Can a cable manufacturer treat the scrap value of a customer's used cable as a tax-reducing 'trade-in' credit against the price of new cable, where the used cable is shipped straight to a third-party scrap dealer instead of back to the manufacturer?

Plain-English summary

BICCGeneral Cable Industries manufactures and sells wire and cable, and Con Edison is one of its customers. Under a proposed arrangement, Con Edison would send its used cable directly to a scrap dealer that also happens to be BICCGeneral's customer, and the scrap dealer would pay BICCGeneral for the copper value of that used cable. BICCGeneral would then credit Con Edison — minus a processing fee — against the price of new cable Con Edison buys, either by applying the credit to outstanding invoices or building it into future invoices (which could even zero out an invoice or leave a balance due).

New York's sales tax base ("receipt") excludes credit given for tangible personal property a vendor accepts in part payment when the vendor intends to resell that property. The twist here is that the used cable never physically passes back through BICCGeneral's hands — it goes straight to the scrap dealer. The Department held that doesn't automatically disqualify the arrangement from trade-in treatment: what matters is the legal substance, not the physical shipping route. If the agreement between Con Edison and BICCGeneral actually provides that Con Edison is selling the used cable to BICCGeneral (so BICCGeneral is the one "accepting" it in part payment, intended for resale), and Con Edison ships it to the scrap dealer only because BICCGeneral directs it to, then BICCGeneral's credit to Con Edison is a genuine trade-in allowance that reduces the taxable receipt on the new cable. If instead Con Edison is really just selling the scrap directly to the dealer on its own account, the credit wouldn't qualify.

What this means for you

Manufacturers offering trade-in or scrap-buyback credits

A trade-in credit doesn't have to involve the traded-in property physically changing hands back to you — it can be excluded from your taxable receipt even when a third party takes physical delivery, as long as your contract terms make clear that you (the seller of new goods) are the one buying the traded-in property for resale, and the customer ships it to the third party at your direction rather than selling it to that third party independently.

Businesses structuring three-way scrap or trade-in arrangements

Get the paper trail right: the agreement needs to show the customer selling the used property to you, not directly to whichever third party physically receives it. Ambiguous or informal arrangements risk losing the trade-in exclusion even if the economics are identical.

Accountants and tax professionals

This turns on Tax Law § 1101(b)(3) and 20 NYCRR § 526.5(f)'s "accepted in part payment ... intended for resale" language — the Department read that as a substance-over-form legal test about who is buying and reselling the property, not a requirement of physical possession by the vendor. The Department's opinion is conditional ("if the agreement ... provides that Con Edison is selling the used cable to Petitioner"), so the taxpayer still needs its contract to actually say so.

Common questions

Q: Does a trade-in credit require the used property to physically come back to the seller?
A: No. It can be excluded from the taxable receipt even if a third party takes physical delivery, as long as the seller of the new goods is legally buying the used property for resale and directs where it's shipped.

Q: What has to be true for BICCGeneral's credit to Con Edison to reduce taxable receipts?
A: The agreement must provide that Con Edison is selling the used cable to BICCGeneral (intended for resale), and Con Edison must ship it to the scrap dealer at BICCGeneral's direction — not sell it directly to the dealer itself.

Q: What if Con Edison just sells the scrap cable to the dealer on its own?
A: Then BICCGeneral isn't "accepting" the cable in part payment for resale, and the credit against Con Edison's invoices wouldn't qualify as a tax-reducing trade-in.

Q: Can any manufacturer use this exact three-party scrap-credit structure?
A: This opinion only binds the Department for BICCGeneral's specific facts; another taxpayer would need its own ruling or should structure its agreement carefully to match the conditions described here.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(3) (definition of receipt; trade-in exclusion)
• 20 NYCRR § 526.5(f) (trade-in allowance)

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_24s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-02(24)S
Sales Tax
July 11, 2002

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S000727C

On July 27, 2000, the Department of Taxation and Finance received a Petition for Advisory
Opinion from BICCGeneral Cable Industries, Inc., 4 Tesseneer Drive, Highland Heights,
KY 41076-9753.
The issue raised by Petitioner, BICCGeneral Cable Industries, Inc., is whether the following
transaction qualifies as a “trade-in” and would, therefore, result in a reduction of the amount of the
receipt subject to sales tax.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner is a manufacturer and distributor of wire and cable products. Con Edison is one
of Petitioner’s customers for cable products. Con Edison will be providing Petitioner with used
cable, and Con Edison will send the used cable directly to Petitioner’s customer, a scrap dealer. The
scrap dealer will pay Petitioner for the value of the copper derived from the used cable. Petitioner
will then credit Con Edison an amount equal to the copper value derived from the used cable, minus
a processing fee, against the purchase price of new cable from Petitioner. Petitioner will let Con
Edison know how much credit it has accumulated with Petitioner for used cable at certain time
intervals, probably monthly. Con Edison will be banking the value of the used cable with Petitioner
and Petitioner will either let Con Edison offset that amount against already outstanding invoices or
future invoices of Con Edison’s choosing, or Petitioner will invoice Con Edison for new cable and
allow a credit for the value of the used cable on the same invoice. The invoice could be a zero
amount or Petitioner could credit Con Edison for less than the value of the new cable, thus creating
a balance due on the invoice.
Applicable Law & Regulations
Section 1101(b)(3) of the Tax Law provides, in part:
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 . . . without any deduction for expenses or early payment discounts and
also including any charges by the vendor to the purchaser for shipping or delivery
. . . but excluding any credit for tangible personal property accepted in part payment
and intended for resale. . . .
Section 526.5(f) of the Sales and Use Tax regulations provides:

-2­
TSB-A-02(24)S
Sales Tax
July 11, 2002

Trade-in. Any allowance or credit for any tangible personal property
accepted in part payment by a vendor on the purchase of tangible personal property
or services and intended for resale by such vendor shall be excluded when arriving
at the receipt subject to tax. Only the net sale price of tangible personal property or
the charge for services would be subject to tax.
Opinion
Petitioner is in the business of selling new cable. Con Edison is one of its customers. Con
Edison will provide Petitioner with used cable. Con Edison will send the used cable directly to
Petitioner’s customer, a scrap dealer, for processing. The scrap dealer will pay Petitioner for the
used cable. Petitioner will credit the amount it receives from the scrap dealer against the amounts
due from Con Edison on Con Edison’s outstanding invoices or against current or future invoices.
Section 1101(b)(3) of the Tax Law excludes from a vendor’s receipts the value, in money,
of tangible personal property accepted in part payment and intended for resale. In this case,
Petitioner will receive money from the scrap dealer for used cable provided by Con Edison to
Petitioner, and Petitioner will credit these amounts to the balance due from Con Edison on its
purchases of new cable from Petitioner on an ongoing basis. Petitioner, when it bills Con Edison
for its purchases of new cable, will apply the amount of credit accumulated by Con Edison against
the purchase price of the new cable. Consequently, if the agreement between Con Edison and
Petitioner provides that Con Edison is selling the used cable to Petitioner, and if Con Edison sends
the used cable to the scrap dealer at the direction of Petitioner, then Petitioner will be considered to
be accepting tangible personal property from Con Edison as “part payment and intended for resale.”
In that case, Petitioner’s taxable receipts from the sale of the new cable to Con Edison may be
reduced by the amount of such credits.

DATED: July 11, 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.