When a data-destruction company takes customers' old computers as trade-ins or on consignment, does the trade-in credit or resale exclusion reduce the sales tax on its service?

Plain-English summary

A national computer liquidator wipes or physically destroys data on customers' old computers — a service New York taxes under Tax Law § 1105(c)(3). Customers can also hand over their old equipment, and the company asked how the trade-in credit and resale exclusions apply across four scenarios, some where it buys the equipment and some where it sells the equipment on consignment.

The Office of Counsel split the answer by whether title passes and what the company intends to do with the gear:

• Scenarios 1 & 2 — customer trades in equipment (title passes to the company). The trade-in credit reduces the taxable data-destruction charge — but only if the company acquires the equipment exclusively for resale "as such," i.e., to resell it in the same form, holding it in inventory and making no other use of it. If the credit exceeds the service charge, the excess is treated as a non-taxable purchase for resale. If, instead, the company intends at the time of the deal to recycle the equipment or sell it as scrap, neither the trade-in credit nor the resale exclusion applies. Intent is judged at the time of the transaction, though later patterns (e.g., how often acquired gear is actually scrapped) can be used as evidence of that intent.

• Scenarios 3 & 4 — consignment (no title passes). A consignment creates an agency relationship, not a sale to the company. Because the company never takes title, the equipment isn't "accepted in part payment," isn't intended for resale by the company, and isn't held in its inventory. So neither exclusion applies, and sales tax is due on the entire data-destruction charge, including any pickup/delivery charges.

What this means for you

IT asset disposition, recyclers, and liquidators

The tax outcome turns on title and intent. Buying gear outright to resell it as-is lets a trade-in credit shrink your taxable service charge; planning to recycle or scrap it does not. Selling on consignment keeps the full service charge taxable.

Anyone using trade-in credits

The trade-in/resale exclusion requires buying the item exclusively for resale in the form received. Any plan to alter, recycle, or scrap it defeats the exclusion — and the Department can look at your actual track record to test your stated intent.

Accountants and tax professionals

Distinguish purchase-with-trade-in (§ 1101(b)(3) credit, § 1101(b)(4)(i)(A) resale "as such," Mendoza Fur) from consignment-agency (TSB-H-81(27)S). Document time-of-sale intent (D.J.H. Construction; TSB-A-16(4)S); post-sale scrap rates are evidence.

Common questions

Q: Does taking an old computer as a trade-in always cut my sales tax?
A: Only if you take title and intend to resell it exactly as received. If you plan to recycle or scrap it, the trade-in credit doesn't reduce the taxable service charge.

Q: What if the trade-in credit is bigger than my service charge?
A: If the gear is bought exclusively for resale as-is, the excess is treated as a non-taxable purchase for resale; if not, the exclusion doesn't apply.

Q: Why is consigned equipment fully taxable?
A: On consignment you never take title — it's an agency arrangement — so the equipment isn't accepted in part payment or held for resale by you, and the whole service charge is taxable.

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(c)(3) (tax on maintaining, servicing, or repairing tangible personal property)
• Tax Law § 1101(b)(1), (b)(3), (b)(4)(i)(A) (vendor; receipt; trade-in credit exclusion; resale 'as such')
• 20 NYCRR 527.5(b)(2) (servicing property held for sale)
• Matter of Mendoza Fur Dyeing Works v. Taylor, 272 NY 275 (1936) (resale means purchased exclusively for resale as such)
• Matter of D.J.H. Construction v. Chu, 145 AD2d 716 (3d Dep't 1988); TSB-A-16(4)S (intent at time of transaction)
• TSB-H-81(27)S (consignment creates an agency, not a sale to the consignee)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales-ao-2020.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a20-39s.pdf

