If a lessee gives an exemption certificate to the leasing company, does that same certificate also cover an affiliate that later takes over billing and collection?

Plain-English summary

Norstar Leasing Services, Inc. leases tangible personal property. After a lease is signed, it may assign the lease to an affiliate ("Assignee") that handles financing, billing, collecting the rental payments, and remitting sales tax. Norstar may keep title to the leased property or transfer title to the Assignee for consideration. Norstar asked whether a lessee's exemption certificate naming Norstar as vendor would also be valid documentation to exempt the Assignee's transactions with that same lessee.

The Department held that one certificate does not cover both — the Assignee needs its own.

• A certificate must name the actual vendor. To be "properly completed," an exemption certificate must contain the name and address of both the purchaser and the vendor (20 NYCRR 532.4(b)(2), (c)(2)) and must be dated, retained, and tied to the sale (20 NYCRR 533.2(b)(4)). A certificate naming Norstar as vendor is not valid to support exempt transactions between the Assignee and the lessee, because it does not name the Assignee.
• Norstar must keep its own certificates. It is essential for Norstar to retain the exemption certificates covering its own transactions with lessees.
• Transferring title to the Assignee is itself a sale. When Norstar transfers title to property to the Assignee for consideration, that is a "sale" (§ 1101(b)(5)); Norstar must collect tax or obtain an exemption certificate — e.g., a resale certificate (Form ST-120) for property to be rented out.
• The Assignee is a jointly responsible vendor. Even though the Assignee is not the vendor of the property, because it is the actual collector of the rental receipts it is jointly responsible with Norstar for collecting and paying the tax (§ 1101(b)(8)(ii)). So the Assignee must charge the tax or have, generally within 90 days, its own properly completed exemption document (§ 1132; 20 NYCRR 532.4).
• Everything is presumed taxable. All receipts from sales/rentals are presumed subject to tax until the contrary is established, and the burden of proof is on the vendor or the customer (20 NYCRR 533.2(a)(1)).

What this means for you

Exemption certificates are vendor-specific. A certificate protects only the vendor it names. If a different legal entity is treated as the seller or the collector for a transaction, that entity needs its own properly completed certificate — you cannot re-use a sister company's paperwork.

Assigning a lease can create a second taxable relationship. When an affiliate takes over billing and collection, or takes title for consideration, the tax rules follow the money: the affiliate that collects the rent is a jointly responsible vendor, and the title transfer between the companies is its own sale that must be documented (resale certificate) or taxed.

Keep the certificates, dated and matched to the transaction. The presumption is that receipts are taxable. The vendor (or customer) carries the burden of proving otherwise, which in practice means retaining a properly completed, dated certificate you can associate with each exempt sale.

Common questions

Q: A lessee gave us an exemption certificate. Our affiliate now bills and collects the rent — is that certificate good for the affiliate too?
A: No. The certificate names your company as vendor, so it is not "properly completed" for the affiliate. The affiliate must obtain its own properly completed exemption certificate.

Q: We're transferring title to the leased equipment to our affiliate for a price. Is that taxable?
A: It is a "sale." You must either collect sales tax or obtain an exemption certificate from the affiliate — typically a resale certificate (Form ST-120) if the affiliate will rent the property out.

Q: How long does the collecting affiliate have to get its certificate?
A: Generally within 90 days of delivery of the property or rendition of the service, it must have a properly completed exemption certificate; otherwise it must charge the tax. Receipts are presumed taxable until proven otherwise.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(5) — defines "sale," including a transfer of title for consideration
• Tax Law § 1105(a), (c) — taxes retail sales and enumerated services
• Tax Law § 1101(b)(8)(ii) — authorizes treating an agent/representative that collects as a jointly responsible vendor
• Tax Law § 1132 — exemption-certificate documentation and the 90-day rule
• 20 NYCRR 532.4(b)(2), (c)(2) — a "properly completed" certificate names both vendor and purchaser
• 20 NYCRR 533.2(a)(1) — all receipts presumed taxable; burden of proof on vendor/customer
• 20 NYCRR 533.2(b)(4) — certificates must be dated, retained, and associated with the sale

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1987.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a87_9s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-87(9)S
Sales Tax
January 29, 1987

