If a vendor gets a properly completed Exempt Use Certificate for replacement parts, must the buyer also separately tell the vendor whether the parts last more than one year?

Plain-English summary

Chandler Machine Sales sells replacement parts for machinery and equipment, whose useful lives vary widely. A customer gave Chandler a completed Exempt Use Certificate (Form ST-121) stating the parts have a useful life of more than one year. Chandler asked: does the buyer also have to separately tell the vendor whether the parts will last more than a year, on top of the certificate?

The answer: no — the certificate is enough.

• § 1115(a)(12) exempts machinery and equipment used directly and predominantly in producing goods for sale — but not parts with a useful life of one year or less. So a part's useful life determines whether it qualifies.
• § 1132(c) makes a sale taxable unless the vendor takes a proper exemption certificate from the purchaser. 20 NYCRR 528.13(a)(5) identifies the ST-121 as the certificate for this exemption.
• Once the vendor holds a properly completed ST-121 stating the parts have a useful life over one year, the vendor "does not have to investigate the transaction beyond the facts stated on the exemption certificate."
• The vendor may accept the certificate in lieu of collecting the tax and has no liability if it's misused. Any tax from improper use is the purchaser's responsibility, not the vendor's.

What this means for you

For vendors: a properly completed exemption certificate shifts the risk to the buyer. If you take a complete, regular-on-its-face ST-121 that states the parts qualify (here, useful life over a year), you don't have to second-guess it or run your own investigation. If the buyer's representation turns out to be wrong, the buyer — not you — owes the tax.

For buyers: the certificate is your representation. By issuing an ST-121 stating the parts have a useful life over one year, you're making that claim yourself. You don't need a separate notice to the vendor — but you do carry the liability if the claim is false, so only certify parts that actually qualify.

Mind the one-year line. The production-machinery exemption in § 1115(a)(12) doesn't cover parts with a useful life of one year or less. That single fact — how long the part lasts — is what the certificate is attesting to.

Common questions

Q: Does a vendor have to verify that exempt parts really last more than a year?
A: No. A properly completed ST-121 stating the parts qualify lets the vendor accept the certificate without investigating further. The vendor isn't liable if the certificate is later shown to be improper.

Q: Who owes the tax if the parts didn't actually qualify?
A: The purchaser who issued the certificate. Liability for the improper use of an exemption certificate rests on the buyer, not the vendor who accepted it in good faith.

Q: Do buyers need to give the vendor a separate statement about useful life?
A: No. The representation is built into the Exempt Use Certificate itself; a separate notice on top of a properly completed ST-121 isn't required.

Citations and references

Statutes and regulations:

• Tax Law § 1115(a)(12) — exempts machinery/equipment used directly and predominantly in producing tangible personal property for sale, excluding parts with a useful life of one year or less
• Tax Law § 1132(c) — a sale is deemed a taxable retail sale unless the vendor takes a properly completed exemption certificate from the purchaser
• 20 NYCRR 528.13(a)(5) — designates the Exempt Use Certificate (Form ST-121) as the certificate used to make these purchases without paying sales tax

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1980.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/h80_98s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-H-80-(98)S
Sales Tax
June 5,1980

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S800131A

On January 31, 1980, a Petition for Advisory Opinion was received from the
Chandler Machine Sales Co., Inc., 2473 Grand Avenue, Baldwin, NY 11510.
The issue raised is whether or not a purchaser claiming exemption from the
sales or use tax on the purchase of replacement parts for machinery and equipment
must, in addition to the issuance of a properly completed exemption document,
also advise the vendor whether the parts will or will not have a useful life of
more than one year.
Chandler Machine Sales Co., Inc. sells replacement parts for machinery and
equipment. The useful life of such parts varies widely depending upon many
factors. Chandler Machine Sales Co., Inc. has received an Exempt Use Certificate
(ST-121) from its customer, indicating that the parts have a useful life of more
than one year.
Section 1115(a)(12) provides an exemption for "Machinery or equipment for
use or consumption directly and predominantly in the production of tangible
personal property, ...for sale...but not including parts with a useful life of
one year or less...."
Section 1132(c) provides that "...Unless a vendor shall have taken from the
purchaser a certificate in such form as the tax commission may prescribe, signed
by the purchaser and setting forth his name and address and, except as otherwise
provided by regulation of the tax commission, the number of his registration
certificate, together with such other information as said commission may require,
to the effect that the property or service was purchased for resale or for some
use by reason of which the sale is exempt from tax under the provisions of
section 1115...shall be deemed a taxable sale at retail...."
Section 528.13(a)(5) of the Sales and Use Tax Regulations states that an
Exempt Use Certificate (ST-121) is used to make purchases eligible for this
exemption without payment of sales tax.
The Sales Tax Law requires that a vendor collect tax on all sales unless
he has received a properly completed exemption certificate from his customer. In
this case, since an exempt use certificate is tendered indicating that the parts
will have a useful life of more than one year, the vendor does not have to
investigate the transaction beyond the facts stated on the exemption certificate.
Any liability for the tax, caused by the improper use of the certificate, will
be the responsibility of the purchaser issuing the certificate.
Accordingly, since Chandler Machine Sales Co., Inc. has received an Exempt
Use Certificate from its customer, indicating that the parts for machinery and
equipment will have a useful life of more than one year, the Exempt Use
Certificate may be accepted in lieu of collecting the sales tax. Chandler Machine
Sales Co., Inc. has no liability for the tax if the certificate is improperly
used by its customers.
Dated: April 4,1980

s/MICHAEL ALEXANDER
Deputy Director
Technical Services Bureau

JAMES H. TULLY, JR., COMMISSIONER
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR