If a motor-vehicle leasing company uses a Qualified Intermediary to structure its vehicle sales as an IRC Section 1031 like-kind exchange, does the Qualified Intermediary have to register as a New York sales tax vendor?

Plain-English summary

Ford Motor Credit Company (operating under the PRIMUS and Jaguar Credit brand names) leases vehicles and wanted to use a like-kind exchange structure under IRC Section 1031 so it wouldn't recognize federal income on the sale of vehicles coming off lease, as long as it reinvested the proceeds in replacement vehicles. To make that federal tax structure work, Ford Motor Credit had to route the sale proceeds of the old ("Relinquished") vehicle and the purchase of the new ("Replacement") vehicle through a Qualified Intermediary, which held the money in escrow between the two transactions.

New York asked a narrower sales tax question: does routing money through this Qualified Intermediary turn the intermediary itself into a "vendor" that has to register and collect New York sales tax? The Department said no. The Qualified Intermediary never takes title to or possession of any vehicle — it just receives, holds, and pays out the escrowed funds. Ford Motor Credit still executes and delivers title directly to the buyer of the old vehicle, and the seller of the new vehicle delivers title directly to Ford Motor Credit. Because a "vendor" under New York law is a person making sales of tangible personal property, and the intermediary never sells or transfers anything, it falls outside that definition entirely. Ford Motor Credit — already registered under Article 28 — remains the vendor on both ends of the transaction and is the one responsible for collecting and remitting tax (or obtaining a resale certificate when it buys vehicles for leasing).

What this means for you

Leasing companies using 1031 exchange programs

If you restructure your lease-end vehicle dispositions and replacements through a Qualified Intermediary to get IRC Section 1031 treatment, that doesn't shift your New York sales tax vendor responsibilities onto the intermediary. You (the lessor) remain the vendor and must still collect and remit sales tax on sales to purchasers who don't give you a valid resale certificate, and you must furnish your own resale certificate when you buy replacement vehicles intended solely for leasing.

Qualified Intermediaries and 1031 exchange facilitators

Merely holding and disbursing escrowed sale proceeds — without ever taking title to or possession of the property being exchanged — does not make you a "vendor" required to register for New York sales tax. But watch the flip side noted below: if the funds you receive happen to include sales tax money, you can still end up personally liable for it.

Accountants and tax professionals

The opinion turns on the classic "who has title or possession" test in Tax Law § 1101(b)(8) and 20 NYCRR § 526.7, and follows the Department's own prior ruling on the same Qualified Intermediary structure, TSB-A-00(49)S. Note the joint-and-several-liability wrinkle at the end: even though the Qualified Intermediary isn't a vendor, if it ends up holding sales tax money as part of the escrowed funds, both the intermediary and the lessor become jointly and severally liable for that tax (citing TSB-A-00(13)S).

Common questions

Q: Does a Qualified Intermediary in a 1031 vehicle exchange need to register as a New York sales tax vendor?
A: No. It doesn't take title to or possession of any vehicle — it only manages the escrowed funds — so it isn't a "vendor" and has no registration or collection duty.

Q: Who is responsible for collecting and remitting sales tax in this structure?
A: The leasing company (already registered under Article 28), the same as in a conventional, non-1031 vehicle sale.

Q: Can the Qualified Intermediary ever become liable for sales tax anyway?
A: Yes — if the funds it receives include amounts meant to cover New York sales tax, both the intermediary and the lessor become jointly and severally liable for those tax dollars, even though the intermediary never had to register.

Q: Does this ruling apply to my company's exchange program?
A: Not automatically. This advisory opinion binds the Department only for the petitioner and the exact facts described, and can't be relied on by any other taxpayer.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4), (5) (retail sale; sale, selling or purchase)
• Tax Law § 1101(b)(8)(i)(A) (definition of vendor)
• Tax Law § 1105(a) (imposition on retail sales)
• Tax Law § 1131(1), § 1132(a)(1), § 1133(a) (persons required to collect tax; trustee status; personal liability)
• 20 NYCRR § 526.7 (sale, rental, lease, license to use)

Prior opinions cited:

• TSB-A-00(49)S, PricewaterhouseCoopers LLP, Nov. 20, 2000
• TSB-A-00(13)S, E. Parker Brown, II, Feb. 29, 2000

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_20s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-02(20)S
Sales Tax
June 26, 2002

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S011019B

On October 19, 2001, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Ford Motor Credit Company. Petitioner, Ford Motor Credit Company,
provided additional information pertaining to the Petition on November 2, 2001.
The issue raised by Petitioner is whether the activities of a Qualified Intermediary, as
described below, require it to register as a vendor for sales and use tax purposes.
Petitioner submitted the following facts as the basis for this Advisory Opinion. Petitioner
also submitted a copy of its Master Exchange Agreement with the Qualified Intermediary as part of
its Petition.
The Internal Revenue Service has ruled that multiparty exchanges of rental property through
the use of a qualified intermediary (hereinafter referred to as “Qualified Intermediary”) and/or a
qualified escrow account (hereinafter referred to as “Qualified Escrow Account”) can qualify under
Internal Revenue Code (hereinafter referred to as “IRC”) Section 1031 as tax-free like-kind
exchanges, for federal income tax purposes. The transactions at issue in this Petition concern the
manner in which a motor vehicle is purchased, leased and sold in order for those transactions to meet
the requirements of IRC Section 1031. While Petitioner describes below the course of action to be
followed in order to comply with the requirements of IRC Section 1031, this opinion does not
address any income tax provisions of the Internal Revenue Code.
During the course of a motor vehicle leasing transaction, events can be segmented into three
categories; the acquisition of the property by the lessor, the leasing of the property, and finally the
disposition of the property by the lessor at the conclusion of the lease term or terms. In a typical
scenario (not an IRC Section 1031 transaction), when a lease purchase option is exercised the lessor
sells the motor vehicle and collects the purchase price paid from the lessee. Or, if the motor vehicle
is sold to a dealer or other reseller, the lessor obtains a resale certificate from the dealer and collects
the purchase price paid from the dealer. In either case, title to the motor vehicle is then transferred
from the lessor to the purchaser. Typically, when a lessor purchases a motor vehicle from a seller
for purposes of leasing to an individual, the lessor supplies a valid resale certificate to the seller,
makes payment for the vehicle and receives title to the motor vehicle.
Petitioner is a lessor of motor vehicles and is registered under Article 28 of the New York
Tax Law. Petitioner operates several leasing divisions, operating under the trade names PRIMUS
Automotive Financial Services (“PRIMUS”) and Jaguar Credit. Petitioner has developed a deferred
like-kind exchange program under IRC Section 1031. Petitioner’s program encompasses
acquisitions and dispositions of vehicles subject to lease under its Red Carpet Lease Plan,

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PRIMUS-branded and private label lease programs, with the exception of “totaled”vehicles (i.e.,
vehicles involved in an accident). For purposes of making the transactions described above meet
the requirements of IRC Section 1031, Petitioner has entered into the Master Exchange Agreement
with QI Exchange, LLC, a Qualified Intermediary. At the conclusion of the lease term, Petitioner
wants to sell the motor vehicle (“Relinquished Property”) and purchase another motor vehicle of the
same kind (“Replacement Property”) for leasing purposes. Either the lessee will exercise an option
to purchase the Relinquished Property or, when a lessee declines to exercise such an option, the
motor vehicle will typically be sold by Petitioner to a third party, such as a dealer. In the Master
Exchange Agreement between Petitioner and the Qualified Intermediary, Petitioner assigns to the
Qualified Intermediary its rights (but not its obligations) with respect to the sale of the Relinquished
Property. For purposes of determining the sales tax responsibilities of the Qualified Intermediary
in this Advisory Opinion, the phrase “assigns to the Qualified Intermediary its rights (but not its
obligations)” means that Petitioner assigns to the Qualified Intermediary its rights to receive
payments under its agreement with the purchaser. Petitioner will execute and deliver title to the
motor vehicle to the purchaser, and the motor vehicle is delivered directly by Petitioner to the
purchaser. The purchaser will remit its payment to the Qualified Intermediary for deposit in a
Qualified Escrow Account (“Account”).
Petitioner then identifies Replacement Property (another motor vehicle) it wishes to purchase
from a seller. Petitioner enters into an agreement with the seller to purchase the motor vehicle.
Petitioner directs the Qualified Intermediary to pay the seller from the funds in the Account. The
seller executes and delivers title to the motor vehicle to Petitioner and the motor vehicle is delivered
directly by the seller to Petitioner. The subsequent lease of the motor vehicle will remain
unchanged, and Petitioner will collect and remit sales tax on the lease transaction receipts.
The Qualified Intermediary’s involvement is primarily limited to the receipt, management
and subsequent distribution of funds in the Account. The Qualified Intermediary does not obtain
title to, or possession of, the motor vehicle in the transactions described above. The role of the
Qualified Intermediary is to provide a necessary service to Petitioner which enables Petitioner to
obtain the IRC Section 1031 like-kind exchange treatment. The Qualified Intermediary receives a
commission for the performance of this service.
Applicable Law and Regulations
Section 1105(a) of the Tax Law imposes a tax on the “receipts from every retail sale of
tangible personal property. . . .”
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 26, 2002

*

*

*

(4) Retail sale. (i) A sale of tangible personal property to any person for any
purpose, other than (A) for resale as such. . . .
(5) Sale, selling or purchase. Any transfer of title or possession or both,
exchange or barter, rental, lease or license to use or consume . . . 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.
*

*

*

(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. . . .
Section 1131(1) of the Tax Law defines “[p]ersons required to collect tax,” in part, as “every
vendor of tangible personal property or services. . . .”
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 . . .
The tax shall be paid to the person required to collect it as trustee for and on account
of the state.
Section 1133(a) of the Tax Law provides, in part:
Except as otherwise provided in section eleven hundred thirty-seven, every
person required to collect any tax imposed by this article shall be personally liable
for the tax imposed, collected or required to be collected under this article. . . .
Section 526.7 of the Sales and Use Tax Regulations provides, in part:
(a) Definition. (1) The words sale, selling or purchase mean any transaction
in which there is a transfer of title or possession, or both, of tangible personal
property for a consideration. (Emphasis added)

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(2) Among the transactions included in the words sale, selling or purchase
are exchanges, barters, rentals, leases or licenses to use or consume tangible personal
property.
*

*

*

(c) Rentals, leases, licenses to use. (1) The terms rental, lease and license
to use refer to all transactions in which there is a transfer for a consideration of
possession of tangible personal property without a transfer of title to the property. . . .
(2) Where a lease (other than one described in section 527.15 of this Title)
with an option to purchase has been entered into, and the option is exercised, the tax
will be payable on the consideration given when the option is exercised, in addition
to the taxes paid or payable on each lease payment.
Opinion
Section 1131(1) of the Tax Law provides that the term “person required to collect any tax
imposed by this article” includes every vendor of tangible personal property. Section
1101(b)(8)(i)(A) of the Tax Law provides that the term “vendor” includes “[a] person making sales
of tangible personal property or services, the receipts from which are taxed by this article.” In the
transactions described by Petitioner, the Qualified Intermediary manages the payment of the
purchase price in an escrow account pending the completion of the transactions. The Qualified
Intermediary does not take title to any of the motor vehicles or receive possession of any of the
vehicles, and does not transfer title or possession to the purchasers. Rather, it merely provides
services that facilitate the sales.
Therefore, the Qualified Intermediary is not a vendor in the transactions described by
Petitioner. See PricewaterhouseCoopers LLP, Adv Op Comm T&F, November 20, 2000,
TSB-A-00(49)S. Accordingly, the Qualified Intermediary is not required to register to collect sales
tax in the transactions described by Petitioner. Petitioner in these transactions is the vendor and it
is registered under Article 28 of the Tax Law. Petitioner is the party responsible to collect and remit
New York State and local sales tax from the purchaser unless it obtains a properly completed
exemption certificate, such as Form ST-120, Resale Certificate, within 90 days of the date of
delivery. If Petitioner purchases motor vehicles exclusively for leasing (resale), it, rather than the
Qualified Intermediary, should furnish a properly completed Resale Certificate to the person from
whom it purchases the motor vehicles. PricewaterhouseCoopers LLP, supra.
It is noted that although the Qualified Intermediary in the transactions at issue does not have
the responsibility of a vendor to collect sales taxes, if amounts received by the Qualified
Intermediary contain payment for New York State sales tax, both the Qualified Intermediary and

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Petitioner become jointly and severally liable for the taxes collected (see E. Parker Brown, II, Adv
Op Comm T&F, February 29, 2000, TSB-A-00(13)S; PricewaterhouseCoopers LLP, supra).

DATED: June 26, 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.