If a customer's business name contains the word 'Contracting' or 'Contractor,' does that alone bar a supplier from accepting a resale certificate from that customer in good faith?

Plain-English summary

An accountant's client sells home improvement materials to homeowners (always taxed), retail stores (which give resale certificates and aren't taxed), and businesses that may or may not be contractors. Some retail-store customers happen to have the word "contracting" in their names, and some genuine contractors don't have that word in their names at all — so the client can't tell from the customer's name, or even from the delivery address (stores, homeowners, job sites, storage areas, or pickup at the client's own store), whether a given customer is really a contractor. The accountant asked three related questions about what her client must do when a resale certificate comes from a business whose name contains "Contracting" or "Contractor."

New York law draws a hard line for contractors: a contractor buying materials to use in erecting a structure or improving, repairing, or servicing real property is always making a taxable retail purchase, regardless of whether the materials will later be resold as-is — contractors simply aren't allowed to use a resale certificate for that kind of purchase. A contractor who also happens to run a retail outlet, though, can still use a resale certificate for materials genuinely bought to be resold through that outlet.

Given that rule, the Department held that a resale certificate isn't automatically invalid just because the customer's name contains "Contracting" or "Contractor" — plenty of legitimate retail stores use that word in their name, and plenty of contractors don't. The supplier bears no duty to investigate further or demand extra proof beyond a properly completed certificate, and accepting one in good faith (with no more than 90 days' delay) shifts the burden of proving nontaxability onto the customer and protects the supplier from tax liability if it later turns out to be wrong. But "good faith" has a real limit: if the supplier actually knows — not merely suspects — that a particular customer is a contractor who will use the materials in construction or repair work, accepting a resale certificate from that customer isn't good faith, and the supplier must collect tax on that sale.

What this means for you

Suppliers of building and construction materials

You don't need to police your customers' business names or dig for extra documentation just because a name contains "Contracting" or "Contractor" — a properly completed resale certificate, accepted in good faith and on time, protects you regardless. But if you actually know a specific customer is a contractor buying for its own construction/repair work, don't accept a resale certificate from that customer; collect tax instead.

Accountants and tax professionals

The key legal distinction is between a contractor buying materials for its own construction/repair use (always taxable, no resale certificate allowed) and a contractor that also operates a retail outlet buying inventory for that outlet (resale certificate allowed). Whether a supplier has "knowledge" sufficient to defeat good faith is a fact question the Department expressly won't resolve in an advisory opinion — it depends on what the supplier actually knew, not just on suspicious business names.

Common questions

Q: Does a customer name containing "Contracting" or "Contractor" automatically invalidate a resale certificate?
A: No. Many legitimate retail stores have that word in their name, and the Department confirmed a supplier isn't required to treat the name itself as disqualifying.

Q: Do I have to investigate further before accepting a resale certificate from a business with "Contractor" in its name?
A: No — there's no statutory requirement to demand additional substantiation, and a supplier accepting a properly completed certificate in good faith is protected even if the transaction later turns out to be taxable.

Q: What if I actually know the customer is a contractor buying materials for construction or repair work?
A: Then you can't accept a resale certificate in good faith for that sale — you must collect sales tax, since contractors aren't permitted to use resale certificates for capital improvement or repair purchases.

Q: Can another supplier rely on this ruling?
A: No. This advisory opinion binds the Department only for the petitioner's client on the facts described, though the underlying good-faith and contractor-resale rules reflect the Department's general regulations and prior published opinions.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4)(i) (sale to a contractor for construction/repair use deemed a retail sale)
• Tax Law § 1132(c)(1) (presumption of taxability; resale/exemption certificate burden-shifting)
• 20 NYCRR § 526.6(b) (special rule; sales to contractors deemed retail sales)
• 20 NYCRR § 532.4(b) (good-faith acceptance of exemption certificates)
• 20 NYCRR § 532.4(d)(5) (contractors not permitted to use resale certificates for capital improvement/repair work)
• 20 NYCRR § 541.1(b) (sales to contractors)

Prior rulings/cases referenced:

• Andrew S. Hollander, CPA, Adv Op Comm T&F, Dec. 4, 1997, TSB-A-97(78)S
• Costco Wholesale Corporation and The Price Co., Inc., Adv Op Comm T&F, March 28, 1997, TSB-A-97(20)S
• Matter of Saf-Tee Plumbing Corp. v. Tully, 77 A.D.2d 1
• Matter of RAC Corp. v. Gallman, 39 A.D.2d 57
• Jeffrey J. Coren, CPA, Adv Op Comm T&F, Nov. 3, 1999, TSB-A-99(42)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2001.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a01_1s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-01(1)S
Sales Tax
January 10, 2001

