Can a foreign company buying materials delivered to a New York affiliate use resale certificates, and must it register?

Plain-English summary

A Canadian contractor (which builds only in Canada) buys raw materials from vendors inside and outside New York and has them drop-shipped to its New York manufacturing affiliate. Sometimes it keeps ownership of the materials through the affiliate's manufacturing; sometimes it sells the materials to the affiliate (via intercompany charges). The affiliate ships finished products back to the Canadian company. It asked whether it can use resale certificates, whether it must register, and whether it can get refunds.

The Office of Counsel concluded:

• Its purchases are New York sales. Sales tax is a destination tax keyed to where possession transfers (20 NYCRR 525.2(a)(3)). Because materials are delivered in New York to its designee (the affiliate), the purchases are subject to New York tax unless an exclusion applies. (The company is not acting as a New York contractor here.)
• It must register. If it resells materials to the affiliate, it is making taxable New York sales of tangible personal property and must register for sales tax (Tax Law sections 1101(b)(8), 1131, 1134).
• Resale certificate only for true resales. Once registered, it may give suppliers a Form ST-120 and buy tax-free — but only if, at the time of purchase, it intends to resell the materials to the affiliate and does not use them itself (merely holding inventory is fine). Resale "as such" requires the buyer to make no use of the goods before reselling (Mendoza Fur). If it retains ownership through manufacturing, it is not reselling, and the resale exclusion does not apply.
• It must collect tax on its sales to the affiliate unless it timely gets, in good faith, a proper resale/exemption certificate — and it cannot accept the affiliate's certificate unless it is itself registered (Tax Law section 1132(c)). Taxable intercompany sales are measured by the intercompany charge plus any other consideration, including shipping.
• Refunds/credits. If it paid New York tax on materials it then resells (without using them), it may claim a refund or credit (Tax Law section 1139). Refunds may also apply where it retains ownership but later incorporates the materials into real property outside New York, or where its New York use is limited to fabricating goods shipped out of state for use out of state (Tax Law section 1119(a)(1),(4)).

What this means for you

Drop-shipping to a New York designee is a New York purchase

Having your supplier deliver to someone in New York on your behalf (here, an affiliate) makes the purchase a New York sale under the destination rule — even if you are a foreign company with no other New York footprint.

Reselling in New York means registering

If you resell the materials (even to an affiliate, even via intercompany charges), you are a New York vendor: you must register, collect tax on those sales (or take a valid certificate), and file.

Resale certificates require genuine, unused resale

Form ST-120 works only when you actually intend to resell the goods and do not use them yourself first. Keeping ownership through manufacturing is a use that defeats the resale exclusion — those purchases are taxable. Intent is judged at purchase, though later conduct can shed light on it.

If you paid tax but qualify, claim the refund

Tax paid on materials you then resell unused, build into out-of-state real property, or fabricate into goods shipped out of state can be recovered via refund/credit (sections 1139, 1119).

Common questions

Q: I'm a foreign company with no New York operations — why must I register?
A: Because you resell materials delivered in New York to your affiliate, which are taxable New York sales. Making taxable sales in New York requires registration.

Q: Can I buy everything tax-free with a resale certificate?
A: Only the materials you genuinely intend to resell to the affiliate and do not use yourself. If you keep ownership through manufacturing, that is a use, and the resale exclusion does not apply.

Q: I already paid tax on materials I resold — am I stuck?
A: No. You can apply for a refund or credit (section 1139) for tax paid on materials you resell without using, and possibly under section 1119 for materials built into out-of-state real property or fabricated into goods shipped out of state.

Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner. Use it as guidance and confirm your own facts.

Citations and references

• Tax Law section 1105(a) (sales tax on retail sales of tangible personal property)
• Tax Law section 1101(b)(4) (definition of retail sale)
• Tax Law section 1132(c) (authority to accept resale/exemption certificates)
• Tax Law section 1139 (refund or credit of tax)
• Tax Law section 1119(a) (refund for property used to fabricate goods shipped out of state)
• 20 NYCRR 525.2(a)(3) (destination tax; point of delivery controls)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2016.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a16_4s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-16(4)S
Sales Tax
February 22, 2016

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

PETITION NO. S130305A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
REDACTEDREDACTEDREDACTEDREDACTEDREDACTEDREDACTEDREDACTED
(“Petitioner”). Petitioner asks whether it may issue resale certificates to New York vendors to
allow it to purchase raw materials without paying sales tax. Petitioner also asks whether it must
register for sales tax purposes. Finally, Petitioner asks whether it may apply for a refund of tax
paid on its purchases of materials if it resells them to its affiliate in New York (“Affiliate”).
We conclude Petitioner must register for sales tax purposes, but may issue resale
certificates to its suppliers and not pay tax on purchases of materials that it intends to resell. If
Petitioner pays sales tax on materials it purchases and then resells them without using them itself,
Petitioner may apply for a refund or credit of New York State or local tax it paid.
Facts
Petitioner operates in Canada as a contractor. Its activities include selling and installing
curtain walls, window walls, and other products, solely in Canada. It does not construct, service,
repair, or install tangible personal property in New York State. It does not have any payroll or
property in New York, other than the raw materials described below. It does not sell any
property to anyone in New York other than the raw materials it sells to its affiliate, a
manufacturer located in New York (“Affiliate”).
Petitioner and Affiliate are related
corporations. Petitioner is not currently registered for sales tax purposes in New York.
Petitioner purchases raw materials from third-party vendors located both inside and
outside New York. Petitioner has its suppliers drop-ship the materials to Affiliate in New York.
In some cases, Petitioner retains ownership of the raw materials while they are stored at
Affiliate's warehouse in New York and through Affiliate’s manufacturing process. In other
cases, Petitioner stores the materials at Affiliate’s warehouse and then sells them to Affiliate.
Affiliate uses the materials to manufacture the curtain walls, window walls, and other products,
and Affiliate then sells the finished products to Petitioner. In either case, Affiliate ships the
finished products to Petitioner in Canada, for Petitioner’s use in its business there. If Petitioner
sells the raw materials to Affiliate, Affiliate pays Petitioner for them by means of inter-company
charges. Petitioner pays Affiliate for the finished products, or for its manufacturing services,
also by inter-company charges.

