Who is responsible for collecting and remitting New York sales tax when an insurance administrator sells extended service contracts on automobiles through credit unions and dealerships?

Plain-English summary

Old Republic Minnehoma Insurance Co. and Ordesco, Inc. are affiliated companies (an insurer and a contract administrator, respectively, owned by the same holding company) that planned to start selling extended service agreements on automobiles in New York through credit unions and dealerships. Under the planned arrangement, the actual service contract would be between Ordesco and the car buyer; when a credit union or dealership sold one, it would fold the contract's cost into the loan or invoice, collect payment from the customer, and forward the premium to Ordesco (which would keep a fee and pass the rest to Old Republic). By contract, the credit unions and dealerships — not Ordesco or Old Republic — were supposed to be responsible for collecting and remitting sales tax on these sales.

The Department confirmed that a maintenance or service contract like this is a taxable service under New York law. But it rejected the idea that the private contract terms alone could settle who's legally responsible to the state. Because the credit unions and dealerships were actually soliciting and closing these sales on Ordesco's behalf, they qualify as the company's agents/representatives under the vendor definition, making them "co-vendors" — meaning both the credit unions/dealerships AND Ordesco/Old Republic are, as a matter of law, jointly and severally liable to New York for collecting and remitting the tax, regardless of what their private agreement says about who's supposed to handle it. Practically, that means Old Republic and Ordesco would be on the hook to pay the tax themselves only if the credit unions or dealerships actually fail to properly report and remit it — but the private contractual assignment of that duty doesn't erase their own underlying legal exposure.

What this means for you

Insurance companies and administrators selling through third-party sellers

You can't contract your way out of joint sales tax liability just by having your dealer/credit-union network agree to handle collection. If they solicit and close sales on your behalf in New York, you and they are co-vendors under New York law, and you remain on the hook if they don't properly collect and remit — no matter what your private agreement says about who's responsible.

Credit unions and dealerships selling extended service contracts

Selling one of these contracts on behalf of an outside administrator makes you a vendor in your own right for New York sales tax purposes, with your own registration and collection obligations under Article 28 — separate from (and in addition to) whatever the administrator's own registration status is.

Accountants and tax professionals

The key doctrinal point is that Tax Law § 1101(b)(8)(ii)(A) lets the Department treat a soliciting agent as a co-vendor jointly liable with its principal — a private risk-allocation clause assigning collection duty to the retail-level seller doesn't override that joint statutory liability, it only affects who actually ends up remitting first.

Common questions

Q: Who is legally responsible for collecting sales tax on these extended service contracts?
A: Both the credit union or dealership selling the contract and the insurance administrator/insurer behind it are jointly and severally liable as co-vendors, regardless of their private contract's allocation of that duty.

Q: Does the administrator have to remit tax to New York even if its contract says the dealership will handle it?
A: Only if the dealership or credit union fails to properly report and remit the tax — otherwise the administrator doesn't need to separately remit that same tax to the state.

Q: Are extended service/maintenance contracts on vehicles taxable in New York?
A: Yes, the sale of a maintenance or service contract is a taxable transaction under Tax Law § 1105(c)(3).

Q: Do the credit unions and dealerships need their own sales tax registration?
A: Yes — as co-vendors soliciting sales on the administrator's behalf, they're required to register under Tax Law § 1134.

Q: Can another insurer or administrator selling through third parties rely on this exact allocation of liability?
A: No. This opinion binds the Department only as to this petitioner's specific facts and can't be relied on by any other taxpayer.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(3), (5), (8) (receipt; sale/purchase; vendor, incl. co-vendor agent rule)
• Tax Law § 1105(c)(3) (maintenance/service contracts)
• Tax Law § 1131(1), § 1132(a)(1), § 1134 (persons required to collect tax; time of collection; registration)
• 20 NYCRR § 525.2(a)(2) (transactions tax)
• 20 NYCRR § 526.10 (vendor)
• 20 NYCRR § 527.5(c) (maintenance/service contracts taxable)
• 20 NYCRR § 532.1(a) (time of collection)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2002.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a02_16s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-02(16)S
Sales Tax
June 25, 2002

