Is a New York vendor relieved of its duty to collect sales tax if it accepts, in good faith, a properly completed exemption certificate from the customer?

Plain-English summary

D'Agostino General Contractors, a small contractor, did manufacturing-related work (trenches to carry chemicals, a concrete dike for a peroxide pump, raising a retaining wall, tank foundations, a concrete slab) for a large manufacturer. Its customer gave it a properly completed Exempt Use Certificate (Form ST-121), on which the only box checked exempted the work from statewide tax as the installing/servicing of production machinery and equipment (still subject to New York City and other local tax), and typed that labor was subject to a 3% tax. D'Agostino asked whether accepting that certificate relieved it of the duty to collect sales tax.

The Department's answer, under Tax Law § 1132(c) and Regulation § 532.4:

• A good-faith, properly completed certificate protects the vendor. All receipts are presumed taxable, and the burden of proving a sale is exempt normally falls on the vendor or customer. But a vendor who, in good faith, accepts a properly completed exemption certificate within 90 days of the sale is relieved of liability for failing to collect the tax, and the burden of proving nontaxability then rests solely on the customer.
• "Good faith" means no knowledge of falsity. A certificate is accepted in good faith when the vendor has no knowledge that it is false or fraudulently presented; if reasonable, ordinary due care is used, knowledge of any problem is not imputed to the vendor. A vendor is not required to investigate or police its customers, or to debate whether the work is really a capital improvement (citing Saf-Tee Plumbing v. State Tax Commission and Sharon P. Sheinfeld, TSB-A-90(39)S).
• The open questions are factual. Whether fraud was involved, and whether the certificate here was actually proper and accepted in good faith, are factual questions an advisory opinion cannot resolve — it only applies the law to a stated set of facts.
• Capital-improvement wrinkle. The Department noted that if the work turned out to be a capital improvement, the customer would be entitled to a refund of sales tax paid on labor, and D'Agostino would owe sales/use tax on the materials used to perform it.

What this means for you

Vendors and contractors who collect sales tax

If you receive a properly completed exemption certificate from your customer and accept it in good faith within 90 days of the sale, you are protected: you are relieved of liability for not collecting the tax, and the state must look to your customer to prove the sale was taxable. You do not have to second-guess or investigate your customer's claimed use.

"Good faith" has limits

The protection depends on the certificate being properly completed (date, both parties' names and addresses, the purchaser's identification number where required, and the purchaser's signature) and on your having no knowledge it is false. If a certificate is obviously incomplete or you know it is bogus, you are not protected.

The capital-improvement trap for contractors

If your work is ultimately a capital improvement, the labor is not taxable — but you (the contractor) become the consumer of the materials and owe sales or use tax on them. Classifying the job correctly matters even when a certificate is in hand.

Accountants and tax professionals

This is a straightforward application of § 1132(c) / Reg. § 532.4: the good-faith, timely, properly completed certificate shifts the burden of proof to the purchaser. Whether the certificate was proper and taken in good faith — and whether the underlying job was a repair or a capital improvement — are fact questions decided on audit, not in an advisory opinion.

Common questions

Q: Does accepting an exemption certificate get me off the hook for collecting tax?
A: Yes, if it is properly completed and you accept it in good faith within 90 days of the sale. You are then relieved of liability, and the burden of proving the sale was taxable shifts to your customer.

Q: What does "good faith" mean here?
A: You have no knowledge that the certificate is false or fraudulent. If you exercise reasonable, ordinary due care, the state won't impute knowledge of a problem to you. You don't have to investigate or police your customers.

Q: What makes a certificate "properly completed"?
A: It must show the date, the purchaser's and vendor's names and addresses, the purchaser's identification number (where the form requires one), the purchaser's signature, and any other information the particular form calls for.

Q: Did this opinion decide whether the certificate here was valid?
A: No. Whether fraud was involved and whether the certificate was properly completed and accepted in good faith are factual questions that can't be settled in an advisory opinion.

Q: What if the work turns out to be a capital improvement?
A: Then the customer can get a refund of tax paid on the labor, but the contractor owes sales or use tax on the materials used to do the work.

