Can a utility get a refund of sales tax it collected more than three years ago, if it now refunds the tax to its customer?

Plain-English summary

Niagara Mohawk Power Corporation collected 7% sales tax on a corporate apartment owner's utility bills from November 19, 1981 through December 6, 1986. The customer was apparently entitled to the residential-use energy exemption under Tax Law § 1105-A(e), but it did not file the required Certificate of Residential Use (Form TP-385) until December 5, 1986. The State then refunded the customer for the most recent three years. The customer now wants the utility to refund the tax for the earlier period (November 1981 to December 1983) that the State would no longer refund because of the statute of limitations.

The Department held the utility cannot recover that older tax:

• Full tax was properly collected before the certificate arrived. Under § 1105-A(e), unless the vendor has received the required certificate, the reduced residential rate does not apply and full tax must be charged. Because Niagara Mohawk didn't get the certificate until December 5, 1986, it was required to collect the full tax for the earlier period.
• The refund window is three years. Under § 1139(a), a refund or credit is allowed only if the application is filed within three years after the tax was payable to the Tax Commission (see § 1137).
• And the collector must first repay the customer. No refund is made to a person who collected tax from a customer until that person first establishes that it has repaid the customer.
• So the utility is time-barred. Because more than three years have passed since the tax was payable, even if Niagara Mohawk refunded the customer, the utility itself would not be eligible for a refund of the tax from the State.

What this means for you

If you're a vendor or utility that collected tax a customer later claims was exempt: You can only recover tax you refund to a customer if you file your own refund claim within three years of when the tax was payable to the State. Past that window, refunding the customer leaves you out of pocket — the State won't reimburse you.

Exemption certificates must be in hand to reduce the tax. For the residential-energy rate (and exemptions generally), you must collect full tax until the customer gives you the required certificate. A customer who files late can only reach back within the three-year refund period.

Move promptly on refund claims. The combination of the three-year limit and the "repay-the-customer-first" rule means timing is everything. If a customer surfaces an old exemption, check the dates before agreeing to refund tax you can no longer recover.

Common questions

Q: A customer says it was exempt years ago and wants its tax back. Do I have to refund it?
A: This opinion addresses whether the utility could recover that tax from the State — and holds it can't, because the three-year limit under § 1139(a) had passed. You generally can't recover tax you refund outside that window.

Q: Why was the older tax collected at all if the customer was exempt?
A: Under § 1105-A(e), the reduced residential rate doesn't apply until the vendor receives the required certificate. The customer filed it only in December 1986, so full tax was properly collected before then.

Q: What's the deadline to claim a refund?
A: Three years after the tax was payable to the Tax Commission (§ 1139(a)), and the collector must first show it repaid the customer.

Citations and references

Statutes:

• Tax Law § 1105-A(e) — residential-use energy rate; reduced rate does not apply unless the vendor received the required certificate
• Tax Law § 1139(a) — refund/credit allowed only if claimed within three years; no refund to a collector until it establishes it repaid the customer
• Tax Law § 1137 — when tax is payable to the Tax Commission

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1989.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a89_12s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-89 (12)S
Sales Tax
May 15, 1989

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITIONER NO. S881220A

On December 20, 1988, a Petition for Advisory Opinion was received from Niagara Mohawk
Power Corporation, 300 Erie Boulevard West, Syracuse, New York 13202.
The issue raised is whether Petitioner may refund sales tax to its customer when such sales
tax was collected more than three years prior to its customer requesting a refund.
Niagara Mohawk Power Corporation, during the period commencing November 19, 1981
and continuing through December 6, 1986 collected from a corporate apartment owner on its total
monthly utility bill a seven percent New York State Sales and Use Tax Law under circumstances
where the taxpayer was apparently entitled to an exemption from the tax as a residential user under
subdivision (e) of Section 1105A of the Tax Law. However the taxpayer did not file a Certificate of
Residential Use Sales Tax Reduction on Energy Purchases (form TP 385) for such exemption until
December 5, 1986. Thereafter the customer filed for and received from the State of New York a
refund of sales tax so paid on its utility bills within the last three years. The customer now seeks to
sue the utility for tax collected by the utility for the period from November 19, 1981 to December
6, 1983, a period for which the tax was not refundable from the State by virtue of the Statute of
limitations.
Section 1105(A)(e) of the Tax Law provides that "...[w]here a certificate is required, unless
such vendor shall have received such certificate... the provisions of this section shall not apply and
the tax shall be imposed at the rate provided for in sections eleven hundred five and eleven hundred
ten...."
Since Petitioner did not receive the required certificate of residential use from its customer
until December 5, 1986, Petitioner was required to collect the full amount of sales tax for the period
prior to that date.
Section 1139(a) of the Tax Law provides that a refund or credit shall be granted "... if
application therefor shall be filed with the Tax Commission:
(i) in the case of tax paid by the applicant to a person
required to collect tax, within three years after the date
when the tax was payable by such person to the tax
commission as provided in section eleven hundred
thirty-seven, or (ii) in the case of a tax. . . paid by the
applicant to the Tax Commission. . .
Section 1139(a) further provides that "[n]o refund or credit shall be made to any person of
tax which he collected from a customer until he shall first establish to the satisfaction of the tax
TP-9 (9/88)

-2­
TSB-A-89 (12)S
Sales Tax
May 15, 1989

commission, under such regulations as it may prescribe, that it has repaid such tax to the customer."
In as much as more than three years has expired since the tax collected from Petitioner's
customer was payable to the Tax Commission, even if Petitioner were to refund the tax to it's
customer, Petitioner itself would not be eligible for a refund of the tax.

DATED: May 15, 1989

s/FRANK J. PUCCIA
Director
Technical Services

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