Does a repair subcontractor have to charge a video-equipment retailer sales tax on repairs, when the retailer marks up the charge and collects tax from the final customer?

Plain-English summary

Video Systems Service sets up service departments inside video-equipment stores and, as the subcontractor of a retailer, repairs equipment owned by the retailer's customers. It bills the retailer for labor and parts plus a markup; the retailer adds its own margin, bills the customer, and collects sales tax on the entire repair charge. Video Systems asked whether it must also charge the retailer sales tax.

The Department held: no — because the repair is being resold, a resale certificate exempts the subcontractor's charge.

• Repairs are normally taxable — unless for resale. Tax Law § 1105(c)(3) taxes repairing tangible personal property, but 20 NYCRR § 527.5(b)(1)-(2) makes those services not taxable when performed for resale or on property held for sale in the regular course of business.
• Subcontractor's charge to the retailer. Video Systems need not collect tax on its repair charges to the retailer if the retailer gives a properly completed Resale Certificate (Form ST-120). It may accept a blanket resale certificate for repeated purchases of the same service (20 NYCRR § 532.4(b)(3), (d)(4)).
• Retailer's own inventory. The same exemption covers repairs on equipment the retailer owns and holds for sale.
• Retailer's non-inventory equipment. Repairs of equipment the retailer owns but does not hold for sale don't qualify — but if the retailer still presents a proper resale certificate within 90 days, the burden of proving non-taxability shifts solely to the retailer.
• Parts. Video Systems may buy replacement parts (transferred to the repair customer as components of the equipment) with a resale certificate (Tax Law § 1101(b)(4)(i); 20 NYCRR § 527.5(c), (d)).

What this means for you

When you repair as a subcontractor and the retailer resells your work, don't double-tax it. If a retailer marks up your repair and collects tax from the final customer, your charge to the retailer is a sale for resale — so you don't collect tax on it, provided the retailer gives you a resale certificate. A blanket certificate covers repeated jobs of the same kind.

Match the certificate to the situation. Repairs the retailer resells, or repairs on the retailer's for-sale inventory, are cleanly resale-exempt. Repairs on the retailer's own non-inventory equipment aren't truly resale — but a resale certificate received within 90 days still shifts the tax burden to the retailer.

Your parts are resale-eligible too. Replacement parts you install and transfer to the repair customer can be bought with a resale certificate rather than taxed to you.

Common questions

Q: I'm a repair subcontractor billing a retailer who resells my repair to the customer. Do I charge the retailer tax?
A: No — get a properly completed Resale Certificate (Form ST-120) from the retailer, and you don't collect tax because the repair is being resold. A blanket certificate works for repeated same-type jobs.

Q: What about repairs on the store's own equipment that it isn't selling?
A: Those don't qualify for the resale exemption. But if the retailer gives you a proper resale certificate within 90 days, the burden of proving the charge wasn't taxable shifts to the retailer.

Q: Do I pay tax on the replacement parts I install?
A: No — parts you transfer to the repair customer as components can be bought for resale with a resale certificate.

Citations and references

Statute and regulation:

• Tax Law § 1105(c)(3) — taxes services of maintaining, servicing, or repairing tangible personal property, whether or not property is transferred with the service
• Tax Law § 1101(b)(4)(i) — resale exclusion; replacement parts transferred to the repair customer can be bought for resale
• 20 NYCRR § 527.5(b)(1), (2) — repair services are not taxable when performed for resale or on property held for sale in the regular course of business; § 527.5(c), (d) covers parts
• 20 NYCRR § 532.4(b)(3), (d)(4) — resale certificate rules, acceptance of a blanket resale certificate, and the 90-day shift of the burden of proof to the customer

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1988.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a88_24s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-88(24)S
Sales Tax
April 7, 1988

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S880107A

On January 7, 1988, a Petition for Advisory Opinion was received from Video Systems
Service, P.O. Box 296, Henrietta, N.Y., 14467.
The issue raised is whether video equipment repair services performed for a retailer of such
equipment by a person other than an employee is subject to sales tax.
Petitioner has established, at his own expense, service departments in various video
equipment stores. Petitioner, acting as the subcontractor of a retailer of video equipment, performs
repair services on video equipment owned by the retailer's customers. Petitioner bills the retailer for
labor and parts plus markup. The retailer, after adding a profit margin, bills the customer and collects
sales tax on the entire repair charge.
The Tax Law §1105[c][3] imposes tax on the services of maintaining and repairing tangible
personal property whether or not any tangible personal property is transferred in conjunction
therewith.
The Sales and Use Tax Regulations provide that the services of maintaining, servicing or
repairing tangible personal property are not taxable if performed for resale as such or performed on
property held for sale in the regular course of business. 20 NYCRR 527.5(b)(1) and (2).
Accordingly, Petitioner is not responsible for the collection of sales tax on his repair charges
to a retailer as described above as long as the retailer has supplied a properly completed Resale
Certificate (Form ST-120). Petitioner may accept a blanket Resale Certificate from retailers making
repeated purchases of the same kind of service. See 20 NYCRR 532.4(b)(3), (d)(4).
Furthermore, Petitioner is not required to collect sales tax on his repair charges to a retailer
for repair services performed on video equipment owned by the retailer and held by such retailer for
sale in the regular course of business as long as the retailer has supplied a properly completed Resale
Certificate.
It is to be noted that repairs by Petitioner of equipment owned by a retailer but not held for
sale in the regular course of its business do not qualify for the resale exemption. However, whenever
a retailer claims tax exemption for a repair charge by presenting Petitioner with a properly completed
Resale Certificate not later than ninety days after rendition of the repair service, the burden of
proving non-taxability rests solely with the retailer. 20 NYCRR 532.4(b)(3).

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-88(24)S
Sales Tax
April 7, 1988
Moreover, Petitioner may itself claim exemption by use of a Resale Certificate when
purchasing replacement parts which, as components of video equipment, are actually transferred to
the purchaser of the repair service. Tax Law §1101(b)(4)(i); 20 NYCRR 527.5(c) and (d).

DATED: April 7, 1988

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.