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S860926A

On September 26, 1986, a Petition for Advisory Opinion was received from Norstar Leasing
Services Inc., One Norstar Plaza (P.O. Box 1667), Albany, New York 12201.
The issue raised is whether an exemption certificate furnished to Petitioner as lessor by a
lessee would be valid documentation for exempting both the Petitioner's and its assignee's
transactions with the lessee from sales tax.
Petitioner is engaged in leasing tangible personal property. After lease agreements are
executed between Petitioner and its lessee, the lease may be assigned to an affiliate of the Petitioner
("Assignee") for performing the services of financing, billing, collecting rental payments and
remitting sales tax. Petitioner may retain ownership of the leased property or transfer title to the
Assignee, a separate entity, for a consideration.
Section 1101(b)(5) of the Tax Law defines sale as "[a]ny transfer of title or possession or
both, exchange or barter, rental, lease or license to use or consume, conditional or otherwise, in any
manner or by any means whatsoever for a consideration, or any agreement therefor, including the
rendering of any service, taxable under this article, for a consideration or any agreement therefor."
Section 1105 of the Tax Law imposes a tax on "(a) [t]he receipts from every retail sale of
tangible personal property, except as otherwise provided in this article" and "(c) [t]he receipts from
every sale, except for resale, of [certain enumerated] services."
The Sales and Use Tax Regulations of the State Tax Commission provide as follows:
When the vendor makes a sale which is exempt because the
property purchased is for resale, or for an exempt use, or the
purchaser is an exempt organization, as proof of the exemption the
vendor shall, at the time of the sale, obtain a properly completed
exemption certificate from the purchaser. . . .
A certificate is considered to be properly completed when it
contains [among other information] the . . . name and address of
purchaser [and] the name and address of vendor. 20 NYCRR 532.4
(b)(2), (c) (2).
Exemption certificates must be dated and retained in order to
prove exempt sales. . . . Every vendor accepting an exemption
certificate must maintain a method of associating a sale. . . with the
certificate on file. 20 NYCRR 533.2 (b)(4).
RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

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

-2­
TSB-A-87(9)S
Sales Tax
January 29, 1987
Accordingly, it is essential for Petitioner to retain exemption certificates relating to
transactions with its lessees. Moreover, such certificates would not be valid for supporting exempt
transactions between the Assignee and the lessees because, by not naming the Assignee as vendor,
they would not be "properly completed" for such purposes.
Furthermore, when transferring title to tangible personal property to the Assignee for a
consideration, Petitioner is making a "sale" (Tax Law 1105 (b)(5), supra) and must either collect
sales tax or obtain an exemption certificate (e.g., a resale certificate, Form ST-120, for property
intended for rental) from the Assignee. If thereafter the Assignee is entitled to the rental amounts
payable by the lessee who claims exemption from sales tax, it must obtain a properly completed
exemption document for its own records.
Additionally, Petitioner states that the Assignee may merely take on certain administrative
services, including the collection of rental receipts, with regard to tangible property owned and
leased by the Petitioner.
Pursuant to the Sales and Use Tax Regulations, it is statutorily presumed that all receipts
from sales [or rentals] of property mentioned in Tax Law 1105 (a) (b) (c) and (d) are subject to tax
until the contrary is established. The burden or proving that any receipt is not taxable is on the
vendor or the customer. 20 NYCRR 533.2 (a)(1).
Tax Law section 1101(b)(8)(ii) authorizes the Tax Commission to treat any agent or
representative of a vendor as a vendor jointly responsible with its principal for the collection and
payment of the sales tax when in the opinion of the Tax Commission it is necessary for the efficient
administration of the sales tax.
Although, in the instant case, the Assignee is not the vendor of the property, the Assignee is
nevertheless jointly responsible with Petitioner for the collection and payment of the sales tax since
the Assignee will be the actual collector of rental receipts.
Accordingly, since sales tax is imposed on receipts from rentals of tangible personal property,
the Assignee, as the collector of such receipts, must charge the appropriate sales tax or have in its
possession, no later than 90 days after delivery of the property or the rendition of a service, an
exemption certificate in such form and containing such information as the Tax Commission may
prescribe. See generally Tax Law 1132; 20 NYCRR 532.4, 532.7.

DATED: January 29, 1987

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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