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S001002A

On October 2, 2000, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Old Republic Minnehoma Insurance Co. and Ordesco, Inc., 7050 S. Yale
Ave., Suite 400, Tulsa, OK 74136. Petitioners, Old Republic Minnehoma Insurance Co. and
Ordesco, Inc., furnished additional information with respect to the Petition on January 2, 2001.
The issue raised by Petitioners is who would be responsible for the collection and remittance
of sales tax on the sale of extended service agreements on automobiles by credit unions and
dealerships located in New York.
Petitioners submit the following facts as the basis for this Advisory Opinion.
Old Republic Minnehoma Insurance Co. (“ Old Republic”) is an insurance company.
Ordesco, Inc. (“Ordesco”) is an administrator. Petitioners are affiliates owned by the same holding
company. Petitioners do not currently sell extended service contracts in New York. It is anticipated
that when Petitioners do sell extended service contracts in New York, Petitioners would contract
with credit unions and dealerships to sell such contracts.
The service contracts sold by the credit unions and dealerships would be between Ordesco
and the customer purchasing the automobile. When a credit union sells a service contract, the cost
of the service contract would be added to the loan amount of the member purchasing the automobile.
When a dealership sells a service contract, the cost of the service contract would be added to the
invoice of the buyer purchasing the automobile. The credit union or dealership would send the
premium for the extended service contract to Ordesco. Ordesco would withhold a fee and remit the
premium to Old Republic. Under the terms of the contract entered into between Petitioners and the
credit unions and dealerships, the credit unions and dealerships would be responsible for the
collection and remittance of sales tax on the sale of the agreements.
In addition, Ordesco has hired an agent to provide services and training to the credit unions
and dealerships. The agent will not collect a premium, but will be paid a fee by Ordesco.
Applicable Law and Regulations
Section 1101(b) of the Tax Law provides, in part:
When used in this article for the purposes of the taxes imposed by
subdivisions (a), (b), (c) and (d) of section eleven hundred five and by section eleven
hundred ten, the following terms shall mean:

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June 25, 2002

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(3) Receipt. The amount of the sale price of any property and the charge for
any service taxable under this article . . . valued in money, whether received in
money or otherwise, including any amount for which credit is allowed by the vendor
to the purchaser, without any deduction for expenses or early payment discounts and
also including any charges by the vendor to the purchaser for shipping or delivery
. . . regardless of whether such charges are separately stated in the written contract,
if any, or on the bill rendered to such purchaser and regardless of whether such
shipping or delivery . . . is provided by such vendor or a third party. . . .
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(5) Sale, selling or purchase. Any transfer of title or possession or both,
exchange or barter, rental, lease or license to use or consume (including, with respect
to computer software, merely the right to reproduce), conditional or otherwise, in any
manner or by any means whatsoever for a consideration, or any agreement therefor,
including the rendering of any service, taxable under this article, for a consideration
or any agreement therefor.
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(8) Vendor. (i) The term "vendor" includes:
(A) A person making sales of tangible personal property or services, the
receipts from which are taxed by this article;
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(C) A person who solicits business either:
(I) by employees, independent contractors, agents or other representatives;
. . . and by reason thereof makes sales to persons within the state of tangible
personal property or services, the use of which is taxed by this article. . . .
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(ii)(A) In addition, when in the opinion of the commissioner it is necessary
for the efficient administration of this article to treat any salesman, representative,
peddler or canvasser as the agent of the vendor, distributor, supervisor or employer
under whom he operates or from whom he obtains tangible personal property sold

