Is a vehicle's DMV registration by the lessee proof that sales tax was paid on a pre-June-1990 lease, and separately, does a lessor keep its exemption-certificate protection when it accepts a farmer's exemption certificate for leasing an ultrasound machine to a veterinarian for use on farm livestock?

Subject

Whether payments received from a lessee prior to June, 1990 in conjunction with the lease of motor vehicles, were subject to State and local sales and use taxes and if so was the fact that the vehicles were registered by the lessee in New York sufficient evidence that the sales tax due was paid directly by the lessee to the Department of Motor Vehicle.

What this means for you

A leasing company faced a Department audit questioning whether it had properly collected sales tax on a trailer and dump truck it leased to a customer before June 1, 1990. It had offered the vehicle registrations as proof tax was paid. Separately, it asked about its liability for accepting a farmer's exemption certificate on a leased veterinary ultrasound machine.

Issue 1 -- pre-1990 lease tax and DMV registration: Before a 1990 amendment changed how motor-vehicle leases are taxed (the modern rule taxes the entire lease term up front, as of the earlier of the first payment or vehicle registration), older leases were taxed differently: the lessor owed sales tax on each individual lease payment as it came in, not the whole lease value at signing. Crucially, the Department held that a vehicle being registered with the DMV is not, by itself, sufficient evidence that sales tax was actually paid -- because a vehicle can be validly registered without tax ever being collected, if the owner used an exemption certificate. So a lessor facing an audit needs actual proof of tax collection/remittance, not just registration paperwork.

Issue 2 -- exemption certificate reliance: Separately, the leasing company leased an ultrasound machine to a veterinarian who certified (via a Farmer's Exemption Certificate) that it would be used directly and predominantly in farm production -- specifically examining horses being raised and prepared for sale. New York's farm-equipment exemption can cover this kind of use. The Department confirmed the general rule: a vendor/lessor that accepts a properly completed exemption certificate in good faith, without knowledge it's false or fraudulent, is relieved of the duty to collect tax on that transaction -- even if the certificate later proves inaccurate. But whether this specific certificate was accepted in good faith, or whether fraud was involved, is a factual question that an Advisory Opinion (which only applies the law to a stated set of facts) can't resolve.

Q&A

Q: An auditor is questioning old lease payments, and all I have is proof the vehicle was registered -- is that enough?
A: Not by itself. DMV registration doesn't prove sales tax was collected, since vehicles can be registered tax-free via an exemption certificate. You need actual documentation that tax was charged and remitted (or, for pre-1990 leases, on each individual payment).

Q: We leased farm equipment to a customer who gave us a properly completed exemption certificate that turned out to be inaccurate -- are we liable for the uncollected tax?
A: If you accepted the certificate in good faith (no knowledge it was false, with reasonable due care), and it was properly completed with all required fields, you're generally relieved of the duty to collect tax on that transaction -- the burden shifts to the customer. But if there was fraud, or you had reason to know the certificate was false, that protection doesn't apply.

Q: How is "good faith" or "fraud" actually decided?
A: Those are inherently factual determinations made case-by-case (e.g., in an audit or protest) -- an Advisory Opinion can only state what the law requires given the facts presented; it can't resolve disputed facts about a specific transaction's good faith.

Citations

• Tax Law § 1105(a) -- imposes sales tax on sales (including rentals) of tangible personal property.
• Tax Law § 1131(1) -- defines persons required to collect tax, including every vendor.
• Tax Law § 1111(i) -- (as amended effective June 1, 1990) taxes the entire motor-vehicle lease term up front, due at the earlier of first payment or vehicle registration; leases before that date were taxed payment-by-payment instead.
• Tax Law § 1115(a)(6) -- exempts farm-equipment receipts from sales tax.
• Tax Law § 1132(c) -- presumes receipts taxable until the contrary is established; a properly accepted exemption certificate shifts the burden to the customer.
• 20 NYCRR 532.4 -- details the good-faith exemption-certificate acceptance rule and what makes a certificate "properly completed."
• Leonard R. Landis, Adv Op Comm T&F, August 20, 1991, TSB-A-91(57)S -- sales tax on a motor vehicle lease is due on the full lease price, with the lessor responsible for collecting it on each payment (under the pre-1990 rule).
• D'Agostino General Contractors, Inc., Adv Op Comm T&F, July 1, 1992, TSB-A-92(53)S -- absent fraud, good-faith acceptance of a properly completed exemption certificate relieves the vendor of its collection duty.
• Saf-Tee Plumbing v. State Tax Commission, 77 AD2d 1 -- a vendor accepting a Certificate of Capital Improvement in good faith has no duty to investigate or debate its customer's characterization of the work.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1995.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a95_15s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-95 (15)S
Sales Tax
May 18, 1995

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S940810B

On August 10, 1994, a Petition for Advisory Opinion was received from Copelco Leasing
Corporation, 1700 Suckle Plaza, Pennsauken, NJ 08110.
The issues raised by Petitioner, Copelco Leasing Corporation, are:
1.

Whether payments received from a lessee prior to June, 1990 in
conjunction with the lease of motor vehicles, were subject to State
and local sales and use taxes and if so was the fact that the vehicles
were registered by the lessee in New York sufficient evidence that the
sales tax due was paid directly by the lessee to the Department of
Motor Vehicle.

