How does a hardware store know when a sale to a farmer is tax-exempt, and are cash-register totals enough recordkeeping for exempt sales?

Plain-English summary

P. Hackett Hardware Company, Inc., runs a hardware store that sells to farmers. It asked two questions: (1) how it can tell when a sale to a farmer is exempt, and (2) whether it must keep a written itemized invoice for each exempt sale, or whether check-out terminal printed totals are enough.

On the farm exemption (Issue I): sales are exempt only on a proper Farmer's Exemption Certificate, and several common items stay taxable.

• The exemption. Section § 1115(a)(6) exempts tangible personal property used directly and predominantly in the production for sale of farm goods (stock, dairy, poultry, fruit, and the like) — but not property incorporated in a building or structure.
• How the store claims it. Under § 1132(c) and 20 NYCRR § 532.4, all receipts are presumed taxable and the burden of proof is on the vendor or customer. The store may sell without tax on receipt of a properly completed Farmer's Exemption Certificate (Form ST-125) (20 NYCRR § 528.7(c)) — except where the store has actual knowledge the certificate is false. Such knowledge is presumed if the store accepts the certificate on an item the certificate's reverse lists as taxable regardless of use (e.g., a power drill); no such presumption arises for an item like ice, which can be exempt or taxable depending on use.
• The store's specific items:
  • Chain saws for cutting fence posts — taxable (not used "directly" in farm production; 20 NYCRR § 528.7(d)(1)).
  • Garden tools (rakes, shovels, hoses) and garden tractors — exempt only if used in producing farm goods for sale; the store may rely on a Farmer's Exemption Certificate.
  • Plumbing and paint for barns — taxable; explicitly excluded from § 1115(a)(6) as "property incorporated in a building or structure."
  • Equipment-repair service — taxable at the time (no exemption then), but § 1105(c)(3)(vi) exempts repair of farm-production property effective September 1, 1982.

On recordkeeping (Issue II): register department totals alone are not adequate.

• The requirement. Section § 1135 (and 20 NYCRR § 532.1(b), as elaborated in TSB-M-81(9)S) requires records of every sale, the amounts charged, and the tax due — with enough detail to independently determine each sale's taxable status.
• Why totals fail. Cash-register tapes that identify each item, price, and tax are adequate; tapes that show only taxable-vs-exempt totals (or only department totals) are not. The store's check-out terminal printed totals do not, by themselves, satisfy § 1135 — its records must identify the items sold and the tax due and collected, and exemption certificates must be associated with the sales they cover.

What this means for you

"For a farmer" isn't automatically exempt. The § 1115(a)(6) exemption is for property used directly and predominantly in producing farm goods for sale — not everything a farmer buys. Building materials (barn plumbing and paint) and items not used directly in production (chain saws for fence posts) stay taxable.

Collect the certificate — and watch the obvious mismatches. A properly completed Farmer's Exemption Certificate (Form ST-125) shifts the burden to the customer, but you can't accept it in bad faith. Taking it on an item the certificate itself lists as always-taxable (like a power drill) is treated as actual knowledge that it doesn't apply.

Register totals aren't records. You need item-level detail showing each sale's taxable status and the tax due and collected, plus exemption certificates tied to the exempt sales. Department or taxable/exempt totals alone won't survive an audit.

Common questions

Q: A farmer wants to buy tax-free. What do I need?
A: A properly completed Farmer's Exemption Certificate (Form ST-125). It covers property used directly and predominantly in producing farm goods for sale — not building materials or items not used directly in production.

Q: Which common items are still taxable even to a farmer?
A: Chain saws for cutting fence posts (not "direct" farm use) and plumbing and paint for barns (property incorporated in a structure). Garden tools and tractors can be exempt on a valid ST-125.

Q: Are my cash-register totals enough for the exempt sales?
A: No. You need item-level records showing each sale's taxable status and the tax due, with exemption certificates matched to the sales — not just taxable/exempt or department totals.

