Are a distributor's sales of candy to schools and PTAs that resell it for fundraising exempt from sales tax?

Plain-English summary

Miss Chocolate Company, Inc., a distributor of chocolates and novelty items, makes nearly all its sales to fundraising organizations — schools, PTAs, and the like — that resell the products to the public. Under its agreements, Miss Chocolate provides sales aids and incentive prizes (or a purchase discount instead), the group's members solicit orders (often prepaid) from the public, the group orders full cases, is obligated to pay for what's shipped, and must absorb the cost of any unsold merchandise (returns only for defects or wrong shipments). Miss Chocolate asked whether these sales are exempt.

The Department said it turns on one question: does title to the candy actually pass to the organization?

• The tax and the resale exclusion. Sales tax applies to every retail sale of tangible personal property (Tax Law 1105(a)); a "retail sale" excludes a sale for resale (Tax Law 1101(b)(4)). Sales by or to certain exempt organizations are also not taxed (Tax Law 1116(a)).
• If title does NOT pass to the group — if the organization merely collects the proceeds rather than acquiring the products — then the distributor is treated as making the retail sale to the ultimate consumer, and must collect and remit sales tax on those consumer sales (Matter of Poly Graphic Gallery; Matter of David E. Robb).
• If title DOES pass absolutely to the group — shown, for example, by a contract passing title with a correlative obligation to pay the price — then the transaction is a retail sale to the organization (Matter of Friedman), taxable under 1105(a) unless Miss Chocolate receives a properly completed resale certificate or exempt-organization document from the purchaser.
• Burden and presumption. All receipts are presumed taxable until the contrary is established; a vendor need not collect tax only if it takes a proper resale certificate or exempt-organization statement from the purchaser (Tax Law 1132(c)).

What this means for you

"It's for a fundraiser" doesn't by itself exempt the sale. The tax treatment depends on where title goes. If the fundraising group actually buys the goods (takes title and owes the price), your sale to the group is a resale sale — exempt only if you hold a proper resale certificate or exempt-organization document.

If the group is just a conduit, you owe tax on the retail price. Where the organization never takes title and only forwards the customers' money, the Department treats you as the seller to the end consumers — so you must collect and remit tax on those retail sales.

Get the paperwork. Because receipts are presumed taxable, protect yourself by collecting a completed resale certificate (Form ST-120) or an exempt-organization statement from every qualifying purchaser. Without it, the sale is deemed a taxable retail sale.

Common questions

Q: I sell products to schools/PTAs that resell them to raise money. Is that automatically tax-free?
A: No. It depends on whether title passes to the group. If it does, your sale is a resale sale, exempt only if you hold a proper resale certificate or exempt-organization document. If the group never takes title, you're the retail seller and must collect tax on the consumer sales.

Q: How do I show title passed to the organization?
A: Typically through the contract terms — title passing absolutely to the group with a correlative obligation to pay the purchase price (Matter of Friedman).

Q: What protects me from having to collect tax?
A: A properly completed resale certificate (Form ST-120) or exempt-organization statement from the purchaser. Receipts are presumed taxable until you have one (1132(c)).

Citations and references

Tax Law:

• 1105(a) — imposes sales tax on receipts from retail sales of tangible personal property
• 1101(b)(4) — defines "retail sale"; a sale for resale is excluded
• 1116(a) — sales by or to enumerated exempt organizations are generally not taxed
• 1132(c) — receipts are presumed taxable; a vendor need not collect only if it takes a proper resale certificate or exempt-organization statement

Prior decisions cited:

• Matter of Poly Graphic Gallery, Inc., TSB-H-84(100)S — where the group does not take title, the distributor is the retail seller to consumers
• Matter of David E. Robb, TSB-H-85(106)S — same principle
• Matter of Friedman, 91 Misc. 2d 201 — where title passes absolutely with an obligation to pay, the transaction is a retail sale to the organization

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_40s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-85(40)S
Sales Tax
September 3, 1985

