If an oil company accepts a properly completed resale certificate from a petroleum customer who ISN'T listed on the Tax Department's roster of registered motor-fuel distributors, does that absence from the roster automatically mean the oil company didn't accept the certificate 'in good faith' -- exposing it to tax on those resale receipts?

Plain-English summary

Sears Oil Co., Inc. and Sears Petroleum & Transport Co. were under audit for tax years 1981-82 under Tax Law section 182-a, which imposes a franchise tax on certain oil companies (Article 9). One audit issue: petroleum sales are excluded from an oil company's taxable gross receipts if made "for resale" to another oil company that furnishes a properly completed resale certificate accepted "in good faith." Some of Sears's customers who furnished resale certificates certifying they were oil companies weren't actually listed on the Tax Department's roster of Article 12-A registered motor fuel distributors -- and Sears wanted to know whether that absence, by itself, meant its acceptance of those certificates wasn't "in good faith," exposing those sales to tax.

The Department relied heavily on a prior Declaratory Ruling it had issued to these same Petitioners (Declaratory Ruling 85-02, July 31, 1985), which laid out the good-faith framework: an oil company generally isn't required to police or investigate what its customers subsequently do with purchased petroleum (mirroring the sales-tax-context rule). But because the Legislature carved out a narrow exception to the Tax Law's usual secrecy rules specifically to let oil companies inquire of the Department whether a given purchaser is a registered section 182-a taxpayer, the Department reasoned the Legislature intended oil companies to actually USE that inquiry mechanism to be protected. Good faith turns on a totality of factors: the oil company's actual knowledge of the purchaser's business (especially where an affiliate relationship gives it inside knowledge), whether it inquired of the Department about the purchaser's status, whether the sale was a rack sale within New York, whether the purchaser was registered under Article 12-A, and whether the sale involved out-of-state title transfer with in-state delivery via common carrier. The Department's own Audit Division applies these and related factors when reviewing a specific transaction.

Applying that framework, the Department held that a customer's mere absence from the Article 12-A roster is NOT, by itself, enough to establish bad faith -- it's just one factor among several, and "[a] transaction must be considered in its totality." But because good faith is ultimately a FACT question, and the question arose directly within an ongoing audit, the Department declined to make the actual determination in this Advisory Opinion (which by statute only applies law to "a specified set of facts," not resolve disputed facts) -- that determination is left to the audit itself, applying the Declaratory Ruling's principles.

What this means for you

Oil companies relying on customer resale certificates

Don't assume a customer's absence from the state's registered-distributor roster automatically dooms your good-faith defense on a resale exclusion -- but also don't assume acceptance alone is enough. Actually inquiring of the Department about a customer's section 182-a status (using the statutory exception that exists specifically for this purpose) strengthens your good-faith position; relying solely on a facially complete certificate, especially from a known affiliate, may not.

Getting an Advisory Opinion when your issue involves disputed facts already under audit

If the core question turns on a factual determination (like "was this specific acceptance in good faith?") that's already the subject of an active audit, expect the Department to apply existing law/precedent (here, its own prior Declaratory Ruling) but decline to make the ultimate factual call -- that gets resolved in the audit, not the Advisory Opinion.

Common questions

Q: Does a customer's absence from the Article 12-A distributor roster automatically defeat good faith?
A: No -- it's one relevant factor, not dispositive on its own.

Q: Is an oil company required to investigate its customers' subsequent use of purchased petroleum?
A: No -- similar to the sales tax context, a seller generally isn't required to police or investigate a customer's subsequent use.

Q: What should an oil company do to protect its good-faith position?
A: Consider inquiring of the Tax Department about a customer's section 182-a registration status, using the specific statutory exception to the secrecy rules created for that purpose -- among other factors like whether the sale was a rack sale and whether the customer was Article 12-A registered.

Q: Can another oil company rely on this specific ruling?
A: No. It binds the Department only for these petitioners' specific facts and can't be relied upon by other oil companies, even with similar resale-certificate practices.

Citations and references

Statutes and regulations:

• Tax Law § 182-a.2(b), § 182-a.10(a), § 182-a.6
• Tax Law § 202.1
• Tax Law § 171, subd. twenty-fourth; 20 NYCRR 901.1(a)
• Declaratory Ruling 85-02 (July 31, 1985)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a86_17c.pdf