Analysis

-2-

TSB-A-16(4)S
Sales Tax
February 22, 2016

Tax Law § 1105 (a) imposes sales tax on retail sales of tangible personal property, unless
an exemption or exclusion applies. As relevant here, Tax Law § 1101 (b) (4) (i) (A) defines
“retail sale” as the sale of tangible personal property to a person for any purpose, other than for
resale as such or as a physical component part of tangible personal property. However, a sale of
tangible personal property to a contractor for use or consumption in erecting structures or
buildings, or building on, or otherwise adding to, altering, improving, maintaining, servicing or
repairing real property is deemed to be a retail sale, regardless of whether the tangible personal
property is to be resold as such before it is so used or consumed. A person that engages in
erecting, constructing, adding to, altering, improving, repairing, servicing, or maintaining,
buildings, other structures, or improvements on or to real property is a contractor for sales tax
purposes. See 20 NYCRR § 541.2 (d).
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 to the purchaser's designee, controls both the tax
incidence and the tax rate. See 20 NYCRR § 525.2 (a) (3). Thus, if a vendor sells property and
delivers it in this State, New York sales tax would apply, but if the vendor delivers the property
to the purchaser outside the State, New York sales tax would not apply.
Tax Law § 1110(a)(A) imposes compensating use tax on the use of any tangible personal
property purchased at retail. Section 1101(b)(1) defines “purchase at retail” as a purchase by
any person for any purpose other than, as relevant here, for resale as such. Resale “as such,” for
purposes of both the sales tax and the use tax, means the person who bought the property for
resale does not itself make any use of the property (other than holding it in inventory) before it
sells the item, in which case the person can purchase the item for resale, not subject to tax. If the
person does make some use of the item, then the person cannot purchase the item for resale. See,
e.g., Matter of Mendoza Fur Dyeing Works, Inc. v. Taylor, 272 NY 275 (1936).
Petitioner is a contractor with respect to its building activities in Canada. However,
Petitioner is not acting as a contractor in New York when it purchases raw materials to be made
into finished products by Affiliate in New York. Petitioner’s purchases of raw materials are
purchases of tangible personal property, and those purchases would be subject to sales tax,
because Petitioner has the materials delivered in New York to its designee, Affiliate, unless an
exemption or exclusion exists. If Petitioner retains ownership of the materials during the
manufacturing process, it is not reselling them to Affiliate, and the resale exclusion would not
apply.
If Petitioner resells materials it purchases to Affiliate, Petitioner would be a vendor
required to register for sales tax purposes, because it is making sales of tangible personal
property delivered in New York, the receipts from which are taxable. See Tax Law §§ 1101 (b)
(8), 1131, 1134. As a person registered for sales tax purposes, and notwithstanding that it is a
contractor in Canada, Petitioner could purchase the materials for resale, so long as (1) at the time
it purchases them it intends to resell them to Affiliate and (2) it does not make any use of the
materials itself other than to hold them for resale to Affiliate. Once it is registered, Petitioner
may timely give its suppliers a properly completed Form ST-120, Resale Certificate, in order to
purchase the materials intended exclusively for resale without paying tax. If, at the time it
purchases materials, Petitioner does not intend to resell them to Affiliate, or expects that it will
use them itself before reselling them, it may not give the supplier a resale certificate. Intent is

-3-

TSB-A-16(4)S
Sales Tax
February 22, 2016

generally determined at the time of sale. However, later activities, while not determinative, may
be relevant to ascertaining a purchaser’s intent at the time of sale. See Matter of D.J.H.
Construction v. Chu, 145 AD2d 716 (3d Dep’t 1988).
Petitioner would be required to collect sales tax when it sells the materials to Affiliate,
unless Petitioner timely receives in good faith a properly completed exemption or resale
certificate from Affiliate. We note that Petitioner would not be authorized to accept Affiliate’s
resale certificate in lieu of collecting sales tax from Affiliate, unless Petitioner is registered for
sales tax purposes. See Tax Law § 1132 (c). To the extent that any sales between Petitioner and
Affiliate are taxable, the intercompany charges between them plus any other consideration given
or promised to be given, including any charges made by the seller to ship or deliver the property
sold, would be the measure on which any tax due would be calculated. See Tax Law §§ 1101 (b)
(3), 1110 (b).
If Petitioner purchases materials and pays New York State or local tax on its purchases,
and it has the materials delivered to Affiliate in New York and resells them to Affiliate,
Petitioner may apply for a refund or credit of the New York State or local tax it paid, so long as it
does not make any use of the materials other than to hold them for resale. See Tax Law § 1139.
In addition to the resale exemption, Petitioner may be entitled to a refund if it retains
ownership of the materials but later incorporates them into real property outside New York in its
performance of a contract, or if its use of the materials in the State is limited to fabricating
tangible personal property (including incorporating the materials into or assembling them with
other tangible personal property) that is shipped outside the State for use outside the State. See
Tax Law § 1119 (a) (1), (4).

DATED: February 22, 2016

NOTE:

/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.