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S840130A

On January 30, 1984 a Petition for Advisory Opinion was received from Miss Chocolate
Company, Inc., 482 Sunrise Highway, Rockville Centre, New York 11570.
The issue raised is whether sales made by Petitioner to fund-raising organizations are exempt
from tax.
Petitioner is a distributor of chocolates, confectionery and other novelty items. Petitioner
states that nearly all of its sales are made to organizations such as schools, PTA's etc. who resell the
products to raise funds.
An organization desiring to raise funds through the sale of Petitioner's products signs an
agreement with Petitioner. Pursuant to the agreement, Petitioner provides the organization with sales
aids needed by the organization to assist its members in making sales. Additionally, Petitioner
provides the organization with prizes which are to be offered to members of the organization as an
incentive to achieve greater sales. A specified prize or number of prizes are included in the purchase
of a specified quantity of confectionery. However, if the organization desires prizes in excess of the
specified quantity, these may be ordered at additional cost to the organization. Alternatively, the
organization may elect to receive a purchase discount in lieu of the sales incentive prizes.
Organization members solicit sales from the general public. Typically, the customer pays
in advance for its purchase and receives delivery at some future date. Once the organization has
determined the quantities of items for which it has solicited sales, it places an order with Petitioner.
Orders are accepted by Petitioner for complete case amounts only. Once shipped, the organization
is obligated to pay for the merchandise shipped. Returns are not accepted by Petitioner unless for
reasons of defective quality or incorrect merchandise shipment. If the organization is left with
unsold merchandise (cancelled sales, opened cases, etc.) it must absorb the cost of such merchandise.
Petitioner states that it bills the organization for its purchases, title is transferred to the
organization and the organization remits payment directly to Petitioner. The difference between the
amount paid by the organization to Petitioner and the amount collected by the organization from
product sales represents funds raised by the organization.
Section 1105(a) of the Tax Law imposes a tax on the receipts from every retail sale of
tangible personal property unless otherwise exempted or excluded from tax.
Section 1101(b)(4) of the Tax Law defines a retail sale as a sale ". . . of tangible personal
property to any person for any purpose other than (A) for resale as such. . .".

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

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

-2­
TSB-A-85(40)S
Sales Tax
September 3, 1985

Section 1116(a) of the Tax Law provides that, with certain exceptions, sales by or to
organizations enumerated in section 1116 of the Tax Law are not subject to sales or compensating
use tax.
Section 1132(c) of the Tax Law provides that ". . . it shall be presumed that all receipts for
property 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. . . to the effect that the property . . . was purchased for resale or . . . (2)
the purchaser . . . furnishes to the vendor: any affidavit . . . which the Tax Commission may require
demonstrating that the purchaser is an exempt organization described in section eleven hundred
sixteen . . . the sale shall be deemed a taxable sale at retail. The vendor shall not be required to
collect tax from purchasers who furnish a certificate of resale or an exempt organization statement
in proper form. . . ."
Critical to the determination of the sales tax status of the subject transaction is the
determination of whether title to the products has been actually and unequivocally transferred to the
organization. If the organization does not acquire title to the products sold but merely collects the
proceeds of the sale from the consumer, such a transaction will require that sales tax be collected
upon the sale to the consumer and remitted by Petitioner to the State Tax Commission. Matter of
Poly Graphic Gallery, Inc., State Tax Commission, August 22, 1977, TSB-H-84(100)S; Matter of
David E. Robb, State Tax Commission, February 6, 1985, TSB-H-85(106)S. In the alternative, if
Petitioner can demonstrate (e.g. in a contract between the parties) that title to the products passes
absolutely to the organization and there exists a correlative obligation to pay the purchase price, the
transaction will constitute a retail sale of tangible personal property to the organization. Matter of
Friedman, 91 Misc. 2d 201. Such a retail sale is subject to the tax imposed by section 1105(a) of the
Tax Law unless Petitioner receives a properly completed exemption document from the purchaser
in accordance with section 1132(c) of the Tax Law.

DATED: August 14, 1985

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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