Citations and references

Statutes:

• Tax Law § 1105(a) — tax on retail sales of tangible personal property
• Tax Law § 1115(a)(6) — farm-production exemption; excludes property incorporated in a building or structure
• Tax Law § 1132(c) — receipts presumed taxable absent a proper exemption certificate
• Tax Law § 1105(c)(3)(vi) — exemption (effective Sept. 1, 1982) for repairing farm-production property
• Tax Law § 1135 — vendor recordkeeping requirements

Regulations / guidance / forms:

• 20 NYCRR § 532.4 — presumption of taxability and burden of proof
• 20 NYCRR § 528.7 — farm-production exemption; Farmer's Exemption Certificate; direct-use limits (e.g., § 528.7(d)(1) on chain saws)
• 20 NYCRR § 532.1(b) — recordkeeping for mixed taxable/exempt sales
• TSB-M-81(9)S — detailed recordkeeping standards; when register tapes suffice
• Form ST-125 — Farmer's Exemption Certificate

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1982.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a82_25s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-82(25)S
Sales Tax
August 5, 1982

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

PETITION NO. S810625A

On June 25, 1981, a Petition for Advisory Opinion was filed by P. Hackett Hardware
Company, Inc., 1230 Congress Street, Ogdensburg, New York 13669.
Petitioner raises two issues related to the operation of a hardware store which makes sales
to farmers. Petitioner inquires, first, as to how it may determine whether tax is due on specific sales
to farmers. Second, Petitioner inquires as to whether it is required to keep written itemized invoices
for each exempt sale.
I
Section 1105(a) of the Tax Law imposes the State sales tax on receipts from retail sales of
tangible personal property. Section 1115(a)(6) of the Tax Law provides for an exemption from such
tax with respect to property used in farming, limited to the following:
(6) Tangible personal property, except property incorporated in a
building or structure but not including posts and wire which are used
to make and maintain a trellis for grapes, for use or consumption
directly and predominantly in the production for sale of tangible
personal property by farming, including stock, dairy, poultry, fruit, fur
bearing animal, graping and truck farming. The term farming shall
also include ranching, operating nurseries, greenhouses, vineyard
trellises or other similar structures used primarily for the raising of
agricultural, horticultural, vinicultural, viticultural or floricultural
commodities, and operating orchards. In addition, tangible personal
property for use in erecting, adding to, altering or improving a silo
used in farming to make and store silage on a farm, provided such
tangible personal property is to become an integral component part of
such silo.
Accordingly, the receipts from sales of such tangible personal property are not subject to tax.
However, in order for Petitioner's customers to avail themselves of the benefit of this exemption
provision at the time of purchase, there are certain procedural requirements which must be met, as
hereinafter set forth.
Section 1132(c) of the Tax Law provides, in pertinent part, that all receipts from retail sales
of tangible personal property are deemed to be subject to tax, unless the purchaser provides the
vendor with a properly completed certificate, in such form as the Tax Commission may prescribe,
indicating that the property was purchased for "some use by reason of which the sale is exempt from
JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

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

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Sales Tax
August 5, 1982

tax." The meaning of such provision is elucidated in the Sales and Use Tax Regulations, as follows:
Reg. Sec. 532.4 Presumption of Taxability. . .
(a) General. It shall be presumed that all receipts from sales of
property . . . of any type mentioned in subdivision (a). . . of section
1105 of the Tax Law [viz., sales of tangible personal property] are
subject to tax until the contrary is established.
(b) Burden of proof. (1) The burden of proving that any receipt . . .
is not taxable shall be upon the person required to collect tax or the
customer.
(2) When the vendor makes a sale which is exempt because the
property purchased is for . . .an exempt use . . ., as proof of the
exemption the vendor shall, at the time of sale, obtain a properly
completed exemption certificate from the purchaser and retain the
certificate in his files. Such certificate satisfies the vendor's burden of
proof.
(3) When the vendor is furnished with a properly completed
exemption certificate, the burden of proving a transaction is not
taxable shall be solely upon the customer.
(4) The vendor shall not be relieved of the burden of proof when no
exemption certificate or an improper certificate has been furnished
him, or when the vendor has actual knowledge that a certificate
furnished is false or fraudulent. 20 NYCRR 532.4.
In the present instance the applicable exemption certificate would be the Farmer's Exemption
Certificate (Form ST-125), whose use is prescribed in section 528.7(c) of the Sales & Use Tax
Regulations. Thus, Petitioner may make sales without the collection of sales tax upon receipt of a
properly completed Farmer's Exemption Certificate, except where Petitioner "has actual knowledge
that a certificate furnished is false or fraudulent." Such actual knowledge will be presumed to exist
where a vendor accepts a Farmer's Exemption Certificate with respect to the sale of any of the items
listed on the reverse of such certificate as taxable without regard to use or method of installation. For
example, the sale of a power drill would be presumed to be made with actual knowledge that the
certificate is not applicable thereto, while such presumption would not arise with respect to the sale
of ice, which would be exempt when purchased for use in preserving products still in production but
taxable when purchased for use in preserving products which are finished and ready for sale.
Petitioner inquires, in addition, as to the taxability of the receipts from sales of a number
of specific items, as follows:

1. Chain saws used for cutting fence posts. These are taxable inasmuch as they are not
   used "directly" in farm production. 20 NYCRR 528.7(d)(1).
2. Garden tools, (rakes, shovels, hoses, etc.) and garden tractors. These are exempt only if
   used in the production for sale of tangible personal property by farming. Petitioner may rely on a
   Farmer's Exemption Certificate.

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3. Plumbing and paint for barns. These items are explicitly excluded from the exemption
   provision contained in section 1115(a)(6) of the Tax Law, as "property incorporated in a building
   or structure."
4. The service of repairing equipment. The Tax Law contains no provision presently
   exempting the receipts from such service. See 20 NYCRR 528.7(a)(4). However, section
   1105(c)(3)(vi) of the Tax Law does provide for such an exemption, effective September 1, 1982,
   applicable to the services of maintaining, servicing or repairing tangible personal property purchased
   for use or consumption directly and predominantly in the production for sale of tangible personal
   property by farming.
   II
   Petitioner's second major inquiry is as to whether it is required to maintain in its records a
   written itemized invoice for each exempt sale, and whether check-out terminal printed totals would
   constitute adequate records, in the place of such invoices, for purposes of the Tax Law.
   Section 1135 of the Tax Law, which sets forth the record-keeping requirements applicable
   to vendors under the sales tax, provides, in relevant part, as follows:
   Every person required to collect tax shall keep records of every sale
   and of all amounts paid, charged or due thereon and of the tax
   payable thereon, in such form as the tax commission may by
   regulation require. Such records shall include a true copy of each
   sales slip, invoice, receipt, statement or memorandum [where such
   are given to the customer] . . . .
   The Sales and Use Tax Regulations provide, in accordance with the foregoing, that "it is the
   responsibility of every vendor who sells both taxable and non-taxable items to maintain accurate
   records indicating such sales." 20 NYCRR 532.1(b). These requirements are further elucidated in
   Technical Services Bureau Memorandum TSB-M-81(9)S, which provides, in relevant part, as
   follows:
   All persons who make sales which require the collection of tax . . .
   and those persons who . . .make sales . . .exempt from tax, shall keep
   records of every transaction; the amounts paid, charged, or due
   thereon; and the tax payable thereon. These records should include
   exemption documents necessary to support a claim for exemption on
   any sale . . . made without payment of tax, and must also contain an
   exact copy of each of the following:
5. sales slip, invoice, receipt, contract, statement, or other
   memorandum of sale;
   . . .

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3. cash register tape and any other original sales document. Where no
   written document is given to the customer, the seller must keep a
   daily record of all cash and credit sales in a daybook or similar book.
   . . .
   The sales record must provide sufficient detail to independently
   determine the taxable status of each sale and the amount of tax due
   and collected thereon.
4. Cash register tapes which identify the individual item(s) sold, the
   selling price and the tax due (if any) are sufficient to independently
   determine the taxable status of each sale and the amount of tax due
   and charged thereon.
5. Cash register tapes which indicate whether each sale is in a taxable
   or exempt category, but which do not identify the individual item(s)
   sold, are sufficient to prove gross sales but are not sufficient to
   independently determine the taxable status of each sale.
   . . .
   Since the burden of proving that a sale . . . is not taxable falls upon
   the vendor, an exemption document from the customer is necessary
   to relieve the vendor of his liability for not collecting the sales tax.
   Exemption certificate must be dated and retained in order to prove
   exempt sales. Once a properly completed certificate is obtained, it
   relieves the seller of liability to collect the tax on transactions to
   which the certificate applies. Each vendor accepting an exemption
   certificate must, for verification purposes, maintain a method of
   associating a sale made for which exemption is claimed with the
   certificate on file. Where a properly completed certificate is given to
   a vendor, the burden of proving the taxability of the sale . . . shall be
   solely on the customer.
   Accordingly, Petitioner's check-out terminal printed totals do not, by themselves, constitute
   adequate records for purposes of section 1135 of the Tax Law. These totals indicate the total daily
   volume of sales of each department of the store, as well as totals of taxable and non-taxable sales
   for the entire store, but do not yield information from which the tax status of each sale can be

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determined. Petitioner's records must indicate the identity of the items sold, and the amount of tax
due and collected thereon. Exemption certificates should be associated with such records, in the
manner described above.

DATED: July 20, 1982

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau