Can the Department substitute a credit toward a taxpayer's future sales tax bill instead of issuing a cash refund, when the taxpayer specifically requested a refund on Form AU-11 for overpaid sales tax on manufacturing electricity?

Subject

Issue raised by Petitioner, Utility Reduction Consultants, is whether the Department of Taxation and Finance at its discretion may substitute a credit toward future required sales tax payments rather than issuing a refund where Petitioner's client applies for a refund of sales tax paid on electricity used directly and exclusively in the production of tangible personal property by manufacturing or processing as described in Section 1115(a)(12) of the Tax Law.

What this means for you

A utility-bill consulting firm filed Form AU-11 (Application for Credit or Refund) on behalf of a manufacturing client, seeking a cash refund of sales tax the client had paid on electricity used directly and exclusively in manufacturing production -- a category New York exempts from sales tax. Because the refund amount was smaller than the client's next expected quarterly sales tax bill, the Department, without asking the client, issued a credit toward that upcoming payment instead of a refund check -- even though the client had specifically checked the "Refund Claimed" box on the form, not "Credit Claimed."

Form AU-11 gives applicants a clear choice between two separate boxes: refund or credit. New York's refund statute and regulations require the Department to refund or credit tax that was erroneously, illegally, or unconstitutionally collected once an application is filed and approved -- but nothing gives the Department discretion to override the applicant's own stated choice. Since the client specifically requested and was found entitled to a refund, the Department can't instead apply that money as a credit against future tax bills without the client's consent.

Q&A

Q: We filed for a sales tax refund and the Department instead applied it as a credit toward our next quarterly payment -- is that allowed?
A: Not per this opinion, if you specifically checked "Refund Claimed" (not "Credit Claimed") on Form AU-11 and were found entitled to it -- the Department can't substitute a credit for your requested refund without your consent.

Q: Does it matter that the refund amount was smaller than our upcoming tax bill?
A: No -- this opinion found that consideration irrelevant to whether the Department can override the applicant's own choice between the refund and credit boxes on Form AU-11.

Q: If we'd prefer a credit instead of waiting for a refund check, can we request that?
A: Yes -- Form AU-11 has a separate "Credit Claimed" box for exactly that purpose, and per 20 NYCRR § 534.2(a)(1)(ii), a properly filed credit application lets the applicant take the credit on the very next sales tax return due.

Citations

• Tax Law § 1115(a)(12) -- exempts machinery/equipment and (as applied here) electricity used directly and predominantly in manufacturing/processing production.
• Tax Law § 1139 -- requires the Department to refund or credit tax erroneously, illegally, or unconstitutionally collected upon a timely application.
• 20 NYCRR § 534.2 -- implements the refund/credit application procedure, including Form AU-11's separate refund and credit request boxes and the Department's notice/review process.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1994.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a94_41s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-94 (41)S
Sales Tax
September 9, 1994

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S940426A

On April 26, 1994, a Petition for Advisory Opinion was received from Utility Reduction
Consultants, 2470 Hull Road, N. Bellmore, NY 11710.
The issue raised by Petitioner, Utility Reduction Consultants, is whether the Department of
Taxation and Finance at its discretion may substitute a credit toward future required sales tax
payments rather than issuing a refund where Petitioner's client applies for a refund of sales tax paid
on electricity used directly and exclusively in the production of tangible personal property by
manufacturing or processing as described in Section 1115(a)(12) of the Tax Law.
Petitioner on behalf of it's client filed an AU-11, Application for Credit or Refund, to obtain
a refund for sales tax paid on electricity used directly and exclusively in the production of tangible
personal property by manufacturing or processing. However, since the refund claim was smaller
than the next anticipated quarterly sales tax payment due from Petitioner's client, the Department,
without the consent of Petitioner's client, issued a credit toward that required payment, regardless
of the fact that a refund was requested on Form AU-11.
Section 1115 of the Tax Law provides, in part, as follows:
Exemptions from sales and use taxes.--(a) Receipts from the following shall
be exempt from the tax on retail sales imposed under subdivision (a) of section
eleven hundred five and the compensating use tax imposed under section hundred
ten:
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(12) Machinery or equipment for use or consumption directly and
predominantly in the production of tangible personal property, gas, electricity,
refrigeration or steam for sale, by manufacturing, processing, generating, assembling,
refining, mining or extracting, or telephone central office equipment or station
apparatus or comparable telegraph equipment for use directly and predominantly in
receiving at destination or initiating and switching telephone or telegraph
communication, but not including parts with a useful life of one year or less or tools
or supplies used in connection with such machinery, equipment or apparatus. This
exemption shall include all pipe, pipeline, drilling rigs, service rigs, vehicles and
associated equipment used in the drilling, production and operation of oil, gas, and
solution mining activities to the point of sale to the first commercial purchaser.

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Sales Tax
September 9, 1994

Section 1139 of the Tax Law provides, in part, as follows:
(a) In the manner provided in this section the tax commission shall refund or
credit any tax, penalty or interest erroneously, illegally or unconstitutionally collected
or paid 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, penalty or interest
paid by the applicant to the tax commission, within three years after the date when
such amount was payable under this article, or (iii) in the case of a tax due from the
seller, transferor or assignor and paid by the applicant to the tax commission where
the applicant is a purchaser, transferee or assignee liable for such tax pursuant to the
provisions of subdivision (c) of section eleven hundred forty-one of this chapter,
within two years after the giving of notice by the tax commission to such purchaser,
transferee or assignee of the total amount of any tax or taxes which the state claims
to be due from the seller, transferor or assignor. Such application shall be in such
form as the tax commission shall prescribe. No 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 commission, under such regulations as it may prescribe, that
he has repaid such tax to the customer. Notwithstanding any other provision of this
article, if the time to file an application for refund or credit of any tax, penalty or
interest would otherwise have expired on or before December nineteenth, nineteen
hundred sixty-nine, the time for filing such application is hereby extended, as
provided in subdivision (c) of section eleven hundred forty-seven, where a taxpayer
has consented in writing to the extension of the period for assessment of additional
tax.
Section 534.2 of the Sales and Use Tax Regulations provides, in part, as follows:
(a)

Application for a refund or credit

(1)

Application required.
(i)
To claim a refund or credit for any tax, penalty or interest
collected or paid which may be credited or refunded, a person must
file an application for such refund or credit with the Department of
Taxation and Finance.
(ii)
Where an application for credit has been filed, the applicant
may immediately take such credit on the return which is due
coincident with or immediately subsequent to the time that the
applicant files his application for credit, except with respect to the
refund described in section 534.8 of this Part.

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TSB-A-94 (41)S
Sales Tax
September 9, 1994
(iii) The taking of a credit on a sales and use tax return is deemed to
be part of the application for such credit. The application for credit
or a copy of the application, if filed earlier, must be attached to the
return on which the credit is taken.
(2)

Form of application
(i)
An application for a refund or credit must contain the
following information:
(a)

name of applicant;

(b)

address of applicant;

(c)
applicant's vendor identification number (if the
applicant is registered);
(d)
period covered by claim, in the case of a claim
for credit or refund by an omnibus carrier under
section 534.4 of this Part, the claim must cover a
period of not less than three months;
(e)

amount of refund or credit claimed;

(f)
name and address of authorized representative
(if the applicant has a representative);
(g)
a full explanation of facts on which the claim
is based, including substantiation of the basis for and
the amount of the claim;
(h)
a certification that no part of the tax paid for
which the claim is made has been refunded or credited
to the applicant by the person to whom it was paid, or,
in the case of an application by a vendor, a
certification and evidence satisfactory to the
Department of Taxation and Finance that he has
refunded the tax to his customer;
(i)

date of application; and

(j)
signature of the applicant and, if the applicant
is an officer of a corporation or a partner in a
partnership, the individual's title.
(ii)
All applications for refunds or credits of sales or use taxes are
to be filed with the Central Office Audit Bureau, Sales Tax Section,
Building 9, W.A. Harriman Campus, Albany, N.Y. 12227. Preprinted
refund and credit application forms may be obtained from the

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TSB-A-94 (41)S
Sales Tax
September 9, 1994
Department of Taxation and Finance by contacting the Taxpayer
Assistance Bureau at the phone number or address listed in
subdivision (c) of section 525.3 of the Title.
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(d)
Action by the Department of Taxation and Finance
(1)
The Audit Division on behalf of the Department of Taxation and Finance will
grant or deny, in whole or in part, an application for a refund or credit.
(2)

The Audit Division will notify the applicant of its determination by mail.

(3)
The determination will be final and irrevocable unless the applicant, within
90 days after the date of mailing of the notice of determination, applies to the Bureau
of Conciliation and Mediation Services of the Division of Taxation for a conciliation
conference or to the Division of Tax Appeals for a hearing to review the
determination.

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(f)
Comptroller's approval and review. All refunds approved by the
Department of Taxation and Finance must, before payment is made, also be reviewed
and approved by the Department of Audit and Control as provided for by section 1
of article V of the State Constitution.
Form AU-11 (4/94), Application for Credit or Refund, contains two separate and distinct
boxes respectively entitled "Refund Claimed" and "Credit Claimed". Claimants indicate their choice
for a credit or refund by including the amount of credit or refund claimed in the specific box.
Pursuant to Section 1139 of the Tax Law, Section 534.2 of the Sales and Use Tax
Regulations and Form AU-11, Application for Credit or Refund, where an applicant applies for and
is entitled to a refund of sales tax erroneously, illegally or unconstitutionally collected or paid the
Department may not substitute at its discretion a credit for a refund without the applicant's consent.
Accordingly, since Petitioner's client filed Form AU-11 and requested in the appropriate box the
amount of refund claimed and it was subsequently determined by the Department to be

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Sales Tax
September 9, 1994
entitled to a refund, the Department may not substitute a credit toward future quarterly payments due
from Petitioner's client in place of issuing a refund without the consent of Petitioner's client.

DATED: September 9, 1994

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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