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S000831A

On August 31, 2000, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Carolyn Mazzenga, CPA, 130 Crossways Park Drive, Woodbury, NY 11797.
Petitioner, Carolyn Mazzenga, CPA, has presented the following questions relating to her
client’s acceptance of resale certificates from customers who are purchasing home improvement
materials and whose names contain the word “Contracting” or “Contractor”:
(1) When Petitioner’s client receives a resale certificate from a business, what responsibility
does it have if the word “Contracting” or “Contractor” is in the customer’s name?
(2) Is Petitioner’s client precluded from accepting a resale certificate in good faith if either
of these words is contained in the customer’s name?
(3) Is Petitioner’s client required to obtain any documentation from such customer
substantiating that the customer is legally allowed to give a resale certificate?
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner’s client sells home improvement materials. Its customers include homeowners,
contractors, and other retail stores. Petitioner’s client always charges sales tax on its sales to
homeowners. It receives resale certificates from the retail stores and does not charge them sales tax.
In many situations, Petitioner’s client receives resale certificates from businesses that may
or may not be contractors. Some retail stores have the word “contracting” in their names. Some
contractors do not have the word “contracting” in their names.
Petitioner’s client delivers its home improvement materials to a number of different locations
including retail stores, homeowners, job sites, and centralized storage areas. Also, the materials may
be picked up at Petitioner’s client’s store. Accordingly, Petitioner’s client is not able to determine
by the delivery address whether or not a customer is a retail store or a contractor.
In almost all cases, Petitioner’s client’s home improvement materials are used in capital
improvements. It is unlikely that the home improvement materials Petitioner’s client sells would
be used in a taxable repair.

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Applicable Law and Regulations
Section 1101(b)(4)(i) of the Tax Law provides, in part:
. . . a sale of any tangible personal property to a contractor, subcontractor or
repairman for use or consumption in erecting structures or buildings, or building on,
or otherwise adding to, altering, improving, maintaining, servicing or repairing real
property, property or land . . . is deemed to be a retail sale regardless of whether the
tangible personal property is to be resold as such before it is so used or consumed.
. . . (Emphasis added)
Section 1132 of the Tax Law provides, in part:
(a)(1) Every person required to collect the tax shall collect the tax from the
customer when collecting the price . . . to which it applies. . . .
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(c)(1) 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. Except as provided in subdivision (h)
or (k) of this section, unless (i) a vendor, not later than ninety days after delivery of
the property or the rendition of the service, shall have taken from the purchaser a
resale or exemption certificate in such form as the commissioner may prescribe,
signed by the purchaser and setting forth the purchaser’s name and address and,
except as otherwise provided by regulation of the commissioner, the number of the
purchaser’s certificate of authority, together with such other information as the
commissioner 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 eleven hundred fifteen, and, where such resale or exemption
certificate requires the inclusion of the purchaser’s certificate of authority number or
other identification number required by regulations of the commissioner, that the
purchaser’s certificate of authority has not been suspended or revoked and has not
expired as provided in section eleven hundred thirty-four, or (ii) the purchaser, not
later than ninety days after delivery of the property or the rendition of the service,
furnishes to the vendor: any affidavit, statement or additional evidence, documentary
or otherwise, which the commissioner may require demonstrating that the purchaser
is an exempt organization described in section eleven hundred sixteen, the sale shall

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be deemed a taxable sale at retail . . . Where such a resale or exemption certificate
or such an affidavit, statement or additional evidence has been furnished to the
vendor, the burden of proving that the receipt . . . is not taxable hereunder shall be
solely upon the customer. The vendor shall not be required to collect tax from
purchasers who furnish a resale or exemption certificate, or such an affidavit,
statement or additional evidence in proper form, unless, in the case of a resale or
exemption certificate described in clause (i) of the second sentence of this paragraph
whereon the purchaser’s certificate of authority number, or other identification
number required by regulation of the commissioner, is required to be included, such
purchaser’s certificate of authority is invalid because it has been suspended or
revoked as provided in section eleven hundred thirty-four, and the commissioner has
furnished registered vendors with information identifying those persons whose
certificates of authority have been suspended or revoked, or unless such purchaser’s
certificate of authority is invalid because it has expired, and the commissioner has
provided registered vendors with a means of determining whether such expiration has
occurred. Where the vendor accepts such a resale or exemption certificate from a
person identified by the commissioner as one whose certificate of authority has been
suspended or revoked or from a person whose certificate of authority has been
identified as having expired, the receipt . . . from such transaction shall be deemed
to be a taxable sale at retail.
Section 526.6 of the Sales and Use Tax Regulations provides, in part:
(a) The term retail sale or sale at retail means the sale of tangible personal
property to any person for any purpose, except as specifically excluded.
(b) Special rule – sales specifically included as retail sales. (1) A sale of any
tangible personal property to a contractor, subcontractor or repairman for use or
consumption in erecting structures or buildings or adding to, altering, improving,
maintaining, servicing or repairing real property, property or land, is deemed to be
a retail sale, regardless of whether the tangible personal property is to be resold as
such before it is used or consumed. . . .
Section 532.4 of the Sales and Use Tax Regulations provides, in part:
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(b) Burden of proof. (1) The burden of proving that any receipt . . . is not
taxable shall be upon the person required to collect the tax and the customer.

