Can a printer get a New York refund of sales tax paid on production machinery after already losing a hearing on the assessment?

Plain-English summary

Express Printing Co. asked for a refund of $7,162.33 in sales/use tax it believed it paid on machinery and equipment used directly and predominantly to produce tangible personal property for sale — normally an exempt use. The tax traced to a 1981 audit assessment; after a 1984 hearing, a 1986 decision cancelled one assessment but sustained this one.

The Department denied a State refund on two separate grounds.

• 1) It was New York City's tax, and the fix is a City credit. Production machinery is exempt from New York State and local (outside NYC) sales tax under Articles 28 and 29, but it is subject to the New York City 4% sales tax. The relief for that City tax is a credit the City gives against its own corporation and unincorporated business taxes — which the State does not administer. Express has to pursue that credit with the New York City Department of Finance, not the State.
• 2) A prior hearing bars a State refund anyway. Under Tax Law § 1139(c), a person is not entitled to a refund or credit of tax, interest, or penalty that was determined to be due at a § 1138 hearing (or where the person had the chance to have one). Because Express already had its hearing and this assessment was sustained, it cannot now get a State refund or credit of that tax.

What this means for you

"Production machinery is exempt" doesn't mean exempt from New York City tax. The manufacturing exemption applies to State and local sales tax outside New York City. Inside the City, that equipment still bears the City's 4% — and the way to recover it is a credit against City business taxes, claimed at the NYC Department of Finance, not a State sales-tax refund.

A hearing is your one shot — losing it closes the refund door. Once an assessment has been determined due at a § 1138 hearing (or you passed up the chance to have one), § 1139(c) bars you from later seeking a refund or credit of that same tax from the State. Raise every argument at the hearing; you can't relitigate it as a refund claim afterward.

Know which government you're asking. A State advisory opinion can't grant a City-tax credit or reopen a sustained State assessment. Direct City-tax relief to the City; treat the hearing as the decisive forum for the State assessment.

Common questions

Q: My production machinery is exempt — why did I owe New York City sales tax on it?
A: The manufacturing exemption covers New York State and local sales tax outside New York City. Within the City, the equipment is subject to the City's 4% sales tax.

Q: How do I recover the New York City tax I paid on the machinery?
A: New York City grants a credit for that tax against its own corporation and unincorporated business taxes. You claim it through the New York City Department of Finance — the State doesn't administer those taxes.

Q: I lost at my hearing. Can I file a refund claim to try again?
A: No. Under Tax Law § 1139(c), you can't get a refund or credit of tax that was determined to be due at a § 1138 hearing (or where you had the opportunity for a hearing). The hearing result stands.

Citations and references

Statute:

• Tax Law Articles 28 and 29 — impose New York State and local sales/use tax; machinery and equipment used directly and predominantly to produce tangible personal property for sale is exempt from State and local (outside New York City) tax, but remains subject to the New York City 4% tax
• Tax Law § 1138 — governs assessments and the taxpayer's right to a hearing or an opportunity for a hearing
• Tax Law § 1139(c) — a person is not entitled to a refund or credit of tax, interest, or penalty determined to be due under § 1138 where the person had a hearing, or an opportunity for one, or failed to use the remedies provided
• Noted: New York City grants a credit for the City sales tax paid on such machinery against its corporation and unincorporated business taxes, claimed through the New York City Department of Finance

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_42s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-88 (42)S
Sales Tax
August 31, 1988

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S880329A

On March 29, 1988, a Petition for Advisory Opinion was received from Express Printing Co.,
237 Lafayette Street, New York, New York 10122.
The issue raised is whether a refund or credit of sales tax may be obtained which Petitioner
contends was paid on machinery and equipment used directly and predominantly to produce tangible
personal property for sale.
On October 2, 1981 as a result of an audit, the Audit Division of the Department of Taxation
and Finance issued two notices of determination and demands for payment of sales and use taxes due
against Petitioner covering the periods March 1, 1975 through August 31, 1978 and September 1,
1978 through May 31, 1980 for taxes due of $11,302.76 and $7,162.33, respectively, plus accrued
interest.
On February 7, 1984, Petitioner was granted a hearing concerning the above assessments and
on December 5, 1986, a decision was rendered which cancelled the first assessment and sustained
the second assessment. It is the second assessment in the amount of $7,162.33 for which Petitioner
is now claiming a refund.
Petitioner contends that this tax represents the New York City local sales tax of 4%. Under
the New York State and local (other than New York City) sales tax (Articles 28 and 29 of the Tax
Law), machinery and equipment used directly and predominantly to produce tangible personal
property for sale, is exempt from tax. Such machinery and equipment is subject to the 4% New York
City sales tax.
However, the City of New York grants a credit against its corporation and unincorporated
business taxes for the amount of New York City sales tax paid on such machinery and equipment.
The New York State Department of Taxation and Finance does not administer the New York City
corporation and unincorporated business taxes. Petitioner must contact the New York City
Department of Finance to claim the New York City credit.
Additionally, section 1139(c) of the Tax Law provides that:
[A] person shall not be entitled to a refund or credit under this
section of a tax, interest or penalty which had been determined to be
due pursuant to the provisions of section eleven hundred thirty-eight
where he has had a hearing or an opportunity for a hearing, as
provided in said section, or has failed to avail himself of the remedies
therein provided....
RODERICK G. W. CHU, COMMISSIONER
TP-8 (9/88)

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

-2­
TSB-A-88 (42)S
Sales Tax
August 31, 1988
Since Petitioner has had a hearing as provided for in §1138 of the Tax Law, he is not entitled to a
refund or credit from New York State with respect to any sales or use tax, interest or penalty
which was determined to be due pursuant to such hearing.

DATED: August 31, 1988

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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