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by him, or for whom he solicits business, the commissioner may, in his discretion,
treat such agent as the vendor jointly responsible with his principal, distributor,
supervisor or employer for the collection and payment over of the tax. An
unaffiliated person providing fulfillment services to a purchaser shall not be treated
as a vendor by the commissioner under this paragraph with respect to such
activity. . . .
Section 1105(c) of the Tax Law imposes sales tax, in part, upon:
The receipts from every sale, except for resale, of the following services:
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(3) Installing tangible personal property . . . or maintaining, servicing or
repairing tangible personal property . . . not held for sale in the regular course of
business. . . .
Section 1131(1) of the Tax Law provides, in part:
"Persons required to collect tax" or "person required to collect any tax
imposed by this article" shall include: every vendor of tangible personal property or
services; every recipient of amusement charges; and every operator of a hotel. . . .
Section 1132(a)(1) of the Tax Law provides, in part:
Every person required to collect the tax shall collect the tax from the
customer when collecting the price, amusement charge or rent to which it applies. . . .
Section 525.2(a)(2) of the Sales and Use Tax Regulations provides, in part:
Except as specifically provided otherwise, the sales tax is a "transactions
tax," with the liability for the tax occurring at the time of the transaction. Generally,
a taxed transaction is an act resulting in the receipt of consideration for the transfer
of title to or possession of (or both) tangible personal property or for the rendition
of an enumerated service. The time or method of payment is generally immaterial,
since the tax becomes due at the time of transfer of title to or possession of (or both)
the property or the rendition of such service. . . .
Section 526.10 of the Sales and Use Tax Regulations provides, in part:
Vendor. (a) Persons included. (1) (i) A person making sales of tangible
personal property the receipts from which are subject to tax is a vendor.

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(3) A person who solicits business by employees, independent contractors,
agents or other representatives and by reason thereof makes sales to persons within
the State of tangible personal property or services, the use of which is subject to tax,
is a vendor.
Section 527.5(c) of the Sales and Use Tax Regulations provides, in part:
Maintenance and service contracts. (1) The purchase of a maintenance or
service contract is a taxable transaction.
Section 532.1(a) of the Sales and Use Tax Regulations provides, in part:
Time of collection. (1) Every person required to collect the tax shall collect
the tax from the customer when collecting the price, amusement charge or rent to
which it applies.
Opinion
In this case, Petitioners propose to sell extended service contracts in New York State
through credit unions and dealerships located within the State. The service contract sold by the
credit unions and dealerships would be between Ordesco and the customer purchasing the
automobile. When a credit union sells a service contract, the cost of the service contract would be
added to the loan amount of the member purchasing the automobile. When a dealership sells a
service contract, the cost of the service contract would be added to the invoice of the buyer
purchasing the automobile. The credit unions and dealerships would send the premium for the
extended service agreement to Ordesco. Ordesco would withhold a fee and remit the premium to
Old Republic. Based on the facts of this Petition, the credit unions and dealerships would be deemed
to be co-vendors of Petitioners when selling extended service contracts and would be required to
register pursuant to Section 1134 of the Tax Law. See Section 1101(b)(8)(ii)(A) of the Tax Law.
Pursuant to Section 1105(c)(3) of the Tax Law and Section 527.5(c) of the Sales and Use Tax
Regulations, the sale of a maintenance or service contract is a transaction subject to State and local
sales and use taxes. In accordance with Sections 525.2(a) and 532.1(a) of the Sales and Use Tax
Regulations, the sales tax is a transaction tax, with the liability for the tax occurring at the time of
the transaction. Petitioners, along with the credit unions and dealerships acting as co-vendors,
would be considered vendors as the term is defined in Section 1101(b)(8) of the Tax Law and
Section 526.10 of the Sales and Use Tax Regulations. Pursuant to Section 1131(1) of the Tax Law,
“persons required to collect tax” or a "person required to collect any tax imposed by this article"
shall include every vendor of tangible personal property or services. Therefore, both Petitioners
and the credit unions and dealerships would be jointly responsible and liable for the collection and

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remittance of the sales tax collected on the extended service contracts. Petitioners would be liable
for any sales tax due on the sales of such service contracts if the credit unions or dealerships failed
to properly report and remit the tax due on such sales. Petitioners, however, would not be required
to remit tax on these sales to the New York State Department of Taxation and Finance if the credit
unions and dealerships report and remit the tax due in compliance with Article 28 of the Tax Law.

DATED: June 25, 2002

NOTE:

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

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