Original ruling text

New York State Department of Taxation and Finance
Office of Counsel

TSB-A-20(39)S
Sales Tax
October 20,2020

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
The Department of Taxation and Finance (“the Department”) received a Petition for
Advisory Opinion from [ REDACTED ] (hereinafter “Petitioner”). Petitioner asks generally, for
purposes of sales tax, whether the trade-in credit exclusion applies to its acquisition of its
customers’ computer equipment or whether its acquisitions are exempt purchases for resale, and
requests specific guidance about four scenarios. We conclude that the trade-in credit and resale
exclusions may apply where equipment is transferred to Petitioner in part payment for taxable
services and intended for resale as such. However, those exclusions do not apply where
Petitioner acts as consignee of a customer’s equipment.
Facts
Petitioner is a national computer liquidator and the provider of computer data destruction
services. Petitioner is hired by businesses and individuals wishing to safely and permanently
delete data stored on their computers. Petitioner either erases (“wipes”) the data from the hard
drive or physically destroys the hard drive. Customers also can trade in their old computers and
related equipment, such as hard drives, tape recorders, cellular phones, DVDs, CD Rom drives
and USB sticks. Petitioner either picks up or arranges for the shipping of the computer and/or
related equipment from the customer’s location, which may or may not be in New York, to its
facility in New York. The cost to pick up the equipment is charged to the customer. Once the
equipment is at Petitioner’s facility, Petitioner evaluates it to determine whether it can be resold
as computer equipment, recycled, or sold as scrap. Petitioner also evaluates and tests the
equipment to determine the cost to wipe and/or destroy the hard drives. If Petitioner decides to
acquire the equipment, it offers a trade-in credit to the customer, for a negotiated amount, to
offset the data destruction cost. When this happens, title to the equipment is transferred to
Petitioner. Petitioner then seeks to resell the equipment to distributors or other markets. If, after
acquiring the equipment, Petitioner determines that it cannot sell the equipment, the equipment is
commingled with other similar elements and sold as scrap.
Petitioner also enters into consignment contracts with its customers where it liquidates a
customer’s computers over time. The contract usually provides that Petitioner will pick up or
arrange shipping of its customer’s computer equipment to its facility, provide data destruction
services, and then sell the computer equipment to a third party. In this scenario, Petitioner does
not purchase or take title to the computer equipment and instead sells the equipment and shares
the net proceeds with its customer, after the deduction of charges for specific costs. This

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Sales Tax
October 20, 2020

consignment arrangement between Petitioner and its customer generally is set forth in a
consignment agreement, which consigns numerous computers over an extended period of time.
The netting, sharing and distribution of proceeds under the consignment agreements are “settled
up” either monthly or quarterly over the term of the agreement. Generally, over the term of the
consignment agreement, the net proceeds to the customer from the sale of its consigned
computers will be greater than the costs related to data destruction and other services performed,
which results in Petitioner paying its customer.
Petitioner poses the following scenarios and requests guidance about the sales tax
treatment of each:
Scenario 1: In a non-consignment transaction, if the cost of services to erase or destroy
the hard drives is more than the amount Petitioner is willing to provide as a trade-in credit to its
customer for the computer or related equipment, then Petitioner’s customer pays Petitioner the
net amount of the cost of data destruction minus any trade-in amount. For example, Petitioner
may provide data destruction services for $12,000 and may provide a credit for the trade-in of
equipment or components from its customer worth $5000. Therefore, the customer pays
Petitioner the net amount of $7,000. Petitioner asks whether it should collect sales tax on the net
selling price (i.e. $7,000) after providing a trade-in credit.
Scenario 2: In a non-consignment transaction, if the cost to erase or destroy a hard drive
is less than the amount Petitioner is willing to provide as a credit for the equipment being traded
in, Petitioner will pay its customer the net amount of the trade-in minus the cost of Petitioner’s
service for data destruction. For example, Petitioner may provide data destruction services for
$3,000, and may offer a trade-in credit of $8,000 for the equipment or components from its
customer. Therefore, Petitioner pays the customer the net amount of $5,000. Petitioner asks
whether the net amount paid by Petitioner to its customer is exempt from sales tax as a purchase
for resale.
Scenario 3: In a consignment transaction, Petitioner sells consigned computers and
related equipment to a third party. After application of specific costs, such as shipping a
customer’s computer to Petitioner’s facility, Petitioner allocates the proceeds from the sale of the
computer to a third party between itself and its customer in accordance with the sharing
percentage set forth in the consignment agreement. Petitioner then reduces the customer’s share
of the proceeds for the data destruction services Petitioner provided. Petitioner asks whether the
fee charged for the services of data destruction is excluded from sales tax as the service to
property that is held for resale and whether the amount paid by Petitioner to its customer as
payment for the computer is excluded from sales tax as a purchase for resale.
Scenario 4: In a consignment scenario similar to Scenario 3, the net cost to Petitioner’s
customer exceeds its share of the proceeds. The customer must pay Petitioner the net cost.