Original ruling text

New York State Department of Taxation and Finance

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

TSB-A-86 (17) C
Corporation Tax
August 29, 1986

PETITION NO. C860416A

On April 16, 1986, a Petition for Advisory Opinion was received from Sears Oil Co., Inc. and
Sears Petroleum & Transport Co., 1914 Black River Boulevard, Rome, New York 13440.
The question raised is whether, pursuant to section 182-a of the Tax Law, Petitioners'
acceptance of properly completed resale certificates from customers which were not listed on the Tax
Department's roster of Tax Law Article 12-A motor fuel distributors was, ipso facto, not in good
faith.
Section 182-a.2(b) of the Tax Law provides, in part:
"...However, to prevent the multiple application of the tax imposed by this section, gross
receipts shall not include the receipts from any sale for resale to a purchaser which is an oil company
subject to tax under this section. It shall be presumed that no receipts are receipts from a sale for
resale to such purchaser unless such purchaser furnishes the oil company with a resale certificate in
such form and under such terms and conditions as the tax commission may prescribe and such
certificate is accepted in good faith by such oil company...."
Section 182-a.10(a) of such law, as amended by Chapter 1043 of the Laws of 1981, provides,
in part:
"Where a false or fraudulent resale certificate ... has been furnished to an oil company or to
any other person, the corporation or person furnishing such certificate shall be subject to a penalty
equal to three per centum of the gross receipts which would have otherwise been taxable to such oil
company if such certificate had not been furnished to such company or to such other person...."
With respect to the secrecy of information contained in reports under Article 9 of the Tax
Law required of officials, the pertinent provisions of section 202.1 of the Tax Law, applicable by
reason of section 182-a.6 of the Tax Law, provide, in part:
"... Provided, further, nothing herein shall be construed to prohibit the disclosure of the
names of corporations subject to tax under section ... one hundred eighty-two-a ... for purposes of
assisting corporations subject to such tax ... in determining whether ... a gross receipt from sales of
petroleum is an ... excludible gross receipt from sales of petroleum because it is derived from a sale
for resale." (Tax Law, 202, subd. 1, as amended by L. 1981, Ch. 481, L. 1983, Ch. 18).
Petitioners are currently under audit for taxable years ended December 31, 1981 and
December 31, 1982. For such taxable years, Petitioners were subject to section 182-a which imposed
a franchise tax on certain oil companies under Article 9 of the Tax Law. One of the outstanding

RODERICK G. W. CHU, COMMISSIONER
GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (3/83)

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TSB-A-86 (17) C
Corporation Tax
August 29, 1986

audit issues is whether Petitioners' receipts from sales of petroleum are includable in Petitioners'
gross receipts upon which the tax is measured where Petitioners accepted completed resale
certificates from various purchasers which, although certifying that they were oil companies, are not
in fact oil companies. Petitioners feel that they accepted such resale certificates "in good faith".
Petitioners requested a Declaratory Ruling on this issue and on July 31, 1985, the State Tax
Commission signed Declaratory Ruling 85-02. The ruling states, in part:
"... the receipts derived from an oil company's petroleum sales in each instance where it
accepted in good faith a properly completed resale certificate in the form prescribed by the Tax
Commission, are excludible from its gross receipts from sales of petroleum. As has been held in the
sales tax context, a seller is not required to police or investigate his customers as to their subsequent
use of the purchased product ... The penalty imposed by section 182-a.10(a) upon a corporation or
person issuing a false or fraudulent resale certificate, measured by a percentage of the gross receipts
which would have otherwise been taxable, serves, not only to deter such activity, but to protect the
revenue. The existence of the penalty does not, however, relieve an oil company from its liability
to pay tax on those receipts subject to tax. The question of good faith, however, is a factual one.
Although good faith does not require an oil company to police or investigate its purchasers as to the
subsequent use of petroleum, the Legislature, by making an exception to the secrecy provision to
enable oil companies to inquire of the Department of Taxation and Finance as to a purchaser's status
as a section 182-a taxpayer, obviously intended that an oil company make such an inquiry in order
to be protected. Otherwise there would have been no purpose to this narrowly written exception to
the general secrecy provisions applicable to an oil company as well as all other taxpayers under
article 9 of the Tax Law. The issue of good faith, then, will turn on, in addition to factors such as
the oil company's knowledge of a purchaser's business activities as to whether the purchaser would
be an oil company under section 182-a.2(a) (e.g., knowledge of circumstances indicating that the
purchaser did not import or cause to be imported, extract, produce, refine, manufacture or compound
petroleum or that the purchaser was principally engaged in selling residential fuel oil) and the
circumstances of the transaction, whether the oil company inquired of the Department as to the
purchaser's status as a section 182-a taxpayer and the extent to which this information was made
available to the oil company. For example, where by reason of intercorporate affiliation, an oil
company had actual knowledge of the business circumstances of its affiliate purchaser, the mere
acceptance of a resale certificate of the type described in the petition would not constitute a good
faith acceptance...."
As the Declaratory Ruling states, the question of good faith is a factual one and several
factors must be considered. No one factor is determinative. A transaction must be considered in its
totality.
Subsequent to the Declaratory Ruling, the Tax Department's Audit Division developed a set
of rules on which a determination could be made as to whether a taxpayer's customer was a possible

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Corporation Tax
August 29, 1986

"oil company" and whether a resale certificate was accepted in good faith. In making its
determination the Audit Division looks at several factors, such as:
1.

whether the sale of distillates was a rack sale from a location within New
York State;

2.

whether the sale of petroleum, of any kind, was made to a customer who is
registered under Article 12-A of the Tax Law; and

3.

whether the sale was made to a customer from a location outside New York
State where title passed to the customer outside New York State and delivery
of the product to a location within New York State was made via a common
carrier.

Accordingly, the absence of a customer from the Tax Department's roster of Tax Law Article
12-A motor fuel distributors is not, of itself, sufficient evidence to determine that the acceptance by
Petitioners of a section 182-a resale certificate from such customer was not in good faith. It should
be noted, however, that the determination of good faith is a question of fact, and questions of fact
are not susceptible of determination in an Advisory Opinion. An Advisory Opinion merely sets forth
the applicability of pertinent statutory and regulatory provisions to "a specified set of facts." Tax
Law, 171, subd. twenty-fourth; 20 NYCRR 901.1(a). Inasmuch as the question of good faith arises
within the context of an audit, the necessary factual determination will be made within such context,
in accordance with the principles outlined in the Declaratory Ruling.

DATED: August 29, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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