Are a tailor's sales of uniforms to postal employees using a USPS uniform allowance exempt as sales to a federal agency, or must the tailor collect sales tax?

Plain-English summary

Morrell's Tailors and Furriers sells uniforms to U.S. Postal Service employees who have a uniform allowance. In the arrangement, an employee brings a Postal Service Uniform Allowance Statement and ID (Form PS 1961), arranges the purchase with Morrell's, and takes ownership of the uniform. Morrell's issues the invoice in the employee's name and sends it to the Postal Service, which pays Morrell's directly from the employee's allowance account. The Postal Service does not place purchase orders or enter formal sales agreements with Morrell's (though it certifies certain vendors as sellers of approved uniforms). Morrell's asked whether these sales are taxable.

The Department held they are taxable — the federal exemption doesn't reach them.

• These are retail sales of tangible personal property. Selling uniforms is a taxable retail sale under § 1105(a) unless an exemption applies.
• The § 1116(a)(2) government exemption has three conditions. To qualify for the exemption for sales to the United States and its agencies, per TSB-M-78(14)S, all three must be met: (1) the government entity places the purchase order or contract with the vendor; (2) the billing is in the government entity's name; and (3) the government entity makes payment.
• The first condition fails here. The employee, not the Postal Service, arranges (places) the purchase, and the invoice is in the employee's name. Direct payment by the Postal Service from the employee's allowance account doesn't cure the missing purchase order and government-name billing.
• Result: Morrell's must collect tax on the uniform sales to Postal Service employees.

What this means for you

Government payment alone doesn't make a sale exempt. The exemption for sales to the United States or its agencies isn't triggered just because a government entity ends up footing the bill. All three conditions — government purchase order, government-name billing, and government payment — have to be satisfied. Miss one and the sale is taxable.

Watch who the real purchaser is. When an employee picks out the goods, takes ownership, and the invoice is in the employee's name, the sale is to the employee — even if a government allowance funds it. The customer of record, not the source of the money, drives the exemption analysis.

Document the exemption properly or charge tax. If you sell to government buyers, make sure the agency places the order, the invoice is in the agency's name, and the agency pays. Without that paper trail (and appropriate exemption documentation), collect the tax; the vendor is liable if the exemption doesn't actually apply.

Common questions

Q: The Postal Service pays me directly — why is the sale taxable?
A: Because the § 1116(a)(2) exemption requires more than government payment. The agency must also place the purchase order and be billed in its own name. Here the employee placed the order and the invoice was in the employee's name, so the exemption doesn't apply.

Q: What are the three conditions for the government-purchase exemption?
A: Per TSB-M-78(14)S: (1) the government entity places the purchase order or contract; (2) the billing is in the government entity's name; and (3) the government entity makes payment. All three are required.

Q: Does being a certified/approved vendor make my sales exempt?
A: No. The Postal Service certifying vendors as sellers of approved uniforms doesn't satisfy the three conditions. You still must collect tax on sales that don't meet all of them.

Citations and references

Statutes, regulations and authority:

• Tax Law § 1105(a) — tax on retail sales of tangible personal property
• Tax Law § 1116(a)(2) — exemption for the United States, its agencies and instrumentalities
• TSB-M-78(14)S — the three conditions for the government-purchase exemption (purchase order, billing, and payment by the government entity)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a81_19s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-81 (19) S
Sales Tax
September 10, 1981

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

PETITION NO. S810410C

On April 10, 1981, a Petition for Advisory Opinion was received from Morrell's Tailors and
Furriers, 303 College Avenue, Elmira, New York 14901.
The issue raised is whether sales tax is due on receipts from the sale of uniforms purchased
by United States Postal Service employees.
Upon receiving a U.S. Postal Service Employee Uniform Allowance Statement and
Employee Identification (Form PS 1961), a Postal Service employee arranges with Petitioner for the
purchase of a uniform. The uniform which becomes the property of the employee is delivered to the
employee in the manner arranged by him and Petitioner. Petitioner issues a sales invoice in the name
of the employee and sends it to the U.S. Postal Service, which pays Petitioner directly for the
purchase in behalf of the employee from the employee's allowance account. The U.S. Postal Service
does not place purchase orders with Petitioner in these transactions, nor does the U.S. Postal Service
enter into formal sales agreements with Petitioner, although it certifies certain vendors as sellers of
approved uniforms.
Section 1105(a) of the Tax Law imposes a tax on "The receipts from every retail sale of
tangible personal property, except as otherwise provided in this article."
Section 1116(a)(2) of the Tax Law provides for an exemption from such tax with respect to
purchases by "The United States of America, and any of its agencies and instrumentalities . . . . "
Petitioner's sales of uniforms constitute retail sales of tangible personal property. Receipts
from these sales are therefore subject to tax under section 1105(a) of the Tax Law, unless they
qualify for the exemption provided for under section 1116(a)(2) of the Tax Law. For a sale to qualify
for the exemption contained in Section 1116(a)(2) of the Tax Law, a purchase order or contract must
be placed with the vendor by the governmental entity, the billing must be prepared in the name of
the governmental entity and payment must be made by the governmental entity. (See Technical
Services Memorandum TSB-M-78(14)S). Inasmuch as the first of these three conditions is not met
in the present instance, the exemption in question is not applicable and Petitioner must collect tax
on sales of uniforms to employees of the U.S. Postal Service.

DATED: August 25, 1981

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR