Is a customer's purchase order marked 'tax exempt' enough to support an exempt sale, or must the customer give the vendor a properly completed exemption certificate on the prescribed form?

Plain-English summary

Bartlett Systems, Inc. had a customer that would not give it a properly completed exemption certificate. The customer argued that submitting its purchase order with a notation that the transaction was tax exempt (for example, resale, use in research and development, or use in production) was ample proof of exemption. Bartlett asked whether the customer had to furnish a certificate on a form issued by the State Tax Commission.

The Department held that the purchase order is not an exemption certificate — and a vendor should collect tax without a properly completed one.

• Everything is presumed taxable. Under Tax Law 1132(c), all receipts for property or services listed in 1105 are presumed subject to tax until the contrary is established, and the burden of proof that a receipt is not taxable rests on the vendor required to collect the tax (or the customer).
• Only the prescribed certificate lifts that presumption. The statute treats a sale as a taxable retail sale unless the vendor takes from the purchaser a certificate in the form the Tax Commission prescribes, signed by the purchaser with its name, address, and registration number, stating the property or service was bought for resale or for an exempt use. The prescribed resale and exempt-use forms are described in 20 NYCRR 532.4(d) and (e).
• A purchase order notation doesn't count. The customer's purchase order "does not constitute an exemption certificate within the meaning of" 1132(c) or 532.4. Only the prescribed form may be used.
• No certificate ≠ automatically taxable, but it hurts your proof. The absence of a proper certificate does not, by itself, change the status of an otherwise exempt transaction (Matter of Ruemil Contract Interiors, TSB-H-83(197)S), but it may impair the vendor's ability to sustain its heavy burden of proof that the sale wasn't taxable (Savemart, Inc. v. State Tax Commission, 105 AD2d 1001).
• Practical rule. A vendor should collect tax from a purchaser who does not furnish a properly completed exemption certificate (Tee Bar Corp., TSB-A-81(8)S; Mohawk Dental Supply, TSB-A-81(33)S). A vendor that fails to collect risks liability for the uncollected tax if it later cannot establish the exemption.

What this means for you

A "tax exempt" note on a purchase order will not protect you. New York only recognizes the exemption if you hold the prescribed certificate — a resale certificate or exempt-use certificate — properly completed and signed, with the buyer's registration number. An informal notation is not a substitute.

When in doubt, collect the tax. If a customer won't give you a valid certificate, the safe course is to charge the tax. Not collecting leaves you exposed: if you can't later prove the sale qualified for exemption, the uncollected tax becomes your liability.

Getting a valid certificate is easy — and it's the buyer's job. The customer can fix the problem simply by executing the correct exemption certificate on the Tax Commission's form. That single step establishes the transaction's tax status.

Common questions

Q: A customer says their purchase order already says 'tax exempt.' Is that good enough?
A: No. A purchase order with a notation is not an exemption certificate. You need the prescribed resale or exempt-use certificate, properly completed and signed.

Q: What happens if I make an exempt sale but never collected a certificate?
A: The sale isn't automatically taxable, but the burden is on you to prove it qualified. Without the certificate, that's much harder — and if you can't, you're liable for the uncollected tax.

Q: What should I do if a customer refuses to complete the form?
A: Collect the tax. The Department's guidance is that a vendor should charge tax to any purchaser who won't furnish a properly completed exemption certificate.

Citations and references

Tax Law:

• 1132(c) — presumption that all receipts are taxable until the contrary is established; vendor's burden of proof; sale is a taxable retail sale unless the vendor takes a prescribed, signed exemption/resale certificate

Regulations (20 NYCRR):

• 532.4(d), (e) — the prescribed resale certificate and exempt-use certificate forms

Authorities cited:

• Matter of Ruemil Contract Interiors, Inc., TSB-H-83(197)S — absence of a certificate does not by itself defeat an otherwise exempt transaction
• Savemart, Inc. v. State Tax Commission, 105 AD2d 1001 — a missing certificate impairs the vendor's heavy burden of proof
• Tee Bar Corporation, TSB-A-81(8)S; Mohawk Dental Supply Company, Inc., TSB-A-81(33)S — a vendor should collect tax from a purchaser who does not furnish a proper certificate

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_35s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-85 (35) S
Sales Tax
August 21, 1985

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S841018A

On October 18, 1984 a Petition for Advisory Opinion was received from Bartlett Systems,
Inc., 470 Mamaroneck Avenue, White Plains, New York 10605.
The issue raised is whether a certain customer of Petitioner is required to furnish Petitioner
with a tax exemption certificate on a form issued by the State Tax Commission.
Petitioner states that its customer has failed to issue a properly completed exemption certificate
to evidence its exempt purchases. The customer asserts that its submittal of its purchase order with
the notation that the transaction is tax exempt (e.g. resale, use in research and development, use in
production) is ample proof of exemption.
Section 1132(c) of the Tax Law states, in part:
"For the purpose of the proper administration of this article and to prevent evasion of the tax
hereby imposed, it shall be presumed that all receipts for property or services of any type mentioned
in subdivisions (a), (b), (c) and (d) of section eleven hundred five..... are subject to tax until the
contrary is established, and the burden of proving that any receipt..... is not taxable hereunder shall
be upon the person required to collect tax or the customer. Unless (1) a vendor shall have taken from
the purchaser a certificate in such form as the tax commission may prescribe, signed by the purchaser
and setting forth his name and address and . . . . the number of his registration certificate, together
with such other information as said commission may require, to the effect that the property or service
was purchased for resale or for some use by reason of which the sale is exempt from tax under the
provisions of section eleven hundred fifteen, the sale shall be deemed a taxable sale at retail."
(Emphasis added.)
The forms prescribed by the State Tax Commission to be used in evidencing the exemptions
for resale and exempt use are described in regulation section 532.4(d) and (e) respectively.
Petitioner's customer's purchase order does not constitute an exemption certificate within the
meaning of the Tax Law 51132(c) or regulation section 532.4.
While the absence of a properly completed exemption certificate will not, in and of itself, alter
the status of an otherwise exempt transaction, [see Matter of Ruemil Contract Interiors, Inc., State
Tax Commission, TSB-H-83(197)SI, the absence of such certificate may impair the vendor's ability
to sustain its heavy burden of proof that a particular transaction is not subject to tax. See Matter of
Savemart, Inc., v State Tax Commission, 105 AD 2d 1001.

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

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

-2­
TSB-A-85 (35) S
Sales Tax
August 21, 1985
By following the procedures regarding the use of exemption certificates set forth in regulation
section 532.4, Petitioner's customer may establish the precise sales tax status of a transaction. This
is accomplished through the simple expedient of properly executing the appropriate exemption
certificate. Only the form prescribed by the Tax Commission may be used for this purpose.
Accordingly, a vendor should collect tax from a purchaser who does not furnish it with a
properly completed exemption certificate. Tee Bar Corporation, State Tax Commission Advisory
Opinion, TSB-A-81(8)S; Mohawk Dental Supply Company, Inc., State Tax Commission Advisory
Opinion, TSB-A-81(33)S. if-a vendor fails to collect tax in the absence of a properly completed
exemption certificate, it subjects itself to the risk of liability for the amount of uncollected tax if it
is subsequently unable to establish qualification for exemption.

DATED: July 30, 1985

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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