Citations and references

Statutes and authorities:

• Tax Law § 1132(c) (presumption of taxability; a timely, properly completed certificate shifts the burden of proof to the customer)
• Sales and Use Tax Regulations § 532.4 (presumption of taxability; good-faith acceptance; what makes a certificate "properly completed")
• Sharon P. Sheinfeld, Adv. Op. Comm. T&F, Aug. 7, 1990, TSB-A-90(39)S
• Saf-Tee Plumbing v. State Tax Commission, 77 A.D.2d 1

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1992.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a92_53s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-92(53) S
Sales Tax
July 1, 1992

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S920309C

On March 9, 1992, a Petition for Advisory Opinion was received from D'Agostino General
Contractors, Inc., 365 North Washington Street, PO Box 25086, Rochester, New York 14625.
The issue raised by Petitioner, D'Agostino General Contractors, Inc., is whether a vendor is
relieved from his duty to collect sales tax if he accepts in good faith a properly completed exemption
certificate.
Petitioner, a small contractor, was hired to do manufacturing related work for a large
manufacturing company with factories in several locations. The work completed consisted of
building trenches to carry chemicals from one part of a building to the next processing area,
installing a concrete dike for a Peroxide Pump, extending the height of a concrete retaining wall of
the Hypo-Acid Dike, installing tank foundations and removing and repouring a concrete slab west
of a scale support slab.
Petitioner accepted a properly completed Exempt Use Certificate, Form ST-121, from its
customer for the work to be completed. The only box checked on the certificates provided that:
"SUBJECT TO THE NEW YORK CITY TAX AND ALL OTHER LOCAL SALES
AND USE TAX, BUT EXEMPT FROM STATEWIDE TAX
(i)

The services of installing, repairing maintaining or servicing machinery and
equipment used directly and predominantly in the production; telephone and
telegraph control office equipment and station apparatus used directly and
predominantly in receiving at destination or initiating and switching
telephone or telegraph communication and; parts, tools, and supplies used in
connection with this machinery, equipment and apparatus."

In addition, the customer typed on the Certificate that labor was subject to a 3% tax.
Section 1132(c) of the Tax Law states, in part:
For the purpose of the proper administration of this article and to prevent evasion of
the tax hereby imposed, it shall be presumed that all receipts for property or services
of any type mentioned in subdivisions (a), (b), (c) and (d) of section eleven hundred
five. . .are subject to tax until the contrary is established, and the burden of proving
that any receipt. . .is not taxable hereunder shall be upon the person required to
collect tax or the customer. . .unless (1) a vendor. . .shall have taken from the
purchaser a certificate in such form as the tax commission may prescribe. . . .to the
effect that the property or service was purchased. . .for some use by reason of which

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TSB-A-92(53) S
Sales Tax
July 1, 1992
the sale is exempt from tax under the provisions of section eleven hundred fifteen,
. . .the sale shall be deemed a taxable sale at retail. . . .Where such a certificate or
statement has been furnished to the vendor, the burden or proving that the receipt.
. .is not taxable. . .shall be solely upon the customer . . . .
Section 532.4 of the Sales and Use Tax Regulations provides, in part, as follows:
Presumption of Taxability
(a) General. (1) It shall be presumed that all receipts for property or services
of any type mentioned in subdivision (a). . .of section 1105 of the Tax Law. . .[viz.,
sales of tangible personal property] are subject to tax until the contrary is established.
*

*

*

(b) Burden of proof. (1) The burden of proving that any receipt,. . .is not
taxable shall be upon the person required to collect tax or the customer.
(2) A vendor who in good faith accepts from a purchaser a properly
completed exemption certificate or, as authorized by the Department, other
documentation evidencing exemption from tax not later than 90 days after delivery
of the property or the rendition of the service is relieved of liability for failure to
collect the sales tax with respect to that transaction. The timely receipt of the
certificate or documentation itself will satisfy the vendor's burden or proving the
nontaxability of the transaction and relieve the vendor of responsibility for collecting
tax from the customer.
(i) A certificate or other document is "accepted in good faith" when a vendor
has no knowledge that the exemption certificate or other document issued by the
purchaser is false or is fraudulently presented. If reasonable ordinary due care is
exercised, knowledge will not be imputed to the seller required to collect the tax.
*

*

*

Example 2: The Brown Manufacturing company purchased machinery and
equipment which could be used for production or distribution for its New York plant
from Ajax company, a multistate business. Brown Manufacturing purchased the
machinery and equipment, which Brown intended to be used in its distribution area,
from Ajax's New York State sales representative. By virtue of its size and weight, the
machinery and equipment cannot be completely assembled prior to delivery to the
customer's place of business. Ajax company sent its New Jersey based installation
crew to the Brown Manufacturing company location to perform the on-site assembly.
Within 90 days of the date of the completion of the on-site assembly, the Brown