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Sales Tax
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Petitioner asks whether the fee charged for the services of data destruction is excluded from sales
tax as the service to property that is held for resale and whether the amount paid by Petitioner to
its customer is excluded from sales tax as a purchase for resale.
Analysis
Tax Law § 1105(c)(3) imposes sales tax on the services of “maintaining, servicing or repairing
tangible personal property … not held for sale in the regular course of business …. ”
Petitioner’s data destruction qualifies as the servicing of tangible personal property, which is
subject to tax, except where such equipment is acquired by Petitioner for resale as such in the
regular course of its business. See also, Tax Law § 1101(b)(1); 20 NYCRR 527.5(b)(2).
We address Petitioner’s scenarios in turn:
Scenario 1: In a non-consignment transaction where the charge to the customer for data
destruction exceeds the amount of the trade-in credit Petitioner offers for the customer’s
relinquished equipment, Petitioner asks whether the amount subject to sales tax is the charge for
its services after deduction of the trade-in credit. Tax Law § 1101(b)(3) defines the receipt
subject to sales tax as the sale price of any property and the charge for any taxable service,
including any charges by the vendor for transportation, but excluding “any credit for tangible
personal property accepted in part payment and intended for resale.” Petitioner’s receipt for its
service includes the data destruction charge, and any charges by Petitioner for pickup or delivery
to Petitioner’s location, regardless of whether those services are provided by a third party or the
charge for the services is separately stated. The receipt for the taxable service is reduced by the
amount of credit Petitioner offers for equipment accepted in part payment for its service and
intended for resale. However, “resale” in this context means the property is acquired exclusively
for resale “as such.” See Tax Law § 1101(b)(4)(i)(A). Thus, the trade-in credit is excluded from
the receipt subject to sales tax only if the equipment is intended for resale in the form in which it
was purchased, and Petitioner does not intend to make any use of the property, other than
holding it in inventory, before it is sold. See, e.g., Matter of Mendoza Fur Dyeing Works, Inc., v.
Taylor, 272 NY 275 (1936).
Intent is generally determined at the time of the transaction. 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); TSB-A-16(4)S. When Petitioner
acquires equipment that it intends to resell in the form in which it was purchased and offers a
trade-in credit for that equipment, the receipt subject to tax is the charge for the data destruction
service and delivery charges, less the amount of the trade in-credit. The trade-in credit does not
reduce the taxable receipt for data destruction services where Petitioner intends at the time of sale
to recycle or sell the equipment as scrap, or to use the equipment for any purpose other than
resale. If equipment is initially acquired for resale but later deemed unsuitable for that

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purpose, a trade-in credit offered to the customer at the time of sale would still reduce the receipt
subject to tax. However, the Department would be able to look to later events, such as the
frequency of post-sale decisions to scrap rather than resell acquired equipment, to establish
Petitioner’s intent at the time of the transaction.
Scenario 2: In a non-consignment transaction where the charge to the customer for data
destruction is less than the amount of the trade-in credit Petitioner offers for the customer’s
relinquished equipment, Petitioner asks whether its payment of the excess trade-in credit to the
customer is exempt from sales tax as a purchase for resale. In this scenario, if Petitioner offers a
trade-in credit that exceeds the amount owed by the customer for data destruction services and
delivery charges, and intends exclusively to resell the equipment in the form in which it was
purchased, the exclusion from sales tax for the trade-in credit reduces the receipt for the taxable
data destruction service to zero, and the excess payment would be considered a purchase for
resale. As with Scenario 1, the trade-in credit and resale exclusions would not apply where the
relinquished equipment is intended to be recycled or sold as scrap at the time of sale, or used by
Petitioner for any purpose other than resale as such.
Scenarios 3 & 4: In these scenarios, Petitioner sells its customers’ consigned equipment
to third parties. After first recouping certain costs, including shipping to its facility, Petitioner
allocates the proceeds of sale of the equipment between itself and the customer in accordance
with a consignment agreement, and applies the customer’s allocated amount to the data
destruction charges. In Scenario 3, the customer’s allocated share is greater than the data
destruction costs and Petitioner pays the balance to the customer, whereas in Scenario 4 the
customer’s allocated share is less than the data destruction costs and the customer pays the
balance owed to Petitioner. Petitioner does not take title to the equipment in either scenario.
Petitioner asks whether the fee paid by the customer for data destruction is exempt from sales tax
as services to property held for sale under Tax Law § 1105(c)(3), and whether the portion of the
net proceeds paid by Petitioner under the consignment agreement is exempt from tax because the
property is for resale.
A consignment is not a sale of property from the consignor to the consignee, but is
instead the “creation of an agency relationship wherein the consignee becomes the agent of the
consignor for the purpose of making sales of the consignor’s property, and is obligated to
account to the consignor for the proceeds.” TSB-H-81(27)S. Because Petitioner does not take
title to the customer’s equipment, the equipment is not “accepted in part payment” for the data
destruction charges accrued by the customer for purposes of the trade-in credit exclusion.
Moreover, because the consigned property is not sold to Petitioner, it is not intended for resale by
Petitioner to the ultimate purchaser for purposes of the trade-in credit or resale exclusions under
either scenario. Finally, because the data destruction services are performed on equipment that
remains titled to the consignor, it is not property held in Petitioner’s inventory for sale in the
regular course of its business for purposes of the exclusion from tax under Tax Law §

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Sales Tax
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1105(c)(3). Accordingly, sales tax is due on the entire charge to a customer for data destruction
services on consigned equipment, including any charges by Petitioner for delivery to its location.
DATED: October 20, 2020

/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.