Is a construction management company liable for sales tax on purchases it makes as agent for the project owner, or is only the owner liable?

Plain-English summary

Peat Marwick Main and Co. asked, through a hypothetical construction manager it called "XYZ Corp.," whether a construction management company that buys goods and services as agent for the project owner is itself liable for sales and use tax — or whether only the owner is. In the hypothetical, XYZ contracts to act as the owner's agent, arranges all work, materials, and equipment as agent, never takes possession or title, and issues purchase orders disclosing it buys "as agent for" the owner.

The Department's answer: ordinarily the owner is liable, not the agent — but the agent's protection has limits.

• The owner is the purchaser. Under Tax Law § 1133, the purchaser who fails to pay sales/use tax is personally liable. Where taxable goods are bought in the owner's name, the owner is that purchaser. An agent of a disclosed principal ordinarily is not personally liable, because the contract is the principal's, not the agent's.
• Agency depends on real conduct, not just the contract. Whether XYZ qualifies as agent turns not only on its agreement with the owner but on its actual dealings with the owner and with vendors. If it truly operates as described, it will be deemed the owner's agent for sales-tax purposes.
• The protection is not absolute. Even a qualifying agent can incur personal liability under recognized exceptions: if it purports to act with authority it doesn't have, or chooses to bind itself personally (for example, pledging its own resources as security to induce a vendor) (Clarkson v. Krieger; Keskal v. Modrakowski). Where the agent is liable, a "responsible officer" shares that liability under § 1131(1).
• Agent in one deal can be vendor in another. An entity that acts as an agent in one transaction may be a vendor in another (Chemical Bank v. Tully) — it cannot be both in the same transaction, so its capacity must be established transaction by transaction.

What this means for you

True agency can keep the tax liability with the owner — if it's real. A construction manager (or any purchasing agent) who buys in the principal's name, discloses the agency to vendors, and never takes title generally isn't the taxpayer; the disclosed owner-principal is. The paperwork ("as agent for") matters, but so does how you actually behave with the owner and suppliers.

Don't assume the agent label is a shield in every case. If you act beyond your authority, or you personally commit your own funds/credit to a purchase, you can pick up personal liability — including for the sales/use tax. And if you're a corporation, a responsible officer can be on the hook too (§ 1131(1)).

Nail down your capacity for each transaction. You can be an agent on one purchase and a vendor on another, but never both on the same one. Structure and document each transaction so it's clear whether the owner is buying (through you) or you're selling to the owner.

Common questions

Q: We're a construction manager buying materials for the owner. Do we owe the sales tax?
A: Ordinarily no, if you genuinely act as the owner's disclosed agent, buy in the owner's name, and never take title — the owner is the purchaser liable under § 1133.

Q: Is the agency agreement enough by itself?
A: No. The Department looks at your actual dealings with the owner and vendors, not just the contract. Operate consistently with the agency, or you may not qualify.

Q: When could we still be personally liable?
A: If you purport to act with authority you don't have, or you bind yourself personally (e.g., pledge your own resources). Then you — and a responsible officer under § 1131(1) — can share liability.

Citations and references

Statute and case law:

• Tax Law § 1133 — persons required to collect tax are personally liable; a purchaser who fails to pay sales/use tax is personally liable
• Tax Law § 1131(1) — a "responsible officer" (officer/director/employee under a duty to act) shares liability where the agent is required to collect tax
• Tax Law §§ 1105, 1110 — sales tax and compensating use tax
• Clarkson v. Krieger, 254 NY 114 (1930); Keskal v. Modrakowski, 249 NY 406 (1928) — general rule that an agent of a disclosed principal is not personally liable on the principal's contract, and its exceptions
• Chemical Bank v. Tully, 94 AD2d 1 — an entity acting as agent in one transaction may be a vendor in another; it cannot be both in the same transaction

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_1s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-89 (1)S
Sales Tax
January 5, 1989

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S880608A

On June 8, 1988, a Petition for Advisory Opinion was received fromPeat Marwick Main and
Co., 345 Park Avenue, New York, New York 10154.
The issue raised is whether a construction management company, while acting in an agency
capacity for the owner of a construction project, is subject to the sales and use taxes imposed under
section 1105 and section 1110 of the Tax Law.
Petitioner has set forth a hypothetical situation whereby a corporation (hereafter "XYZ
Corp.") is headquartered in New York City and has offices in other cities in the United States, as
well as in foreign countries.
XYZ Corp. provides construction management and consulting 'services to its clients for
construction of new buildings and renovation of existing buildings. The management services
provided include, but are not limited to: construction planning and scheduling of construction
activities, the furnishing of staff for the administration, coordination and management of the project,
the assurance that each contractor performs and completes its respective portion.[of the work in
accordance with the appropriate contract documents, the arrangement, as agent for the client, for all
work, labor, services, materials, supplies and equipment necessary to execute and complete the work
and the performance of construction' accounting services on behalf of the client.
Upon the acceptance of a construction management and/or consulting engagement, XYZ
Corp. enters into a construction management and/or consulting agreement with the owner of the
building. The agreement empowers XYZ Corp. to act as the agent for the ownership entity.
Petitioner states as follows:
Opinion Requested
It is our view that because of the clear and unequivocal agency
relationship, any assessment for or obligation with respect to sales
and/or use taxes in connection with the purchase of goods or services
by the agent should be made directly against the Owner and not
against the Agent who acts only in its capacity as agent for disclosed
principal, the Owner. Therefore, we request that an opinion be
rendered which reflects the State's position that XYZ corporation is
not subject to audit for sales/use taxes on those purchases it makes on
behalf of the owners.

