Can a fireworks company buy pyrotechnic materials tax-free for resale when it uses them to put on a fireworks display for a customer?

Plain-English summary

Bay Fireworks Co. sells pyrotechnic devices and supplies the fixtures and manpower to set them off. Under its standard contract it furnishes a "fireworks exhibition": it provides all pyrotechnic materials, all personnel to execute the display, and public liability insurance naming the customer as additional insured (the customer supplies only sand and lumber). The fireworks are typically about 25%–30% of the event budget. Bay Fireworks asked whether it may buy the pyrotechnic materials for resale.

The Department held it may not:

• The customer buys a display, not the fireworks. A "sale" under § 1101(b)(5) requires a transfer of title or possession. Under the contract, the customer never takes title or possession of the pyrotechnics; it is purchasing a fireworks exhibition. A fireworks exhibition is not one of the services taxed under § 1105(c).
• So the materials are consumed, not resold. Because Bay Fireworks is providing a service rather than selling tangible personal property, the pyrotechnic materials it buys to put on the show are not purchased for resale. Bay Fireworks is the consumer of those materials.
• Use tax fills the gap. If Bay Fireworks did not pay sales tax on the pyrotechnic materials when it bought them, it must pay compensating use tax under § 1110.
• The federal paperwork doesn't control. Being designated the "distributee (buyer)" on the federal Bureau of Alcohol, Tobacco and Firearms "Explosive Transaction Record" does not reflect the actual nature of the transaction, which is the sale of a fireworks exhibition, not a sale of pyrotechnic materials.
• The flip side. If Bay Fireworks instead sells the pyrotechnic materials to a customer without providing any other services, then it would be purchasing those materials for resale.

What this means for you

Staging a display is a nontaxable service — but you pay tax on your own materials

If you contract to put on a fireworks (or similar pyrotechnic) show and the customer never takes possession of the product, you're selling a service that isn't on New York's list of taxable services. The trade-off is that you are the end consumer of the pyrotechnics: you owe sales or use tax on the materials you buy, and you can't take them tax-free on a resale certificate.

Selling the product is different from performing the show

The same company can be on either side of the line depending on the deal. Sell pyrotechnics to a customer with no display service and you're a retailer buying for resale (and collecting tax on the sale). Perform the display and you're a service provider consuming the materials. Structure and document each contract accordingly.

Federal or contractual labels don't decide the tax result

The Department looked past the ATF "buyer" designation to the substance of the deal. Titles on regulatory forms won't convert a service into a sale of goods for sales-tax purposes.

Common questions

Q: We contract to put on fireworks displays. Can we buy the pyrotechnics for resale?
A: No. You're selling a fireworks exhibition (a nontaxable service), not the fireworks, so you are the consumer of the materials and cannot buy them for resale.

Q: Do we owe any tax on the pyrotechnics then?
A: Yes. If you didn't pay sales tax when you bought them, you owe compensating use tax under § 1110.

Q: Is the display itself taxable to the customer?
A: No. A fireworks exhibition is not one of the services enumerated as taxable under § 1105(c).

Q: What if we just sell the fireworks without running the show?
A: Then you are buying the materials for resale, and you collect sales tax on the sale to the customer.

Citations and references

Statutes:

• Tax Law § 1105(a) — tax on receipts from every retail sale of tangible personal property
• Tax Law § 1101(b)(5) — definition of "sale" (transfer of title or possession, etc.)
• Tax Law § 1105(c) — enumerated taxable services (a fireworks exhibition is not among them)
• Tax Law § 1110 — compensating use tax on materials the provider consumes

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a91_46s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-91 (46)S
Sales Tax
June 21, 1991

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK

COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S910321A

On March 21, 1991 a Petition for Advisory Opinion was received from Bay Fireworks Co.,
P.O. Box 912, Syosset, New York 11791.
The issue raised by Petitioner, Bay Fireworks Co., is whether it may purchase for resale
tangible personal property consisting of pyrotechnic materials used in providing a fireworks
exhibition for customers.
Petitioner is in the business of selling pyrotechnic explosive devices, commonly called
firecrackers, and supplying fixtures and manpower to explode these devices. Petitioner makes a
presentation to its customer of what will be provided within the budget for an event. The offer will
consist of a listing of the explosive devices which will be used in the event. The fireworks will
usually have a monetary value of approximately 25% to 30% of the total budget for the event. If the
bid or presentation is accepted, a written contract is entered into between Petitioner and its customer.
Paragraphs "1" and "3" of Petitioner's standard contract with its customer provides that:
"1. Fireworks Exhibition: COMPANY shall furnish CUSTOMER an
exhibition of fireworks in accordance with the program incorporated into this
agreement.
*

*

*

3. Equipment and personnel: COMPANY shall furnish all personnel
   necessary to execute the fireworks exhibition. COMPANY shall furnish all
   pyrotechnic materials. CUSTOMER will supply sand and lumber needed to
   execute the display."
   Section 1105(a) of the Tax Law imposes a tax upon "[T]he receipts from every retail sale of
   tangible personal property. . ." In addition, the sales tax is imposed on certain enumerated services.
   Section 1101(b)(5) of the Tax Law defines sale as:
   (5) Sale, selling or purchase. Any transfer of title or possession or both,
   exchange or barter, rental, lease or license to use or consume, conditional or
   otherwise, in any manner or by any means whatsoever for a consideration, or
   any agreement therefor, including the rendering of any service, taxable under
   this article, for a consideration or any agreement therefor. (Emphasis
   supplied)

-2­
TSB-A-91 (46)S
Sales Tax
June 21, 1991

Pursuant to Petitioner's contract with its customer it is selling a "Fireworks Exhibition" by
providing "all pyrotechnic materials", "all personnel necessary to execute the fireworks exhibition"
and "public liability insurance naming customer as additional insured." Petitioner's customer does
not take title or possession of the fireworks and thus does not purchase tangible personal property
as defined by Section 1101(b)(5) of the Tax Law. What the customer is purchasing is a fireworks
exhibition which is not one of the services subject to tax under Section 1105(c) of the Tax Law. The
fact that the customer is designated as the"distributee (buyer)" on the Department of Treasury Bureau of Alcohol, Tobacco and Firearms "Explosive Transaction Record" does not reflect the actual
nature of the transaction between the parties which is the sale of a fireworks exhibition and not the
sale of the pyrotechnic materials.
Since the Petitioner is providing a service and not selling tangible personal property,
therefore the materials purchased by Petitioner for use in providing the fireworks exhibition are not
purchased for resale.
If Petitioner did not pay sales tax on its pyrotechnic materials at the time of purchase, it is
required to pay the compensating use tax on such purchases as provided by Section 1110 of the Tax
Law.
It is noted that if the Petitioner sells the pyrotechnic materials to a customer without
providing any other services in connection with the sale then it would be purchasing said materials
for resale.

DATED: June 21, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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