Can a title insurance company buy a title abstract for resale, and is tax still owed if the closing is later cancelled?

Plain-English summary

The petitioner provides real property title reports and title insurance, is registered to collect sales tax, and buys abstracts of title (or title searches) from vendors in and out of New York. It asked two things: (1) when it buys a title abstract to prepare a title insurance policy, may it give the vendor a resale certificate (ST-120) instead of paying sales tax? And (2) if the closing is later cancelled, it issues no policy, but still must pay the abstract vendor -- is sales tax still due?

The Office of Counsel answered no to both:

• No resale certificate. Since September 1, 2010, a title abstract is a taxable information service (Tax Law 1105(c)(1); TSB-M-10(7)S). The statute excludes a purchase "for resale," but the resale must be exclusive -- the buyer must purchase the service only to resell it (Albany Calcium Light; TSB-A-10(54)S). A title insurer that buys an abstract to prepare its own title insurance policy is using the abstract, not reselling it, so it may not use a resale certificate (TB-ST-5). It must pay sales tax on the abstract.
• Cancelled closing doesn't cancel the tax. Sales tax provides a credit for cancelled sales (Tax Law 1132(e); 20 NYCRR 534.6). But if the closing falls through and the insurer issues no policy yet still pays the abstract vendor, the sale of the abstract to the insurer was not cancelled -- so the credit doesn't apply, and sales tax is still due on the abstract purchase.

What this means for you

Title insurers and abstract buyers

You can't buy a title abstract tax-free with a resale certificate if you're going to use it to write your own title policy -- that's not a resale, and the resale exclusion is strict ("exclusively for resale"). Budget to pay sales tax on abstracts you consume in your business. And note the cancelled-sale rule cuts narrowly: if your downstream deal collapses but you still owe and pay the abstract vendor, your purchase wasn't cancelled, so you can't recover the tax. (A genuinely cancelled abstract purchase would be different.)

Practical point

The taxable event is your purchase of the abstract, independent of whether your customer's transaction closes.

Common questions

Q: Can a title insurer buy abstracts for resale with an ST-120?
A: No. Using the abstract to prepare your own title policy isn't a resale, so the resale exclusion doesn't apply.

Q: The closing was cancelled and we issued no policy -- can we avoid the tax?
A: No. If you still pay the abstract vendor, the sale of the abstract to you wasn't cancelled, so the cancelled-sale credit doesn't apply.

Q: When did abstracts become taxable?
A: September 1, 2010, as a taxable information service (TSB-M-10(7)S).

Citations and references

• Tax Law section 1105(c)(1) (information services; resale exclusion)
• Tax Law section 1132(e) (credit for cancelled sales)
• 20 NYCRR section 534.6 (refund/credit for cancelled sales)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2011.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a11_3s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-11(3)S
Sales Tax
February 8, 2011

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S101122A

Petitioner name redacted asks whether, in purchasing a title abstract for the purpose of
preparing a title insurance policy, a title insurance company may provide a resale certificate (ST-120)
to the vendor in lieu of paying sales tax. We conclude that the title insurance company may not so use
a resale certificate because its purchase of the title abstract does not qualify for the resale exclusion.
Petitioner also asks whether sales tax would still be due on its purchase of a title abstract for purposes
of issuing a title insurance policy if the closing is subsequently cancelled, Petitioner does not issue the
policy, but still must pay the title abstract company. We conclude that sales tax would still be due
because the sale of the abstract to the title insurance company was not cancelled.
Facts
Petitioner is engaged in the business of providing real property title reports and title insurance,
has a place of business in New York, and is registered to collect sales tax. Petitioner delivers its
products to customers both within and without New York State. Petitioner purchases abstracts of title
(or title searches) from vendors both within and without New York State.
Analysis
Tax Law section 1105(c)(1) imposes sales and use tax on the sale, except for resale, of the
service of “furnishing of information by printed, mimeographed or multigraphed matter or by
duplicating written or printed matter in any other manner, including the services of collecting,
compiling or analyzing information of any kind or nature and furnishing reports thereof to other
persons.” In Sales and Compensating Use Tax Treatment of Certain Information Services,
TSB-M-10(7)S, the Department held, effective September 1, 2010, that sales of title abstracts are
taxable as information services.
Section 1105(c)(1) excludes from tax the sale of an information service “for resale.” To
satisfy the “for resale” requirement, the purchase of an information service must be exclusively
for resale (see Albany Calcium Light Co., Inc. v. State Tax Commission, 44 N.Y.2d 986 [1978];
TSB-A-10(54)S). Accordingly, in Abstracts of Title and Other Public Records Searches, TB-ST-5,
the Department held that a title insurance company may not buy a title abstract for resale if it intends
to use that title abstract to prepare a title insurance policy. Thus, Petitioner may not use a resale
certificate to purchase a title abstract for use in preparing a title insurance policy.
Petitioner also asks whether sales tax would still be due on its purchase of a title abstract for
purposes of issuing a title insurance policy if the closing is subsequently cancelled, Petitioner does not
issue any title insurance policy, but still must pay the vendor of the title abstract. The sales tax
provides a credit in regard to cancelled sales (see Tax Law § 1132(e); 20 NYCRR § 534.6). That
credit, however, would not apply because the sale of the abstract to Petitioner in the above scenario is

-2-

TSB-A-11(3)S
Sales Tax
February 8, 2011

not cancelled. Accordingly, Petitioner must pay sales tax on its purchase of a title abstract under those
circumstances.

DATED: February 8, 2011

NOTE:

/S/
DANIEL SMIRLOCK
Deputy Commissioner and Counsel

An Advisory Opinion is issued at the request of a person or entity. It is limited to the facts
set forth therein and is binding on the Department only with respect to the person or entity
to whom it is issued and only if the person or entity fully and accurately describes all
relevant facts. An Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific time period at issue
in the Opinion.