2.

Whether Petitioner is relieved from the duty to collect sales tax on the
lease of an Ausonic Microimager if it accepts in good faith a properly
completed exemption certificate.

The Petitioner submitted the following information. With respect to issue "1", Petitioner
leased a trailer and dump truck prior to June, 1990 to a certain lessee. The original cost of the trailer
was $5,780 and the dump truck $13,500.
Sales tax was not charged on the lease payments by Petitioner to the lessee. Upon audit by
the Department of Taxation and Finance, the auditor requested proof of payment of the sales tax on
such vehicles. Petitioner furnished the auditor with copies of the vehicle registrations as evidence
that the sales tax was collected and paid on such vehicles.
Section 1105(a) of the Tax Law imposes sales tax on the receipts from sales (including
rentals) of tangible personal property.
Section 1131 of the Tax Law states, in part, as follows:
(1)
"Persons required to collect tax" or "persons required to collect any tax
imposed by this article" shall include every vendor of tangible personal property or
services;...
In Leonard R. Landis, Adv Op Comm T&F, August 20, 1991, TSB-A-91(57)S, the
Commissioner advised that sales tax is due on the full amount of the lease price of a motor vehicle
and that the lessor/vendor is responsible for collecting such sales tax on each payment received from
the lessee under the lease.

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Sales Tax
May 18, 1995
Accordingly, for leases created prior to June 1, 1990, pursuant to Sections 1105(a) and
1131(1) of the Tax Law and Leonard R. Landis, Supra sales tax is due from the lessee on the full
amount of the lease price of the vehicles and Petitioner is responsible for collecting such sales tax
on each payment received from the lessee under the lease. The fact that a vehicle is registered with
the Department of Motor Vehicles is not sufficient evidence to determine that any applicable sales
tax was paid since a vehicle may be registered under certain circumstances without the payment of
sales tax by use of an exemption certificate.
It is noted that Section 1111 of the Tax Law, amended effective June 1, 1990, applies sales
tax to automobile leases executed on or after such date, in part, as follows:
*

*

*

(i)(A) Notwithstanding any contrary provisions of this article or other law,
with respect to any lease for a term of one year or more of (1) a motor vehicle, as
defined in section one hundred twenty-five of the vehicle and traffic law, with a gross
weight of ten thousand pounds or less,... or an option to renew such a lease or a
similar contractual provision, all receipts due or consideration given or contracted to
be given for such property under and for the entire period of such lease, option to
renew or similar provision, or combination of them, shall be deemed to have been
paid or given and shall be subject to tax, and any such tax due shall be collected, as
of the date of first payment under such lease, option to renew or similar provision,
or combination of them, or as of the date of registration of such property with the
commissioner of motor vehicles, whichever is earlier.... (emphasis added)
With respect to issue "2", Petitioner leased an Ausonics Microimager to a Doctor of
Veterinary Medicine. An Ausonics Microimager is an ultrasound machine designed for monitoring
animals. The veterinarian indicated to Petitioner that he was the owner of a farm on which livestock
was raised and that the device would be utilized in examination of the uterus of horses as well as for
viewing the tendons of horses, a function integral in the life of cycle horses when preparing them for
ultimate sale.
Receipts from the sale of farm equipment are exempt from sales tax pursuant to section
1115(a)(6) of the Tax Law.
A timely Farmer's Exemption Certificate was issued to Petitioner in which the
lessee/veterinarian checked the single purchase certificate and certified that the product would be
used in an exempt manner (specifically used directly and predominately in farm production).
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

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Sales Tax
May 18, 1995
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
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 is presumed that all receipts for property or services
of any type mentioned in subdivisions (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 and 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 of 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 3: Mr. Jones, who was not a registered sales tax vendor, purchased
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

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TSB-A-95 (15)S
Sales Tax
May 18, 1995
identification number, and did not pay the tax on the purchase price. Subsequently, the Tax
Department audited XYZ's nontaxable 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.
*

*

*

(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.
(e)

signature of the purchaser or the purchaser's authorized representative;

and
(f)
any other information require to be completed on the particular
certificate or document. (emphasis added)
In D'Agostino General Contractors, Inc., Adv Op Comm T&F, July 1, 1992, TSB-A-92(53)S,
the Commissioner opined that, in the 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.
Moreover, where a vendor accepted in good faith a Certificate of Capital Improvement, it was
not under a duty to investigate or police its customers and the vendor had no duty to debate with its
customers as to whether the work to be performed constituted a capital improvement or a repair.
(See: Saf-Tee Plumbing v. State Tax Commission, 77 AD2d 1).

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TSB-A-95 (15)S
Sales Tax
May 18, 1995
Accordingly, pursuant to Section 1132(c) of the Tax Law and Section 532.4 of the Sales and
Use Tax Regulations, in the absence of fraud, the acceptance by Petitioner of a properly completed
exemption certificate in good faith is sufficient to relieve Petitioner of its duty to collect sales tax
from the lessee/veterinarian. D'Agostino General Contractors. Inc. 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 provisions to a "specified set of facts." Tax Law, Section 171,
subd. twenty-fourth; 20 NYCRR 2376.1(a).

DATED: May 18, 1995

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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