TP-9 (9/88)

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TSB-A-89 (1)S
Sales Tax
January 5, 1989

Supporting Arguments
The management construction and/or consulting agreement between
XYZ and the building owners clearly establishes that an agency
relationship exists between the two parties. The purchase orders and
contracts clearly disclose to suppliers and contractors that XYZ is
acting as an agent for the building owners. In providing the
construction management and consulting services, XYZ never takes
possession/title to tangible personal property purchased on behalf of
the owner. Enclosed are sample forms of the purchase order and trade
contracts normally used by XYZ which clearly state that the purchase
is being made by XYZ "as agent for."
Section 1133 of the Tax Law provides that every person required to collect sales or use tax
shall be personally liable for the tax imposed, collected or required to be collected. Additionally, any
purchaser who fails to pay sales or use tax due is also personally liable for such tax. In the context
of Petitioner's hypothetical situation, the owner of the building in whose name taxable property or
services are purchased is a purchaser who would be personally liable for sales tax thereon.
Whether XYZ Corp. qualifies for sales tax purposes as agent for the building owner depends
not only upon the provisions of the agreement between XYZ Corp. and the building owner but also
upon XYZ Corp.'s actual dealings with the owner and with vendors. If XYZ Corp., in fact, operates
in the manner described in documents submitted with Petitioner's Petition for Advisory Opinion, it
will be deemed the agent of the building owner for sales tax purposes.
Assuming that XYZ Corp. properly qualifies as the agent of the building owner, it may
nevertheless be personally liable for sales tax on purchases of taxable goods and services made by
XYZ Corp. as agent for the building owner. It is a general rule of agency that an agent of a disclosed
principal may not be held personally liable on a contract by parties other than the principal since the
contract is that of the principal and not of the agent. Clarkson v. Krieger (1930) 254 NY 114; Keskal
v. Modrakowski (1928) 249 NY 406.
Thus, it is ordinarily the case that an agent will not be liable for sales or use tax on the
purchase of taxable goods or services purchased by the agent in the name of its principal since only
the principal is the purchaser of the goods and services. However, if, for example, an agent purports
to act with authority when in fact it has none, the agent will incur personal liability on the contract
including liability for sales and use tax. Similarly, an agent may always choose to bind itself
personally on a contract as when an agent commits its own financial resources as security to induce
a third party to enter into a contract. For additional examples of exceptions to the general rule, see
Kieskal v. Modrakowski, supra; Renel Construction, Inc. v. Brooklyn Cooperative Meat Distribution
Center, Inc. (1977, 1st Dept) 59 AD2d 391, 399 NYS2d 511, aff'd 46 NY2d 859, 414 NYS2d 511;
Rhynders v. Greene (1938) 255 AD 401, 8 NYS2d 143; R.L. Rothstein Corp. v Kerr S.S. Co. (1964
1st Dept) 21 AD2d 463, 251 NYS2d 81, affd 15 NY2d 897, 258 NYS2d 427; Suzuki v. Small (1925)
214 AD 541, 212 NYS 589, affd

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TSB-A-89 (1)S
Sales Tax
January 5, 1989

243 NY 590; Passaic Falls Throwing co. v. Villeneuve-Pohl Corp. (1915) 169 AD 727, 155 NYS
669.
Accordingly, Petitioner is advised that while an agent acting in its capacity as agent for a
disclosed principal is ordinarily not personally liable for sales or use tax due from its principal, such
protection is not absolute and is limited in its. scope as recognized by a variety of cases setting forth
exceptions to the general rule. It should be noted that under circumstances where an agent is liable
for sales and use tax as discussed above, an officer, director or employee of such agent (where such
agent is a corporation, partnership or proprietorship) who is under a duty to act for such agent in
complying with any requirement under Article 28 of the Tax Law (i.e. a "responsible officer") would
be required to collect tax under the second sentence of section 1131(1) of the Tax Law and would
share personal liability for such tax with such agent.
Additionally, it is noted that an entity acting as agent in facilitating purchases for another in
one transaction may be a vendor with regard to the other in another transaction. This would seem to
be the rationale for the court's conclusion that the transactions between the bank-purchaser and its
"agent" were taxable as sales from the "agent" to the bank in Chemical Bank v. Tully (94 AD2d 1).
Thus, it is necessary in any set of circumstances to establish whether an entity is acting as agent of
a purchaser or as vendor to the purchaser. It cannot be both in the same transaction.

DATED: January 5, 1989

s/ FRANK J. PUCCIA
Director
Technical Services

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