Is a truck rental to a contractor exempt if the contractor gives a Contractor Exempt Purchase Certificate (ST-120.1) with box A checked?

Plain-English summary

A vendor rented a truck to a contractor. The contractor handed over a Contractor Exempt Purchase Certificate (Form ST-120.1) with box "A" checked — the box certifying that the property is bought for an exempt organization's project and "will become an integral component part" of that organization's building, structure, or real property. The truck was actually used to haul dirt on-site and to a dumpsite. The vendor asked whether the rental is exempt.

The Office of Counsel said no — collect the tax:

• Renting a truck is a taxable sale of tangible personal property (Tax Law §§ 1105(a), 1101(b)(5)–(6)).
• Some sales/rentals to exempt organizations (Tax Law § 1116(a)) and some contractor purchases that become an integral component part of an exempt organization's building (§§ 1115(a)(15), (16)) are exempt — but equipment a contractor uses to do work (and merely uses or consumes), or that doesn't become a component part, is taxable (20 NYCRR 541.3(d)(2)). The truck was used to haul dirt — it didn't become part of any building — and there was no indication the contractor rented it as the organization's agent. So the rental isn't exempt.
• The ST-120.1 didn't help. A vendor can be relieved of liability for accepting an exemption certificate in good faith within 90 days (20 NYCRR 532.4(b)(2)). But box "A" certifies the property will become an integral component part of a building — and a rented truck plainly won't. With no basis to believe that, the vendor could not have accepted the certificate in good faith, so the relief doesn't apply.

What this means for you

Equipment and vehicle rental vendors

A wrong-on-its-face exemption certificate gives you no protection. Box "A" of the ST-120.1 is for materials that become part of an exempt org's building — not for equipment/vehicles the contractor merely uses. Accepting it for a truck rental isn't "good faith," so you'd owe the tax. Match the certificate's claim to what's actually being rented.

Contractors working on exempt-organization projects

Tools, equipment, and vehicles you use to perform the work are taxable — the exemption is for materials that become an integral component part of the exempt organization's real property (or purchases made as the organization's agent). Don't issue an ST-120.1 box A for rented equipment.

Accountants

"Good-faith acceptance" requires the certificate to be plausible on its face. A certificate asserting a category that can't apply to the item (a truck "becoming part of" a building) defeats the good-faith shield.

Common questions

Q: My customer gave me an ST-120.1 — am I off the hook?
A: Only if you accepted it in good faith. A box-A certificate (property becoming part of an exempt org's building) can't be accepted in good faith for a truck rental, so you'd still owe the tax.

Q: Why isn't the truck rental exempt for an exempt-organization job?
A: Because the truck is equipment the contractor used to do the work; it didn't become an integral component part of the organization's real property, and the contractor wasn't acting as the organization's agent.

Q: When could a rental to an exempt-org project be exempt?
A: For example, when the renter is the exempt organization itself, or a contractor renting as the organization's agent — not when a contractor rents equipment to perform the work.

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 § 1105(a) (tax on retail sales of tangible personal property, including rentals)
• Tax Law § 1101(b)(5) (definition of sale includes rentals); Tax Law § 1101(b)(6) (tangible personal property)
• Tax Law § 1116(a) (exempt organizations)
• Tax Law §§ 1115(a)(15), (16) (contractor purchases that become integral component parts of exempt-org real property)
• 20 NYCRR 541.3(d)(2); 20 NYCRR 532.4(b)(2) (good-faith acceptance of exemption certificates); Form ST-120.1

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2018.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a18-2s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-18(2)S
SalesTax
June 5, 2018

Office of Counsel

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S180427A

The Department of Taxation and Finance received a Petition for Advisory Opinion from REDAC
REDACTED REDACTED REDACTED REDACTED REDACTED RED, (Petitioner). Petitioner asks
whether amounts charged for the rental of a truck are subject to New York State and local sales tax if a
customer provides a Contractor Exempt Purchase Certificate with box “A” selected. We conclude,
based on the facts presented, that sales tax should be charged and collected on this transaction.
Facts
Petitioner is a vendor that rented a truck to a customer. Petitioner indicates that, in conjunction
with the rental, its customer provided it with a completed Contractor Exempt Purchase Certificate (a
“Form ST-120.1”) with the “A” box selected. The “A” box essentially is a statement by a contractor
indicating that tangible personal property (“TPP”) is being purchased for use as part of a project for an
organization that is exempt from sales tax pursuant to Tax Law § 1116(a) (an “Exempt Organization”) 1,
and that such TPP “will become an integral component part” of a building, structure or real property of
the Exempt Organization. Petitioner stated that it has the ST-120.1 on file from this customer in
connection with a specific project, and indicates that the truck “was used by the customer to haul dirt
onsite from one of their locations and to haul dirt offsite to one of their dumpsites.”

Analysis
Tax Law § 1105 imposes sales and use tax on, among other things, retail sales of TPP. See Tax
Law § 1105(a). This includes rentals of TPP, such as trucks and other motor vehicles. See Tax Law §
1101(b)(5) (defining “sale” as including rentals); Tax Law § 1101(b)(6) (defining TPP as “[c]orporeal
personal property of any nature”); TSB-A-15(46)S. However, certain sales (or rentals) of otherwise
taxable TPP to Exempt Organizations are not subject to State and local sales tax. See Tax Law §
1116(a). Likewise, certain purchases of TPP by contractors for use in erecting, repairing, adding to, or
altering structures or buildings owned by Exempt Organizations are not subject to sales tax when such
TPP becomes “an integral component part” of such structures or buildings. See Tax Law §§
1115(a)(15), (16); 20 NYCRR 541.3(d)(2)(i). Otherwise, and unless a contractor is acting as an agent of
an Exempt Organization, sales of TPP that does not become an integral component part of an Exempt
Organization’s real property, or that is simply used or consumed by a contractor while working for an
Exempt Organization, are subject to tax. See 20 NYCRR 541.3(d)(2)(iv).

The Petitioner did not provide any information regarding the exempt organization or the customer’s relationship with the
exempt organization.
1

TSB-A-18(2)S
Sales Tax
June 5, 2018

-2-

Petitioner indicates that the TPP purchased in this case (i.e., the truck its customer rented) was
used by its customer “to haul dirt onsite from one of their locations and to haul dirt offsite to one of their
dumpsites.” It appears, therefore, that this TPP is equipment that Petitioner’s customer itself used to do
work for an Exempt Organization, and is not TPP that became a component part of a structure, building
or real property owned by the Exempt Organization. Further, there is no indication that Petitioner’s
customer rented the truck as an agent of an Exempt Organization. Accordingly, the truck rental in this
case is not exempt from sales tax.
Petitioner, however, indicates that its customer provided it with a Form ST-120.1 with the “A”
box selected. It is not clear whether this form was provided to Petitioner as a blanket certificate for
multiple purchases, or whether it was given to Petitioner specifically for the truck rental at issue. In
either case, vendors who accept exemption certificates (including a Form ST-120.1) may be relieved of
liability for the failure to collect sales tax with respect to a transaction when such certificate is accepted
within 90 days of the delivery of the TPP at issue, and when such certificate is accepted in good faith.
See 20 NYCRR 532.4(b)(2). A certificate is “accepted in good faith” when, upon the exercise of
reasonable ordinary due care, a vendor has no knowledge that it is false or fraudulently presented. See
20 NYCRR 532.4(b)(2)(i). In this instance, the Form ST-120.1 that was given to Petitioner indicates
that the TPP being purchased would, among other things, become an integral component part of a
structure, building or real property owned by an exempt organization. Although the truck is TPP, there
is no basis for Petitioner to conclude that the truck would have (or did) become a component part of an
Exempt Organization’s building, structure, or real property. Thus, Petitioner could not have accepted the
Form ST-120.1 for the truck rental in this case in good faith. Therefore, Petitioner should collect tax
from the customer on this purchase.

DATED: June 5, 2018

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

NOTE:
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.