If someone finances another business's purchases with his credit card, is he a person required to collect NY sales tax on those purchases?

Plain-English summary

The petitioner is registered as a sales-tax vendor for his computer-consulting business, but separately wants to finance purchases for another NY business he is investing in. The arrangement: the petitioner and the purchasing business call a vendor; the vendor invoices the purchasing business and ships the item to it; the petitioner verbally authorizes his credit card to be charged; the credit-card issuer bills the petitioner; the purchasing business signs a promissory note and repays him over time with interest. The petitioner never uses, takes possession of, or holds title to the items, takes no security interest, and shares in no profit or loss -- he is only a lender. He asked whether he is a person required to collect sales/use tax on these purchases.

The Office of Counsel concluded he has no tax-collection responsibility. Sales tax applies to a "sale," meaning a transfer of title or possession of tangible personal property for consideration (Tax Law 1105(a), 1101(b)(5); 20 NYCRR 526.7). Here the vendor transfers both title and possession directly to the purchasing business, with the petitioner merely loaning the consideration through his credit card. Because the petitioner never takes title or possession, there is no sale between him and the purchasing business, so he is not a person required to collect tax. The vendor collects any applicable tax (unless the purchasing business gives the vendor a proper exemption certificate, e.g., Form ST-121 for production machinery).

Two consequences of being a lender, not a buyer:
- No refund/credit rights: if tax should not have been paid, or an item is returned, the petitioner (as lender) cannot request a sales-tax refund or credit.
- No bad-debt relief: if the purchasing business fails to repay him, he is not eligible for a bad-debt refund/credit of the tax (Tax Law 1139; Matter of General Electric Capital Corp. v. Tax Appeals Tribunal).

He should keep books and records showing the credit-card charges were a financing relationship, not his own purchases, in case of audit. (Note: an exempt organization must be the direct payer of record from its own funds to buy exempt -- so if the purchasing business is a 1116(a)(4) exempt entity, it could not make exempt purchases paid for by the petitioner.)

What this means for you

Lenders and purchase financiers

If you finance someone's purchases but never take title or possession of the goods, you are not making a sale and have no duty to collect sales tax -- the vendor handles the tax with the actual buyer. But the flip side is real: you also get no refund, credit, or bad-debt relief for that tax, even if the borrower never repays you. Document the financing clearly so an auditor doesn't mistake the charges for your own purchases.

Buyers using third-party financing

The vendor still collects tax from you (the purchasing business), and you -- not your financier -- hold any exemption-certificate and refund rights. If you qualify for an exemption, give the vendor the certificate yourself; and to buy exempt as an exempt organization, you must be the direct payer of record from your own funds.

Common questions

Q: I put the purchase on my credit card -- am I the buyer who must deal with the tax?
A: No, if you are only financing it and never take title or possession. The vendor sells to and invoices the purchasing business and collects the tax.

Q: Can I get a refund if too much tax was charged, or if the item is returned?
A: No. As a lender rather than the purchaser, you have no right to a sales-tax refund or credit.

Q: The business never paid me back -- can I claim a bad-debt tax credit?
A: No. A financier is not eligible for a bad-debt refund or credit of the sales tax (Tax Law 1139; GE Capital).

Citations and references

• Tax Law section 1105(a) (sales tax on tangible personal property)
• Tax Law section 1101(b)(5) (definition of sale)
• Tax Law section 1139 (refund of tax; bad-debt)
• 20 NYCRR section 526.7 (sale; transfer of title or possession)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2013.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a13_10s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-13(10)S
Sales Tax
April 11, 2013

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S120221B

The Department of Taxation and Finance received a Petition for Advisory Opinion from name
and address redacted. Petitioner asks whether he is a person required to collect tax for the purposes of
Articles 28 and 29 of the Tax Law for certain purchases he finances or if he otherwise has any
responsibility to collect and remit sales or use taxes for these purchases pursuant to these articles.
We conclude that Petitioner has no sales or use tax collection responsibilities for the purchases
at issue.
Facts
Petitioner is registered as a vendor required to collect sales and use taxes because he makes
taxable sales as part of his computer consulting business. Unrelated to this consulting business,
Petitioner seeks to invest in another business located in New York State. This business (purchasing
business) seeks to purchase machinery, equipment or supplies that it needs to make its products or
otherwise use in its operation (e.g., office supplies). Instead of lending money to the purchasing
business in fixed amounts, Petitioner will allow it to use Petitioner’s credit card to make these
purchases.
To make a purchase, Petitioner and the purchasing business will telephone a vendor selling an
item which the purchasing business needs. The vendor will make out the invoice to the purchasing
business and then ship the item directly to the address of the purchasing business. When payment is
requested for the order, Petitioner will verbally give approval to the vendor for his credit card to be
charged. The vendor will make the credit card paperwork out in Petitioner’s name. The credit card
issuer will bill Petitioner for the purchase and Petitioner’s monthly statement from the credit card
issuer will show a charge made for the purchasing business’s purchase. The vendor will either collect
tax at the time of purchase or the purchasing business will give the vendor an exemption certificate in
those instances where the purchase qualifies for an exemption.
Petitioner plans to pay his credit card statement in full each month. The purchasing business
will execute a promissory note to Petitioner for each such extension of Petitioner’s credit. The
purchasing business will pay the Petitioner’s loan back over time, with interest, in accordance with the
terms of the note. Petitioner does not otherwise participate in the profit or loss of the purchasing
business’s operation. Petitioner is not related to the purchasing business in any manner other than as a
lender. Petitioner will not take a security interest in the items for which he loaned the purchase price,
and he never uses, takes possession of, or has title to the items purchased.

-2-

TSB-A-13(10)S
Sales Tax
April 11, 2013

Analysis
Sales Tax is imposed on “the receipts from every retail sale of tangible personal property,
except as otherwise provided . . . .” Tax Law §1105(a). The Tax Law and the Department’s
regulations provide that “[t]he words ‘sale,’ ‘selling’ or ‘purchase’ mean any transaction in which there
is a transfer of title or possession or both of tangible personal property for a consideration.” Tax Law
§1101(b)(5) and 20 NYCRR §526.7(1). In Petitioner’s situation, the vendor transfers both title and
possession to the purchasing business with Petitioner loaning the funds used for the purchase, that is,
the consideration, to the purchasing business through the use of his credit card. The vendor will collect
any applicable sales tax due on the purchase and pay the tax over to the Department unless the
purchasing business provides the vendor a properly completed exemption certificate (e.g., Form ST121 for machinery or equipment that will be used or consumed directly and predominantly in the
production of tangible personal property for sale.1) Because the Petitioner never takes possession of or
title to the items in question there is no sale between Petitioner and the purchasing business and
Petitioner is not a person required to collect tax on these purchases. The tax owed on the transactions
is collected by the vendor. It is expected that Petitioner will maintain the necessary books and records
to show that the charges placed on Petitioner’s own credit card were pursuant to a financing
relationship with the purchasing business and not Petitioner’s own purchases. He will need to be able
to clearly establish this financing arrangement in the event his business is audited. Further, because
Petitioner is acting as a lender, and not as the purchaser, he will have no right to request a refund or
credit of the sales tax paid if a refund or credit is available (either because sales tax should not have
been paid or if the item is returned to the vendor.) Moreover, in the event that the purchasing business
fails to make payment to him on any item which he finances, Petitioner is not eligible to request a bad
debt refund or credit for any amount of tax paid. See Tax Law §1139; Matter of General Electric
Capital Corporation v. Tax Appeals Tribunal, 2 NY3d 249 (2004).

DATED: April 11, 2013

NOTE:

1

/S/
DEBORAH R. LIEBMAN
Deputy 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. The information provided in this document does not cover every situation
and is not intended to replace the law or change its meaning.

We note that the Department’s regulations require that an exempt organization must be the direct payer of record and it
must make payment from its own funds in order for a purchase to be exempt. See 20 NYCRR §529.7(h). Petitioner did not
indicate to which type of entity he was providing funds. However, if the purchasing business is an organization described
in Tax Law §1116(a)(4), it could not make exempt purchases if Petitioner pays for those purchases.