the parties:

The law changed mid-stream. Before March 1, 2000, New York didn't tax the purchase of a prepaid calling card at all — tax was instead collected later, when an end user actually placed a taxable in-state call using the card. So Company A's card sales to Company B in 1998, 1999, and pre-March-2000 were never subject to sales or use tax, regardless of any resale certificate. New legislation (effective March 1, 2000) flipped this: tax is now imposed up front, when the prepaid calling service itself is sold, and calls made using a card bought on or after that date aren't separately taxed.

Missing resale certificates shift the burden. For sales occurring on or after March 1, 2000, a sale from one reseller to another is only exempt as a "sale for resale" if the seller obtains a properly completed resale certificate within 90 days. Neither Company A nor Company B ever obtained one from their respective buyers, so every post-March-2000 sale in the chain is presumed taxable, and the burden falls on whoever claims otherwise to prove it with other documentation (audit records, purchase contracts, invoices) — even outside the 90-day window, just without the automatic protection the certificate would have provided.

Liability isn't limited to the seller. New York's sales tax is a "trustee" tax collected by the vendor, but if a vendor fails to collect it, the customer is independently liable and must pay the tax directly to the Department within 20 days. So Company B, as the buyer in a presumptively taxable 2000 sale, can be personally liable for tax Company A never collected — and Company A separately has a civil right of action to sue Company B to collect it (though the Commissioner must be joined as a party to that suit).

Destination and limitations rules apply as usual. Sales tax is a destination tax — it follows where the card is delivered, so sales delivered outside New York aren't subject to New York tax at all. And the Department generally has three years from a filed return to assess additional tax, but no time limit at all if no return was ever filed.

What this means for you

Telecom resellers and multi-tier calling-card distributors

Track the March 1, 2000 law change carefully — cards sold before that date were untaxed at the point of sale (tax fell on the end-user's call instead), while cards sold on or after that date are taxed at the point of sale, with a resale exclusion available only to sellers who timely collect resale certificates.

Any business in a multi-tier resale chain that skipped resale certificates

Missing or late resale certificates don't automatically make a transaction taxable forever — but they do shift the burden of proof onto you to substantiate the exemption with other records, and they expose the buyer (not just the non-collecting seller) to potential direct liability for uncollected tax.

Accountants and tax professionals

This is a comprehensive template for reconstructing tax exposure across an undocumented resale chain: check the applicable law as of the transaction date, confirm whether resale certificates exist, and separately analyze destination (delivery point) for any out-of-state legs of the chain.

Common questions

Q: If I never received a resale certificate from my customer, am I automatically liable for the tax?
A: You lose the automatic "good faith" protection a timely certificate would give you, and the transaction is presumed taxable — but you can still prove the sale was genuinely for resale with other documentation, typically during an audit.

Q: Does missing paperwork put my customer on the hook too?
A: Yes — a customer in a presumptively taxable transaction is independently liable for tax the seller failed to collect, separate from the seller's own personal liability for failing to collect it.

Q: How long does New York have to come after a company for old, unfiled prepaid-card sales tax?
A: Ordinarily three years from when a return was filed — but there's no time limit if no return was ever filed for that period.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(22) (prepaid telephone calling service definition)
• Tax Law § 1105(b) (telephony and prepaid calling service tax); § 1110(a) (use tax)
• Tax Law §§ 1131(1), 1132, 1133, 1135(a)(1), 1147(b) (collection duties, resale certificates, liability, recordkeeping, statute of limitations)
• 20 NYCRR §§ 525.2(a), 526.6(c), 532.1, 532.4 (destination tax, resale exclusion, time of collection, presumption of taxability)
• TSB-M-00(3)S (Feb. 1, 2000, application of sales tax to prepaid calling services)

Prior rulings and cases referenced:

• Brand Name Sales, Inc., TSB-A-98(34)S
• Commonwealth Long Distance, Inc., TSB-A-94(33)S
• Superior Restaurant Equipment Co., Inc., TSB-A-86(23)S
• Matter of Mellen Electric Construction Co., Inc., TSB-H-87(161)S
• Matter of Charles Bigelow d/b/a Bigelow Linoleum, TSB-H-79(84)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2002.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a02_37s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-02(37)S
Sales Tax
July 25, 2002

