May a prepared-food seller accept resale certificates instead of collecting sales tax, and credit its customers' remitted tax against its own liability?

Plain-English summary

Almash's Kitchen, Inc. sold prepared food and, instead of collecting sales tax, accepted resale certificates in good faith. Its customers were registered vendors who (Almash's said) collected tax from their own customers and remitted it to New York. Almash's asked whether it was required to collect tax on those sales, and whether it could credit the tax its customers remitted against its own liability.

The Department held there is no resale exemption for prepared food — Almash's should have collected the tax and is liable for what it failed to collect.

• Prepared food is taxed under 1105(d), with no resale exemption. Tax Law 1105(d)(i) taxes receipts from every sale of food made in or by restaurants, taverns, other establishments, or caterers. There is no exemption in the Tax Law for the resale of food or drink taxed under 1105(d).
• A buyer-for-resale must pay tax up front. Because of that, "any person purchasing food or drink for resale as such is required to pay tax thereon at the time of purchase" (20 NYCRR 527.8(i)(1)).
• Accepting resale certificates was improper. Almash's acceptance of resale certificates in lieu of collecting tax was improper, and Almash's is liable for the tax it failed to collect.
• The customers also had to collect tax. When the food is resold, "the seller is required to collect tax from the purchaser," so Almash's customers were required to collect tax on their sales of the prepared food (20 NYCRR 527.8(i)(2)).
• The credit belongs to the customers, not to Almash's. The credit in 20 NYCRR 527.8(i)(3) — for tax paid on food that is later resold — applies to Almash's customers, not to Almash's. To recover the tax it owes, Almash's must collect from its customers the tax it should have charged. Once the customers pay that tax, the customers may apply to the Tax Commission for a credit, limited to the tax paid on the food they resold.

What this means for you

Food and drink under 1105(d) don't get a resale pass. For most goods, a valid resale certificate lets you sell tax-free to a reseller. Prepared food taxed under 1105(d) is different: there's no resale exemption, so the tax is due at each sale — including your sale to a business that will resell it.

A resale certificate won't protect a prepared-food seller. If you take resale certificates and skip collecting tax on prepared food, you're on the hook for the tax you didn't collect. Charge the tax at the time of sale.

The credit mechanism runs to the reseller, not up the chain to you. The regulation lets the reseller credit the tax it paid on food it resells against the tax it must remit. It does not let you, the first seller, offset your liability with tax your customers remitted. Your route to recovery is to collect the tax you should have charged; your customers then claim the credit.

Common questions

Q: Can I sell prepared food tax-free to a customer who gives me a resale certificate?
A: No. There's no resale exemption for food or drink taxed under Tax Law 1105(d). A buyer purchasing food for resale must pay the tax at the time of purchase, so you must collect it.

Q: My customers already collected and remitted tax to the State. Can I use that to cover my liability?
A: No. The resale credit belongs to your customers, not to you. You remain liable for the tax you failed to collect; to recover, you must collect it from your customers, who can then apply for the credit.

Q: I accepted resale certificates in good faith. Does that protect me?
A: No. Accepting resale certificates for 1105(d) food was improper because no resale exemption exists. You're liable for the uncollected tax.

Citations and references

Tax Law:

• 1105(d)(i) — taxes receipts from every sale of food by restaurants, taverns, other establishments, or caterers (no resale exemption for such food/drink)

Regulations (20 NYCRR):

• 527.8(i)(1) — a person purchasing food or drink for resale must pay tax at the time of purchase
• 527.8(i)(2) — when food or drink is resold, the seller must collect tax from the purchaser
• 527.8(i)(3) — the tax paid by the seller may be credited against tax it must collect and remit on the resale, limited to the tax actually paid (applies to the reseller)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1985.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a85_31s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-85(31)S
Sales Tax
August 21, 1985

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S841025A

On October 25, 1984 a Petition for Advisory Opinion was received from Almash's Kitchen,
Inc., 1611 Smithtown Ave., Bohemia, New York 11716.
The issue raised is whether Petitioner was required to collect state and local sales tax on its
sales of prepared food and whether it may credit tax collected by its customers against its tax
liability.
Petitioner states that it made sales of prepared food to customers and accepted resale
certificates in good faith in lieu of collecting sales tax. Petitioner avers that the customers to whom
it made its sales were registered vendors who collected tax from their customers and remitted such
tax to New York State. Petitioner reasons that if it can establish that the proper tax has been paid by
its customers to the State, Petitioner should be allowed such tax paid as credit against the tax which
Petitioner should have collected from its customers.
The Tax Law provides, in pertinent part, for the imposition of sales tax on: "The receipts
from . . . every sale of food . . . [made] in or by restaurants, taverns or other establishments in this
state, or by caterers. . ." Tax Law 1105(d)(i). There is no exemption from tax in the Tax Law for the
resale of food or drink taxed under section 1105(d) of the Tax Law. In recognition of this, the Sales
and Use Tax Regulations state that "[a]ny person purchasing food or drink for resale as such is
required to pay tax thereon at the time of purchase." 20 NYCRR 527.8(i)(1).
Therefore, Petitioner's acceptance of resale certificates in lieu of collecting the sales tax was
improper. Petitioner is liable for the sales tax which it failed to collect.
The Sales and Use Tax Regulations provide further that "[w]hen . . . food or drink is resold,
the seller is required to collect tax from the purchaser." Consequently, Petitioner's customers were
required to collect tax on their sales of the prepared food. 20 NYCRR 527.8(i)(2).
Finally, the Sales and Use Tax Regulations state that "[t]he tax paid by the seller may be
taken as a credit against the tax which the seller is required to collect and remit on the subsequent
sale. The credit is limited to the amount of tax actually paid on the purchase by the seller of the food
and drink resold." 20 NYCRR 527.8(i)(3). This paragraph of the Regulations applies to Petitioner's
customers and not to Petitioner. In order for Petitioner to recover the tax for which Petitioner is
liable, Petitioner must collect from its customers the tax it should have collected at the time of

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-85(31)S
Sales Tax
August 21, 1985

making the sales. Once Petitioner's customers have paid to Petitioner the tax they should have paid
at the time of making their purchases, such customers may apply to the State Tax Commission for
a credit. The credit is limited to the amount of tax paid by Petitioner's customer to Petitioner on food
resold by Petitioner's customer.

DATED: July 15, 1985

s/ANDREW F. MARCHESE
Chief of Advisory Opinions

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth herein.