What makes a New York exemption certificate properly completed, who then owes the sales tax, and what are a contractor's obligations when it receives a capital improvement certificate?

Plain-English summary

D.C. Distributing Inc. is a wholesaler of siding and windows that sells to other wholesalers and to contractors, and sometimes acts as a contractor/installer itself. It asked four questions about exemption certificates and capital improvements.

The Department's answers, in order:

• (1) What makes an exemption certificate "properly completed." Under 20 NYCRR § 532.4, it must contain the date prepared; the purchaser's name and address; the vendor's name and address; the purchaser's identification number (from its Certificate of Authority, or an exempt-organization number — a farmer's certificate has none); the signature of the purchaser or an authorized representative; and any other information the particular form requires.
• (2) Who owes the tax once a proper certificate is received. Tax Law § 1132(c) presumes all receipts are taxable, but when a vendor takes a properly completed exemption certificate within 90 days of delivery/service, the burden of proof — and responsibility for any tax due — shifts solely to the purchaser, and the vendor need not collect tax. The vendor loses that protection only if it has actual knowledge the certificate is false or fraudulent; it has no duty to interrogate a customer whose certificate is proper on its face.
• (3) Contractor receiving a Capital Improvement Certificate. When D.C. Distributing performs a capital improvement and gets a properly completed Capital Improvement Certificate, it is acting as the contractor — the ultimate consumer of the materials. So it must pay USE tax on its cost of the materials used in the capital improvement, and it does not collect sales tax from the customer (20 NYCRR §§ 527.7(b)(5), 541.13; Example 1: a retailer installing a hot-water tank under a capital improvement certificate owes use tax on its cost of the tank).
• (4) Assurance the certificate is valid. A certificate that is proper on its face satisfies the vendor's burden and protects it, unless the vendor actually knows it is false or fraudulent.

What this means for you

A properly completed exemption certificate is your protection as a seller — and it flips the tax responsibility to the buyer. Once you take a certificate that's complete on its face (date, both parties' names/addresses, the buyer's ID number, a signature, and anything else the form asks for) within 90 days, you don't collect the tax and the buyer alone answers for any tax due. You only lose that shield if you actually know the certificate is bogus — you're not required to play detective on a facially valid one.

When you install as a contractor making a capital improvement, you're the consumer — you pay tax on your materials. A Capital Improvement Certificate from your customer doesn't make the job tax-free for you. As the contractor you owe use tax on your cost of the materials, and you don't charge the customer sales tax on the job.

Get the certificate in hand within 90 days. The 90-day window in § 1132(c) is what locks in the burden shift; a late or missing certificate leaves the tax burden on you.

Common questions

Q: What has to be on an exemption certificate for it to count?
A: Date prepared, the purchaser's and vendor's names and addresses, the purchaser's ID number (Certificate of Authority or exempt-organization number), the purchaser's/representative's signature, and any other info the specific form requires.

Q: A customer gave me a completed exemption certificate. Do I still collect tax?
A: No. A properly completed certificate received within 90 days shifts the tax responsibility to the buyer, and you don't collect — unless you actually know the certificate is false or fraudulent. You don't have to interrogate a customer over a facially valid certificate.

Q: I install siding and windows as a capital improvement and got a Capital Improvement Certificate. Do I charge the customer tax?
A: No. As the contractor you're the ultimate consumer of the materials, so you pay use tax on your cost of the materials and don't collect sales tax from the customer.

Q: Is there a deadline for the certificate?
A: Yes — it must be received no later than 90 days after delivery of the property or the rendition of the service.

Citations and references

Statute and regulation:

• Tax Law § 1132(c) — presumes all receipts taxable until the contrary is established; a properly completed exemption certificate taken within 90 days shifts the burden of proof solely to the customer
• 20 NYCRR § 532.4 — sets the presumption of taxability, the burden of proof, and the six elements of a properly completed exemption certificate; a vendor is not relieved if it has actual knowledge the certificate is false or fraudulent
• 20 NYCRR § 527.7(b)(5) — a contractor making a capital improvement pays tax on the cost of materials as the ultimate consumer of the tangible personal property
• 20 NYCRR § 541.13 — retailers installing property that constitutes a capital improvement act as contractors and are liable for use tax based on their cost of the property (Example 1: hot-water-tank installation)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1988.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a88_27s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-88(27)S
Sales Tax
May 11, 1988