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S011114A

On November 14, 2001, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Crystal Telecom, Corp., 160-38 Willets Point Blvd., White Stone, NY
11357. Petitioner provided additional information pertaining to the Petition on November 29, 2001.
Petitioner has set forth eight questions in the Opinion portion of this Advisory Opinion which
concern the sales tax implications of the sale and purchase of prepaid telephone calling cards for the
years 1998 - 2000.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Company A, a telecommunications provider, is a manufacturer of prepaid telephone calling
cards in New York. Company B, located in New York, is a reseller of prepaid telephone calling
cards. Company B resells prepaid telephone calling cards to other resellers in New York, as well
as in other states. These resellers sell the cards to retail outlets in New York, as well as in other
states. The outlets then sell the prepaid telephone calling cards to the end user.
In the years 1998, 1999, and 2000, Company A sold prepaid telephone calling cards to
Company B and did not charge Company B sales tax on these sales. Company A did not receive
a resale certificate from Company B for these sales. Company A now claims that Company B owes
it sales tax on the prepaid calling cards that it sold to Company B for the years 1998, 1999, and
2000. Company B did not receive resale certificates from its customers for its sales of prepaid
telephone calling cards during these years.
Applicable Law and Regulations
Section 1101(b)(22) of the Tax Law, as added and amended by Chapters 649 and 651 of the
Laws of 1999, effective March 1, 2000, provides:
“Prepaid telephone calling service” means the right to exclusively purchase
telecommunication services, that must be paid for in advance and enable the
origination of one or more intrastate, interstate or international telephone calls using
an access number (such as a toll free network access number) and/or authorization
code, whether manually or electronically dialed, for which payment to a vendor must
be made in advance, whether or not that right is represented by the transfer by the
vendor to the purchaser of an item of tangible personal property. In no event shall
a credit card constitute a prepaid telephone calling service. If the sale or recharge
of a prepaid telephone calling service does not take place at the vendor’s place of

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business, it shall be conclusively determined to take place at the purchaser’s shipping
address or, if there is no item shipped, at the purchaser’s billing address or the
location associated with the purchaser’s mobile telephone number.
Section 1105(b) of the Tax Law, as amended by Chapters 649 and 651 of the Laws of 1999,
effective March 1, 2000, imposes tax upon:
(1) The receipts from every sale, other than sales for resale, of . . . (B)
telephony and telegraphy and telephone and telegraph service of whatever nature
except interstate and international telephony and telegraphy and telephone and
telegraph service . . . and (D) a prepaid telephone calling service.
(2) For the purpose of subparagraph (B) of paragraph one of this subdivision,
(A) receipts from the sale of telephony or telephone service constituting the actual
delivery of telephony or telephone service under a prepaid telephone calling service
(for instance, when the receipt is represented by a debit to a prepaid account) shall
be excluded from the receipts subject to tax under such subparagraph, and (B) a
particular sale of telephony or telephone service to a vendor that resells such
telephony or telephone service as a component of a prepaid telephone calling service
shall be deemed a sale for resale of telephony or telegraph service.
Section 1110(a) of the Tax Law, as amended by Chapter 651 of the Laws of 1999, effective
March 1, 2000, provides, in part:
Except to the extent that property or services have already been or will be
subject to the sales tax under this article, there is hereby imposed on every person a
use tax for the use within this state . . . (G) of any prepaid telephone calling service.
Section 1131(1) of the Tax Law provides, in part:
“Persons required to collect tax” or “person required to collect any tax
imposed by this article” shall include: every vendor of tangible personal property or
services. . . .
Section 1132 of the Tax Law provides, in part:
(a)(1) Every person required to collect the tax shall collect the tax from the
customer when collecting the price . . . to which it applies. . . .
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(c)(1) For the purpose of the proper administration of this article and to
prevent evasion of the tax hereby imposed, it shall be presumed that all receipts for
property or services of any type mentioned in subdivisions (a), (b), (c) and (d) of
section eleven hundred five . . . are subject to tax until the contrary is established,
and the burden of proving that any receipt . . . is not taxable hereunder shall be upon
the person required to collect tax or the customer. Except as provided in subdivision
(h) or (k) of this section, unless (i) a vendor, not later than ninety days after delivery
of the property or the rendition of the service, shall have taken from the purchaser
a resale or exemption certificate in such form as the commissioner may prescribe,
signed by the purchaser and setting forth the purchaser’s name and address and,
except as otherwise provided by regulation of the commissioner, the number of the
purchaser’s certificate of authority, together with such other information as the
commissioner may require, to the effect that the property or service was purchased
for resale or for some use by reason of which the sale is exempt from tax under the
provisions of section eleven hundred fifteen, and, where such resale or exemption
certificate requires the inclusion of the purchaser’s certificate of authority number
or other identification number required by regulations of the commissioner, that the
purchaser’s certificate of authority has not been suspended or revoked and has not
expired as provided in section eleven hundred thirty-four . . . the sale shall be
deemed a taxable sale at retail. . . Where such a resale or exemption certificate . . .
has been furnished to the vendor, the burden of proving that the receipt . . . is not
taxable hereunder shall be solely upon the customer. The vendor shall not be
required to collect tax from purchasers who furnish a resale or exemption certificate
. . . in proper form, unless, in the case of a resale or exemption certificate described
in clause (i) of the second sentence of this paragraph whereon the purchaser’s
certificate of authority number, or other identification number required by regulation
of the commissioner, is required to be included, such purchaser’s certificate of
authority is invalid because it has been suspended or revoked as provided in section
eleven hundred thirty-four, and the commissioner has furnished registered vendors
with information identifying those persons whose certificates of authority have been
suspended or revoked, or unless such purchaser’s certificate of authority is invalid
because it has expired, and the commissioner has provided registered vendors with
a means of determining whether such expiration has occurred. . . .
Section 1133 of the Tax Law provides, in part:
(a) . . . every person required to collect any tax imposed by this article shall
be personally liable for the tax imposed, collected or required to be collected under
this article. Any such person shall have the same right in respect to collecting the tax
from his customer or in respect to nonpayment of the tax by the customer as if the
tax were a part of the purchase price of the property or service . . . and payable at the

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same time; provided, however, that the tax commission shall be joined as a party in
any action or proceeding brought to collect the tax.
(b) Where any customer has failed to pay a tax imposed by this article to the
person required to collect the same, then in addition to all other rights, obligations
and remedies provided, such tax shall be payable by the customer directly to the tax
commission and it shall be the duty of the customer to file a return with the tax
commission and to pay the tax to it within twenty days of the date the tax was
required to be paid.
Section 1135 of the Tax Law provides, in part:
(a)(1) Every person required to collect tax shall keep records of every sale . . .
and of all amounts paid, charged or due thereon and of the tax payable thereon, in
such form as the commissioner of taxation and finance may by regulation require.
Such records shall include a true copy of each sales slip, invoice, receipt, statement
or memorandum upon which subdivision (a) of section eleven hundred thirty-two
requires that the tax be stated separately.
Section 1147(b) of the Tax Law provides:
The provisions of the civil practice law and rules or any other law relative to
limitations of time for the enforcement of a civil remedy shall not apply to any
proceeding or action taken by the state or the tax commission to levy, appraise,
assess, determine or enforce the collection of any tax or penalty provided by this
article. However, except in the case of a willfully false or fraudulent return with
intent to evade the tax no assessment of additional tax shall be made after the
expiration of more than three years from the date of the filing of a return; provided,
however, that where no return has been filed as provided by law, the tax may be
assessed at any time. Where a purchaser furnishes a vendor with a false or
fraudulent certificate of resale or other exemption certificate or other document with
intent to evade the tax, the tax may be assessed against such purchaser at any time.
...
Section 525.2(a) of the Sales and Use Tax Regulations provides, in part:
Sales tax.
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(3) Except as specifically provided otherwise, the sales tax is a “destination
tax.” The point of delivery or point at which possession is transferred by the vendor

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to the purchaser, or the purchaser’s designee, controls both the tax incidence and the
tax rate.
(4) The sales tax is generally a “consumer tax.” That is, the person
required to collect tax must collect the tax from the customer (i.e., the consumer)
when collecting the taxable receipt . . . to which the tax applies. The customer
cannot shift the liability for payment of the tax to another person nor otherwise be
relieved of such liability. The vendor, or other person required to collect the tax,
collects the tax as trustee for and on account of the State and is also personally liable
for the tax required to be collected.
Section 526.6(c)of the Sales and Use Tax Regulations provides, in part:
Resale exclusion. (1) Where a person, in the course of his business
operations, purchases tangible personal property or services which he intends to sell,
either in the form in which purchased, or as a component part of other property or
services, the property or services which he has purchased will be considered as
purchased for resale, and therefore not subject to tax until he has transferred the
property to his customer.
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(2) A sale for resale will be recognized only if the vendor receives a properly
completed resale certificate. . . .
Section 532.1 of the Sales and Use Tax Regulations provides, in part:
(a) Time of collection. (1) Every person required to collect the tax shall
collect the tax from the customer when collecting the price . . . to which it applies.
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(d) Vendor’s remedy for customer’s failure to pay tax. (1) Every person
required to collect any tax imposed by article 28 and pursuant to the authority of
article 29 of the Tax Law shall have the same right in respect to collecting the tax
from his customer or in respect to nonpayment of the tax by the customer as if the
tax were a part of the purchase price of the property or service . . . and payable at the
same time; provided, however, that the Commissioner of Taxation and Finance shall
be joined as a party in any action or proceeding brought to collect the tax.
(2) The joining of the Commissioner of Taxation and Finance as a party in
any action or proceeding brought to collect the tax shall be effected by service upon

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the Commissioner of Taxation and Finance of a summons and complaint naming the
Commissioner of Taxation and Finance as a plaintiff or defendant thereon.
(e) Payment and returns by customer. Where any customer has failed to pay
sales tax imposed by article 28 and pursuant to the authority of article 29 of the Tax
Law to the person required to collect the tax, such tax shall be payable by the
customer directly to the Department of Taxation and Finance, and it shall be the duty
of the customer to file a return with the Department of Taxation and Finance and to
pay the tax within 20 days of the date the tax was required to be paid. . . .
Section 532.4 of the Sales and Use Tax Regulations provides, in part:
Presumption of taxability.
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(b) Burden of proof. (1) The burden of proving that any receipt . . . 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.
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(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.
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(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.
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(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 . . . 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 . . . 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 . . . 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.
(Emphasis added)
(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

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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.
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(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:
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(iii) service is for resale.
Opinion
The following are the questions presented by Petitioner concerning the activities of
Companies A and B and the appropriate answers:

1. Does Company B owe Company A sales tax on the prepaid calling cards for the years 1998,
   1999, and 2000?
   The “prepaid telephone calling service” provisions of the Tax Law currently in effect were
   enacted by Chapters 649 and 651 of the Laws of 1999 and apply to sales or uses of such services
   made on or after March 1, 2000. Prior to March 1, 2000, a customer’s initial purchase of a prepaid
   calling card was not subject to New York State sales or use tax, i.e., the value of the card
   was not taxed upon purchase; rather, the tax was imposed at the time a taxable (intrastate) telephone
   call was made by the end user of the card (see Brand Name Sales, Inc., Adv Op Comm T&F,
   May 19, 1998, TSB-A-98(34)S; Commonwealth Long Distance, Inc., Adv Op Comm T&F,
   July 29 1994, TSB-A-94(33)S; Technical Services Bureau Memorandum,Application of Sales
   Tax to Prepaid Calling Services Including Prepaid Telephone Calling Cards, February 1, 2000,
   TSB-M-00(3)S). Therefore, Company A’s charges to Company B for its prepaid calling cards sold
   in the years 1998, 1999, and before March 1, 2000, were not subject to sales or compensating use
   tax. This is so whether Company B was purchasing telephone service from Company A for resale
   via the cards as either Company A’s telephone service or as its own telephone service.

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Under the 1999 legislation, sales tax is imposed at the time a prepaid telephone calling
service (including services represented by prepaid calling cards) is sold, and telephone calls made
using a prepaid phone card purchased on or after March 1, 2000, are not subject to sales tax. See
Sections 1101(b)(22), 1105(b)(1)(D), and 1105(b)(2)(A) of the Tax Law. In addition, the sale of
telephone service to a vendor that resells such service as a component of a prepaid telephone calling
service is considered a sale for resale for purposes of the resale exclusion from sales tax. See
Section 1105(b)(2)(B) of the Tax Law. Company B should have claimed the resale exclusion from
tax on purchases of such telephone services which were to be resold to its customers. Company B
should have issued Resale Certificates (Form ST-120) to Company A within 90 days of the date of
each sale. See Section 1132(c)(1) of the Tax Law and Section 532.4(d) of the Sales and Use Tax
Regulations. Having received no documentation from Company B, i.e., resale certificates, to verify
that its prepaid calling cards sold to Company B in the year 2000 on or after March 1, 2000 were
eligible for the resale exclusion provided in Section 1105(b)(2)(B) of the Tax Law, Company A’s
charges to Company B for such cards were presumptively subject to the imposition of sales tax
under Section 1105(b)(1)(D) of the Tax Law. See TSB-M-00(3)S, supra.

2. Was Company B required to provide a resale certificate to Company A and was Company
   B required to receive a resale certificate from other resellers?
   As described in Question (1), the initial sale of a prepaid telephone calling service, which
   includes services represented by prepaid calling cards, sold on or after March 1, 2000, is a taxable
   transaction. When Company A and Company B made sales of taxable services without collecting
   tax to persons in New York State on or after March 1, 2000, they were required to obtain properly
   completed resale certificates, within 90 days of the date of each sale, in order to relieve themselves
   of personal liability for collection of sales tax with respect to such sales. See Section 1132(c)(1) of
   the Tax Law. Since these exemption documents were not timely tendered in either Company A’s
   or Company B’s transactions, neither Company A nor Company B is afforded the protection
   provided in Section 1132(c)(1) of the Tax Law to sellers who, in good faith, receive properly
   completed exemption documents within the 90-day period.
   Whether resale certificates were or were not tendered to Companies A and B within the
   statutory 90-day period does not affect the ultimate taxability of the transactions. See Section
   532.4(b)(6) of the Sales and Use Tax Regulations. Thus, while Companies A and B have lost the
   opportunity to rely solely upon the receipt of resale certificates in satisfaction of their burdens of
   proof as to the taxable status of their sales, they do have the opportunity to prove the nontaxablility
   of their transactions through the presentation, either during an audit or as a timely protest to a
   determination of tax, of proper documentation which confirms the transactions were exempt. See
   Sections 532.4(b)(4)(v) and 532.4(b)(6) of the Sales and Use Tax Regulations. Also see Section
   532.4(b)(4)(v) of the Sales and Use Tax Regulations for additional guidance as to what is acceptable
   documentation to confirm an otherwise exempt transaction, when the statutory procedure (receipt
   of an authorized document within 90 days of the sale) is not followed. The determination of what

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constitutes sufficient documentation necessary for any particular transaction depends on the facts
and circumstances of each particular case.

3. Can Company A charge sales tax if it did not have a sales tax resale certificate at the time
   of sale?
   Company A’s charges to Company B for its prepaid calling cards sold prior to March 1,
   2000, were not subject to sales or use tax. This is so whether Company B was purchasing telephone
   service from Company A for resale via the cards as either Company A’s telephone service or as its
   own telephone service.
   Since Company B did not issue a properly completed resale certificate to Company A with
   respect to sales of prepaid calling cards occurring in the year 2000 on or after March 1, 2000, such
   sales were presumptively subject to tax. A seller’s statutory duty to collect sales tax does not shield
   its customer from liability for payment of any tax which the seller fails to collect. Such tax is
   payable by the customer directly to the Tax Department within twenty days of the date the tax was
   required to be paid. See Section 1133(b) of the Tax Law. Accordingly, Company B, as
   the customer in a taxable sale, is liable for the sales tax that was not collected by Company A (see
   Matter of Mellen Electric Construction Co., Inc. et al, State Tax Commission, June 18, 1987,
   TSB-H-87(161)S; Matter of Charles Bigelow d/b/a Bigelow Linoleum, State Tax Commission,
   October 12, 1979, TSB-H-79(84)S). If Company B could prove that its purchases of prepaid
   telephone calling service were for resale, it would not be required to pay tax on such purchases.
   It should be noted that a person required to collect tax has the same right in respect to
   collecting the tax from a customer as if the tax were a part of the purchase price and payable at the
   same time. Thus, Company A has a right of action against Company B for any sale tax duly owed
   by Company B that Company B failed to pay, and may bring suit in accordance with the Tax Law.
   If Company A brings such a suit, it must join the Commissioner as a party through service upon the
   Commissioner of Taxation and Finance of a summons and complaint naming the Commissioner of
   Taxation and Finance as a plaintiff or defendant. See Section 1133(a) of the Tax Law and Section
   532.1(d) of the Sales and Use Tax Regulations. However, for any of its purchases from Company
   A of telephone service on or after March 1, 2000, Company B would have no sales tax liability if
   Company B can show that it sold the service as a component of its telephone calling card service.
4. Can Company A charge sales tax to Company B if Company B was merely a reseller?
   See Question (3). Since Company B did not issue a properly completed resale certificate to
   Company A with respect to sales of prepaid calling cards occurring in the year 2000 on or after
   March 1, 2000, such sales were presumptively taxable. Although Company A is personally liable
   for the tax it was responsible for collecting, liability for payment of the sales tax is also placed upon
   Company B, the consumer. Matter of Mellen Electric Construction Co., Inc. et al, supra; Matter of
   Charles Bigelow d/b/a Bigelow Linoleum, supra. Company A’s only means of collecting the tax

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is an action or proceeding in a court of law as provided in Section 532.1 of the Sales and Use Tax
Regulations. Superior Restaurant Equipment Co., Inc., Adv Op State Tax Commission, June 9,
1986, TSB-A-86(23)S.
Again it is noted that if there is sufficient information to prove the exempt status of the
transactions, no tax is required to be paid on such sales.

5. For what periods may Company A retroactively seek to collect sales tax from Company B?
   Under the New York State Tax Law, the statute of limitations for the New York State
   Department of Taxation and Finance to assess Company A New York State sales and use tax is three
   years from the date a return is filed. The three-year limitation does not apply if a return is not filed,
   and the tax may be assessed any time. See Section 1147(b) of the Tax Law.
   Company A, as a person required to collect tax, and not in possession of a timely and
   properly completed resale certificate from Company B, is personally liable for the tax that was
   required to be collected from Company B. Company A has the same right in respect to collecting
   the tax from Company B as if the tax were part of the purchase price of the prepaid calling service
   and payable at the same time. A discussion of the provisions of the Civil Practice Law and Rules
   or any other laws relative to limitations of time for the enforcement of a civil remedy is beyond the
   scope of this Advisory Opinion.
6. Should the sales tax have been collected at the retail level in each state where the prepaid
   card was sold and submitted to that state’s sales tax office?
   The sales tax is a destination tax. The point of delivery or point at which possession is
   transferred by the vendor to the purchaser, or the purchaser's designee, controls both the tax
   incidence and the tax rate. See Section 525.2(a)(3) of the Sales and Use Tax Regulations. If a
   purchaser is located outside New York State and a seller is located in New York State, when the
   seller delivers the prepaid telephone calling service to the purchaser outside New York State (i.e.,
   when Company B sells prepaid calling cards to resellers located outside New York State) and when
   a New York retail outlet sells and delivers prepaid calling cards to end-users located outside
   New York State, no New York State sales tax is applicable and the other state’s tax laws would
   prevail. Petitioner’s question regarding the responsibilities of Companies A and B or any other party
   under the sales tax laws of other states cannot be addressed in this Advisory Opinion.
   With regard to the duty of New York vendors to collect sales tax for sales occurring in
   New York, see Question (1). In addition, any out-of-state vendor which was required to be
   registered and collect New York sales tax was responsible for collecting and remitting the tax
   on such sales to end-users within New York. Also, a New York State resident that, on or after
   March 1, 2000, purchased telephone card services from an out-of-state vendor which was not
   required to be registered and collect New York sales tax was still liable for compensating use tax

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Sales Tax
July 25, 2002

on the purchase of that service, unless the purchase was for resale. See Section 1110(a)(G) of the
Tax Law. It is noted that the vendors selling the telephone card service on or after March 1, 2000,
are personally liable for the sales tax due on sales of prepaid phone cards, whether or not the sales
tax was collected from the customer, to the extent that the sales were not for resale.

7. If so, what documentation is required of Company B to prove that the cards were not sold
   by Company B at the retail level?
   See Question (2). Section 532.4 of the Sales and Use Tax Regulations provides guidance
   as to what documentation might be required since Company B failed to obtain resale certificates
   from its customers which would have relieved it of its liability for collection and remittance of tax.
   What is required is sufficient information so that a reasonable determination as to the exempt status
   of the transactions may be made. It cannot be determined, within the scope of an Advisory Opinion,
   what would or would not be considered sufficient after-the-fact documentation to verify that
   Company B’s sales were for resale. An Advisory Opinion merely sets forth the applicability of
   pertinent statutory and regulatory provisions to a specified set of facts. See Tax Law Section 171,
   subd. twenty-fourth; 20 NYCRR 2376.1(a). Inasmuch as issues pertaining to additional
   documentation ordinarily arise within the context of an audit, the necessary factual determinations
   must be made within such context.
8. Who is ultimately responsible for collecting and remitting sales tax?
   Since no resale certificates have been issued in the situation described by Petitioner, all of
   the sales of prepaid telephone calling services by the New York State vendors described in this
   Advisory Opinion to purchasers located in New York are presumptively subject to tax. The vendors
   are responsible for collecting and remitting tax on their taxable sales. A purchaser is also liable for
   any tax due that the seller has failed to collect. In the case of an out-of-state seller who is not
   required to be registered with New York State, purchasers located in New York are liable for
   compensating use tax on their purchases of prepaid telephone calling services, other than purchases
   for resale. See Section 1110(a)(G) of the Tax Law.

DATED: July 25, 2002

NOTE:

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

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