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(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.
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(3) When a vendor has met the criteria in paragraph (2) of this subdivision,
it is protected from liability for failure to have collected tax from the purchaser and
the burden of proving the nontaxability of such transaction rests solely on the
purchaser.
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(5) A vendor is not relieved of the burden of proof when it failed to obtain an
exemption certificate or accepted an improper certificate, or had knowledge that the
exemption certificate issued by the purchaser was false or fraudulently presented.
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(d) Resale certificate. (1) A resale certificate is used to claim exemption from
tax on purchases of tangible personal property or services which will be resold or
transferred to a customer when the:
(i) tangible personal property is for resale as such or as a physical component
part of tangible personal property;
(ii) tangible personal property is for use in performing taxable services under
paragraph (1), (2), (3) or (5) of subdivision (c) of section 1105 of the Tax Law where
such property becomes a physical component part of the tangible personal property
upon which the services are performed or will be actually transferred to the purchaser
of the service in conjunction with the performance of the service; or

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(iii) service is for resale.
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(5) Contractors who are purchasing tangible personal property for use in
performing capital improvement work or repairs on real property are not permitted
to use a resale certificate. (Emphasis added)
Section 541.1(b) of the Sales and Use Tax Regulations provides, in part:
The principal distinguishing feature of a sale to a contractor, as compared to
a sale to other vendors who purchase tangible personal property for resale, is that the
sale of tangible personal property to a contractor for use or consumption in
construction is a retail sale and subject to sales and use tax, regardless of whether
tangible personal property is to be resold as such or incorporated into real property
as a capital improvement or repair. . . .
Opinion
Petitioner has presented three specific questions that actually relate to the general rules that
apply to her client’s acceptance of resale certificates in lieu of collecting sales tax from customers
who are purchasing home improvement materials and whose names contain the word “Contracting”
or “Contractor.” Petitioner’s concerns seem to center primarily on her client’s relief from tax
liability on transactions which may later prove to be non-exempt.
In accordance with Section 1101(b)(4)(i) of the Tax Law and Section 532.4(d)(5) of the Sales
and Use Tax Regulations, contractors are not authorized or permitted to issue Form ST-120, Resale
Certificate, for purchases of tangible personal property used in performing capital improvement work
or repairs to real property. Therefore, Petitioner’s client must collect sales tax on all of its sales of
materials and supplies made to contractors for these purposes and may not accept resale certificates
from contractors for such sales. See Andrew S. Hollander, CPA, Adv Op Comm T&F, December 4,
1997, TSB-A-97(78)S. However, a contractor may be a retailer, if it maintains a retail outlet. A
contractor who purchases tangible personal property that is to be resold through a retail outlet may
make purchases exempt from tax with a properly completed Form ST-120, Resale Certificate.
Petitioner’s client, as well as its customers, bears the burden of substantiating sales which
are not subject to sales tax. The customer must properly complete and timely submit an exemption
certificate to relieve Petitioner’s client of its liability to collect the tax. See Section 1132(c)(1) of
the Tax Law and Section 532.4(b) of the Sales and Use Tax Regulations. Therefore, if Petitioner’s
client, in good faith, timely accepts properly completed resale certificates from its customers,

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Petitioner’s client is relieved of its liability for failure to collect sales tax with respect to the
applicable sales, and the burden of proving that the sales are not taxable rests solely upon the
customers. Petitioner’s client is not relieved of this duty to collect tax if it has knowledge (i.e., more
than a mere suspicion or belief) that the resale certificates are false or fraudulent. See Costco
Wholesale Corporation and The Price Co., Inc., Adv Op Comm T&F, March 28, 1997,
TSB-A-97(20)S. Where Petitioner’s client accepts a resale certificate in good faith, it is under no
duty to investigate or police its customers or to debate the taxability of the sales with such customers.
See Matter of Saf-Tee Plumbing Corp. v. Tully, 77 AD2d 1; Matter of RAC Corp. v. Gallman, 39
AD2d 57. There is no provision in the Tax Law or the Sales and Use Tax Regulations that requires
Petitioner’s client to require further substantiation from its customer. Likewise, there is no statutory
requirement that Petitioner’s client accept a resale certificate if it does not wish to do so.
In conclusion, while a resale certificate that has the word “Contracting” or “Contractor” in
the customer’s name is not necessarily invalid and may be accepted in good faith, Petitioner’s client
will not be deemed to have accepted a resale certificate in good faith from a customer if it has
knowledge that the customer is a contractor who will use the materials and supplies purchased in
performing capital improvement work or repairs on real property. See Andrew S. Hollander, CPA,
supra. Whether Petitioner’s client has such knowledge is a fact 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. See Jeffrey J. Coren, CPA, Adv Op Comm
T&F, November 3, 1999, TSB-A-99(42)S; Costco Wholesale Corporation, supra.

DATED: January 10, 2001

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist III
Technical Services Division

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