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Sales Tax
July 1, 1992
Manufacturing company issued an exemption certificate to the Ajax company's
Accounts Receivable Department located in Ohio, and did not pay the tax on the
purchase of the machinery and equipment. The Ajax company's Account Receivable
Department accepted, in good faith, the completed exemption certificate as it was not
in a position to determine whether or not the machinery and equipment was really
being used in the production of tangible personal property for sale and had no reason
to question the claimed exempt status. Therefore, Ajax is not liable for the
uncollected tax.
Example 3: Mr. Jones, who was not a registered sales tax vendor, purchase
vinyl siding from XYZ Building and Supply company to install on a house which he
owns. Upon picking up the siding, Mr. Jones improperly issued a contractor's exempt
purchase certificate to the vendor, complete with an apparently valid identification
number, and did not pay the tax on the purchase price. Subsequently, the Tax
Department audited XYZ's non-taxable sales and determined Mr. Jones had issued
a false contractor's exempt purchase certificate. Although the certificate issued by
Mr. Jones was false, XYZ Building and Supply company accepted the completed
certificate in good faith as it appeared to be properly completed and XYZ had no
knowledge that the certificate was false. XYZ Building and Supply company is
therefore relieved of liability for failure to collect tax on this transaction.
*

*

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(ii) An exemption certificate or other document is considered to be properly
completed when it contains the:
(a) date prepared;
(b) name and address of the purchaser;
(c) name and address of the vendor;
(d) identification number of the purchaser as shown on its certificate of
authority, or exempt organization number as shown on the exempt organization
certificate, if any such numbers are required by the certificate or document. The
farmer's exemption certificate does not have such a number. Also, the exemption
certificate for tractors, trailers or semitrailers does not require the number of the
purchaser's certificate of authority in all instances. However, if the purchaser
completing an exemption certificate for tractors, trailers or semitrailers does not have
a certificate of authority, such exemption certificate must show the purchaser's
highway use tax identification number unless the purchaser is a certificated
household goods mover, in which instance it must show its Interstate Commerce
Commission or New York State Department of Transportation identification number.
Absent such identifying numbers, the exemption certificate for tractors, trailers or
semitrailers is incomplete.

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Sales Tax
July 1, 1992
(e) Signature of the purchaser or the purchaser's authorized representative;
and
(f) any other information required to be completed on the particular
certificate or document. (emphasis added)
In Sharon P. Sheinfeld, Adv Op Comm T&F, August 7, 1990, TSB-A-90(39)S the
Commissioner advised that while a Contractor Exempt Purchaser Certificate was the correct
certificate to be used in a certain transaction, the fact that a Resale Certificate received by Petitioners'
client was properly completed and accepted in good faith was enough to relieve the vendor of his
duty to collect tax.
Moreover, where a vendor has accepted in good faith a Certificate of Capital Improvement
it is not under a duty to investigate or police its customers and the vendor has no duty to debate with
its customers as to whether the work performed constitutes a capital improvement or a repair. (See:
Saf-Tee Plumbing v State Tax Commission, 77 AD2d 1).
Accordingly, pursuant to Section 1132(c) of the Tax Law and Section 532.4 of the Sales and
Use Tax Regulations in absence of fraud, the acceptance by Petitioner of a properly completed
exemption certificate in good faith is sufficient to relieve the Petitioner of his duty to collect tax from
his customer. Sharon P. Sheinfeld and Saf-Tee Plumbing v. State Tax Commission, supra.
In the instant case, the questions of whether fraud was involved or whether a properly
completed exemption certificate was accepted in good faith are factual questions which cannot be
determined in an Advisory Opinion. An Advisory Opinion merely sets forth the applicability of
pertinent statutory and regulatory provision to a "specified set of facts." Tax Law, section 171, subd.
twenty-fourth; 20 NYCRR 2376.1(a).
It is also noted that if it is determined that the work performed by Petitioner constituted
capital improvements, the customer would be entitled to a refund of sales tax paid on labor charges
and Petitioner would be liable for sales and use taxes on materials used to perform such capital
improvements.

DATED: July 1, 1992

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory 0pinions
are limited to the facts set forth therein.