Will the Department use an advisory opinion to approve a taxpayer's method of computing sales tax?

Plain-English summary

Electronic Data Systems Corporation (a General Motors subsidiary) places its computers at customer premises under bundled, fixed-price contracts. Its computing of sales tax on those arrangements had recently been examined on audit, and it asked whether the method it used would be acceptable in the future.

The Department declined to answer:

• What an advisory opinion is for. Under 20 NYCRR 2376.1(a), an advisory opinion is a written statement of how the statutes and regulations apply to a specified set of facts. It binds the Commissioner only as to the requesting person.
• Approving a "method" is outside that scope. Citing its earlier opinion in Northeastern Computer Services, Inc. (TSB-A-88(33)S), the Department said the advisory-opinion function is limited to applying the law to a specific set of facts -- it is not the tool to sign off on a taxpayer's ongoing computation methodology, which requires detailed factual classification.
• Result: not answerable here. Whether the petitioner's method is acceptable is not susceptible of determination in an advisory opinion and must be resolved through administrative (audit) procedure.

What this means for you

When to use an advisory opinion -- and when not to

An advisory opinion answers "how does the tax law apply to these specific facts?" It will not pre-approve a billing or tax-computation methodology, validate an audit position for the future, or make open-ended factual classifications. Frame your question as a concrete facts-and-law issue.

Methodology and audit disputes go through other channels

If your real question is whether a computation method or an audit approach is acceptable, that belongs in the audit and administrative process (and, if needed, formal protest/appeal), not an advisory opinion.

A "declined" opinion still tells you something

Even though the Department didn't reach the merits, the opinion confirms the boundary of the advisory-opinion process -- useful when deciding how to get certainty on a tax question.

Common questions

Q: Can I get an advisory opinion approving how I calculate my sales tax?
A: No. The Department said an advisory opinion applies the law to specific facts and won't bless a computation methodology; that's an administrative/audit matter.

Q: Why did the Department point to an audit?
A: Because classifying the taxpayer's products and validating a method requires detailed, fact-specific administrative review -- not an advisory opinion.

Q: Did the Department decide the method was wrong?
A: No. It didn't reach the merits at all -- it held the question wasn't one an advisory opinion can answer.

Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner and the facts described. Treat it as guidance and confirm your own facts.

Citations and references

• 20 NYCRR 2376.1(a) (nature and scope of advisory opinions)
• Northeastern Computer Services, Inc., Adv. Op., June 24, 1988, TSB-A-88(33)S (advisory-opinion function is limited to applying law to specified facts)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1993.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a93_31s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (31)S
Sales Tax
May 5, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S920127A

On January 27, 1992, a Petition for Advisory Opinion was received by Electronic Data
Systems Corporation, 5400 Legacy Drive, Plano, TX 75024.
The issue raised by Petitioner, Electronic Data Systems Corporation, is whether the method
Petitioner uses to determine sales tax on computers placed in customers' premises, which was the
subject of a recent audit, would be an acceptable method to be used in the future.
Petitioner, is a wholly owned subsidiary of General Motors (hereinafter "GM"). Petitioner
places its computers in GM premises and the computers are sometimes operated by the employees
of Petitioner and sometimes by employees of GM and sometimes by both. Petitioner pays all taxes
on hardware purchased or leased. The computer work done by Petitioner is done pursuant to fixed
price and/or bundled billing contracts. Most computer services are bundled together. The equipment
is owned or leased by Petitioner and the charges are recaptured in the bundles. Whenever Petitioner
directly releases the tangible personal property to GM, Petitioner accrues/pays the sales taxes on the
markup. The same methods would apply to maintenance contracts and taxable software. With
respect to resales, Petitioner will collect the appropriate sales tax from GM or obtain the applicable
exemption certificate such as the Manufacturer's exemption in New York State.
Section 2376.1(a) of the Commissioner of Taxation and Finance Regulations provides as
follows:
Section 2376.1 General. (a) Definition and nature of advisory opinions. An
advisory opinion is a written statement, issued pursuant to the provisions of this Part,
setting forth the applicability to a specified set of facts of pertinent statutory and
regulatory provisions relating to a tax administered by the Commissioner of Taxation
and Finance. Advisory opinions are issued at the request of any person who is or may
be subject to a tax or liability under the Tax Law or claiming exemption from such
tax or liability, and are binding upon the commissioner with respect to that person
only. Advisory opinions are issued on behalf of the commissioner by the director or
the deputy director of the Technical Services Bureau, or the deputy director of the
Taxpayer Services Division, to whom the commissioner's authority to issue advisory
opinions is delegated. (emphasis added)
In Northeastern Computer Services, Inc., Adv Op Comm T & F, June 24, 1988, TSB-A­
88(33)S the Commissioner held that "The Advisory Opinion function is limited to setting forth the
applicability of pertinent statutory and regulatory provisions to a specified set of facts. The
information contained in the Petition is not sufficiently detailed for a final classification, for tax

-2­
TSB-A-93 (31)S
Sales Tax
May 5, 1993
purposes, of each report, tabulation or product Petitioner furnishes under a data processing
agreement. This determination must necessarily be made by administrative procedure." (emphasis
added)
Accordingly, pursuant to Section 2376.1 of the Commissioner of Taxation and Finance
Regulations and Northeastern Computer Services, Inc., supra, an opinion as to the methodology
Petitioner may use to determine the sales tax on computers placed in customers' premises as
presented is not susceptible of determination in an Advisory Opinion.

DATED: May 5, 1993

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

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