May a painting contractor accept a Resale Certificate (Form ST-120) in good faith when claiming a sales tax credit for tax paid on materials used in services sold for resale?

Plain-English summary

Sharon P. Sheinfeld asked, for a painting contractor who pays sales tax on all of its materials and supplies and performs both capital improvements and repairs for exempt and non-exempt customers, a documentation question: when the contractor claims a § 1119(c) credit for the tax it paid on materials used in services it sells for resale, may it accept a Resale Certificate (Form ST-120) from its customer in good faith?

The Department said yes, and explained what "good faith" means.

• Under § 1132(c) and 20 NYCRR § 532.4, all receipts are presumed taxable until the contrary is shown, and a vendor discharges its burden by taking a properly completed exemption certificate from the customer.
• A certificate is "properly completed" when it contains the date, the names and addresses of the purchaser and vendor, the purchaser's identification number (from its Certificate of Authority) or exempt organization number, the purchaser's signature (or that of an authorized representative), and any other information the particular form requires.
• Once a properly completed certificate is furnished, the burden of proving the transaction is not taxable shifts solely to the customer.
• A vendor is not relieved of its duty to collect tax if it has actual knowledge the certificate is false or fraudulent. But if it has no such actual knowledge, it is under no duty to interrogate the customer to make sure a certificate that is proper on its face is not false. The Department cited Saf-Tee Plumbing Corp. v. Tully.
• Bottom line: although a Contractor Exempt Purchase Certificate is technically the correct certificate for this transaction, as long as the Resale Certificate the contractor receives is properly completed, the contractor may accept it in good faith.

What this means for you

A properly completed certificate protects you — and shifts the burden

If a customer hands you a resale or exemption certificate that is filled out completely and correctly, you may rely on it in good faith, and the burden of proving the transaction wasn't taxable moves to the customer. You don't have to play detective about a certificate that looks proper on its face.

"Good faith" has a limit: actual knowledge

The protection disappears if you actually know the certificate is false or fraudulent — you can't take a certificate you know to be bogus and hide behind it. Short of that actual knowledge, though, you have no duty to interrogate the customer, which is the rule from Saf-Tee Plumbing v. Tully.

Know what makes a certificate "properly completed"

A certificate only does its job if it's complete: date, both parties' names and addresses, the purchaser's Certificate of Authority number (or exempt organization number), the signature, and anything else the form calls for. A blank or half-filled certificate does not shift the burden and does not protect you.

The "right" form vs. a good-faith one

The Department noted the technically correct document here was a Contractor Exempt Purchase Certificate, but a properly completed Resale Certificate accepted in good faith still worked. For the companion opinion spelling out which certificate a painting contractor should collect for capital-improvement versus repair jobs, see TSB-A-90(45)S (same petitioner).

Common questions

Q: Can I rely on a resale certificate a customer gives me?
A: Yes, if it is properly completed and you have no actual knowledge that it is false. You may accept it in good faith and the burden shifts to the customer.

Q: Do I have to verify that my customer's certificate is truthful?
A: No. You have no duty to interrogate the customer about a certificate that is proper on its face, unless you have actual knowledge it is false or fraudulent (Saf-Tee Plumbing v. Tully).

Q: What makes a certificate "properly completed"?
A: The date; the purchaser's and vendor's names and addresses; the purchaser's identification or exempt organization number; the purchaser's (or its representative's) signature; and any other information the form requires.

Q: Was the Resale Certificate the technically correct form?
A: The Department noted a Contractor Exempt Purchase Certificate is the correct certificate for this transaction, but a properly completed Resale Certificate accepted in good faith was acceptable.

Citations and references

Statutes and regulations:

• Tax Law § 1132(c) — presumption of taxability; a properly completed certificate shifts the burden to the customer
• Tax Law § 1119(c) — credit or refund of tax paid on property used in performing services sold for resale
• 20 NYCRR § 532.4 — presumption of taxability; requirements for and use of exemption certificates

Cited authority:

• Saf-Tee Plumbing Corp. v. Tully, 77 AD2d 1

Related Department opinion:

• TSB-A-90(45)S — same petitioner; which exemption documents a painting contractor should collect for capital-improvement versus repair work

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a90_39s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-90(39)S
Sales Tax
August 7, 1990

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S900418B

On April 18, 1990 a Petition for Advisory Opinion was received from Sharon P. Sheinfeld,
c/o Richard A. Eisner & Company, 575 Madison Avenue, New York, New York 10022.
The issue raised by Petitioner, Sharon P. Sheinfeld, is whether a painting contractor when
claiming a credit for New York State sales tax paid on purchases and supplies pursuant to Section
1119(c) of the Tax Law, for services sold for resale can accept a Resale Certificate (Form ST-120)
in good faith for the purposes of claiming said credit.
Petitioner is a painting contractor who pays sales tax on all purchases of materials and
supplies. Petitioner's services include both capital improvements and repairs performed for exempt
organizations and non-exempt customers.
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 Section 532.4 of the Sales and Use Tax
Regulations, as follows:
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.
TP-9 (9/88)

-2­
TSB-A-90(39)S
Sales Tax
August 7, 1990
(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
(vi) any other information required to be completed
on the particular form. (20 NYCRR 532.4)
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. Saf-Tee Plumbing Corp. v. Tully, 77 AD2d 1.

-3­
TSB-A-90(39)S
Sales Tax
August 7, 1990
Although a Contractor Exempt Purchase Certificate is the correct certificate to be used in the
above transaction, as long as the Resale Certificate received by Petitioners' client is properly
completed, he may accept it in good faith.

DATED: August 7, 1990

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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