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S880121A

On January 21, 1988, a Petition for Advisory Opinion was received from D.C. Distributing
Inc. 1047 Mt. Read Boulevard, Rochester, New York 14606.
Petitioner raises several issues: (1) What constitutes a properly completed sales tax
exemption certificate; (2) Who is responsible for collecting sales tax when a properly completed
certificate is received; (3) When Petitioner acts as a contractor or installer and receives a properly
completed Capital Improvement Certificate, what is his responsibility for collecting or paying sales
tax; and (4) How can Petitioner be sure that the Certificate of Capital Improvement he receives has
been properly completed?
Petitioner is a wholesaler of siding and windows who sells such products to other wholesalers
and to individual contractors. On occasion, Petitioner, itself, will act as a contractor or installer of
such products.
The following provisions of the Tax Law and sales tax regulations are applicable to
Petitioner's business activities.
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 . . . to the effect that the property or
service was purchased . . . 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. Where
such a certificate or statement has been furnished to the vendor the
burden of proving that the receipt . . . is not taxable . . . shall be
solely upon the customer . . .
The meaning of such provision is explained in the Sales and Use Tax Regulations, as follows:

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

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

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Sales Tax
May 11, 1988
Reg. Sec. 532.4 Presumption of Taxability. . .
(a) General. It shall be presumed that all receipts from sales of
property . . . of any type mentioned in subdivision (a) . . . of section
1105 of the Tax Law [viz., sales of tangible personal property] are
subject to tax until the contrary is established.
(b) Burden of proof. (1) The burden of proving that any receipt . . .
is not taxable shall be upon the person required to collect tax or the
customer.
(2) When the vendor makes a sale which is exempt because the
property purchased is for . . . an exempt use . . ., as proof of the
exemption the vendor shall, at the time of sale, obtain a properly
completed exemption certificate from the purchaser and retain the
certificate in his files. Such certificate satisfies the vendor's burden of
proof.
(3) When the vendor is furnished with a properly completed
exemption certificate, the burden of proving a transaction is not
taxable shall be solely upon the customer.
(4) The vendor shall not be relieved of the burden of proof when no
exemption certificate or an improper certificate has been furnished
him, or when the vendor has actual knowledge that a certificate
furnished is false or fraudulent.
(c) Use of exemption certificates. (1) To enable purchasers
entitled to an exemption from the sales and compensating use tax to
avail themselves of the exemption and for administrative purposes,
the Department of Taxation and Finance provides various exemption
forms, the use of which is governed by the conditions under which
they are issued. A vendor is not required to collect tax from a
purchaser who furnished a properly completed exemption certificate.
(2)
A certificate is considered to be properly completed
when it contains the:
(i) date prepared;
(ii) name and address of purchaser;
(iii) name and address of vendor;
(iv) identification number of purchaser as shown on
the certificate of authority, or exempt organization number as
shown on the exempt organization certificate. However, a
farmer's exemption certificate does not have such a number.
(v) signature of purchaser or purchaser's authorized
representative; and

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TSB-A-88(27)S
Sales Tax
May 11, 1988
(vi) any other information required to be completed
on the particular form. (20 NYCRR 532.4)
The Sales and Use Tax Regulations state, in relevant part: "Any contractor who is making
a capital improvement must pay a tax on the cost of materials to him, as he is the ultimate consumer
of the tangible personal property.20 NYCRR
527.7(b) (5).
Additionally, the Sales and Use Tax Regulations provide:
541.13 Retailers engaged in contracting. (a) Retailers, such
as department stores, when installing tangible personal property
which constitute a capital improvement to real property of their
customer are acting as contractors.
(b)
Retailers when installing tangible personal property
which constitute a capital improvement are liable for the use tax
based upon their cost for the property at the State and local rate in
effect in the jurisdiction where the tangible personal property is
installed.
Example 1:

A retailer with a hardware and plumbing
department, sells hot water tanks with or
without installation. When the tank is sold,
installed by the retailer and the customer
presents a properly completed certificate of
capital improvement to the retailer, the retailer
is acting as a contractor and is liable for the
compensating use tax based upon its cost for
the tank. The retailer must report the cost of
the hot water tank as a purchase subject to use
tax on its sales tax return.

Accordingly, an exemption certificate is properly completed when all of the information
requested on it is furnished and the certificate is signed by the purchaser or the purchaser's authorized
representative. A vendor is not relieved of his duty to collect tax if he has actual knowledge that a
certificate is false or fraudulent. However, if a vendor has no such actual knowledge, he is under no
duty to interrogate a customer to insure that an exemption certificate which is properly completed
on its face is not false or fraudulent.
When a properly completed exemption certificate is received by the vendor not later than 90
days after delivery of the property or the rendition of the service, it is the purchaser alone who is
responsible for any tax that may be due. Petitioner is not required to collect sales tax from its
customer under these circumstances.

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Sales Tax
May 11, 1988
Additionally, when Petitioner performs a capital improvement and receives a properly
completed capital improvement certificate from its customer, Petitioner is responsible for paying use
tax on its cost of the materials used in the capital improvement. Petitioner is not required to collect
sales tax from its customer under these circumstances.

DATED: May 11, 1988

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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