When a customer gives a supplier a blanket resale certificate, must the supplier still figure out and separately tax individual items in the order that the customer probably won't actually resell?

Plain-English summary

Jeffrey Coren, a CPA, asked a general question that comes up whenever a single supplier sells a mix of products to one customer under a blanket resale certificate: does the supplier have to sort out which specific items the customer will genuinely resell and tax the rest? He gave three examples -- a paper-products vendor selling to a deli-grocery, a chemical/paper-products supplier selling janitorial supplies to a janitorial-services company, and a food/non-food supplier selling to a restaurant -- in each case wondering whether some of the goods sold might really end up used rather than resold by the customer, and whether the supplier is on the hook for tax on those items despite having a resale certificate on file.

New York's rule centers on good faith, not perfect knowledge. Once a vendor accepts a properly completed resale or exemption certificate within 90 days of delivery, and does so in good faith (no knowledge that the certificate is false or fraudulent, with reasonable ordinary care exercised), the vendor is relieved of liability for not collecting tax on that transaction -- full stop. The vendor has no independent duty to investigate its customer's actual usage plans or to selectively tax individual items just because some might not truly be for resale. That protection is exactly what the certificate mechanism is designed to provide.

But good faith has a real limit: if the vendor actually knows a particular item won't be resold by that customer -- the ruling's own example is selling dinnerware and linens to a restaurant the vendor knows isn't in the business of selling dinnerware and linens -- the vendor cannot claim good-faith reliance on the certificate for that item and must collect tax on it despite having the certificate on file. Whether a vendor genuinely had that knowledge in a given transaction is a factual question the Department says it cannot resolve in an Advisory Opinion; that's a case-by-case determination, typically made on audit. On the other side, the customer isn't off the hook either: it owes use tax on anything it bought exempt under a resale or exemption certificate but ultimately did not resell or put to an exempt use.

What this means for you

Wholesalers and suppliers selling a mixed product line to one customer

You're not required to police or second-guess your customer's resale certificate item by item -- once you've accepted a timely, properly completed certificate in good faith, you're protected even if some items in the order turn out not to be resold. Your risk shifts to your customer, not to you, for that mismatch.

Vendors who happen to know a customer's actual business

Actual knowledge changes everything -- if you know specific items you're selling clearly fall outside what that customer resells (dinnerware to a restaurant that only sells food), you lose the good-faith shield for those items and must collect tax regardless of a blanket certificate on file.

Customers who provide blanket resale certificates

The certificate protects your supplier, not you -- if you buy something tax-free under a resale certificate and then actually use it rather than resell it, you personally owe use tax on it, independent of anything your supplier did or didn't do.

Common questions

Q: Can a supplier be forced to guess which items in an order a resale-certificate customer will actually resell?
A: No -- accepting a timely, good-faith certificate covers the whole transaction; the supplier has no independent duty to sort items by likely end use.

Q: When does a supplier lose protection despite having a valid certificate on file?
A: When the supplier actually knows the certificate is false or that specific goods clearly wouldn't be resold by that customer's business.

Q: Who ultimately owes tax if a customer buys something tax-free for resale but keeps it instead?
A: The customer -- it owes use tax on that item, even though the supplier remains protected by its good-faith acceptance of the certificate.

Citations and references

Statutes and regulations:

• Tax Law § 1132(c)(1) (presumption of taxability; timely resale/exemption certificate)
• 20 NYCRR § 532.4(b) (burden of proof; good-faith acceptance of exemption certificates)

Prior rulings and cases referenced:

• Allied Steam Corp., TSB-A-90(51)S (October 23, 1990), citing Matter of Saf-Tee Plumbing Corp. v. State Tax Commn., 77 A.D.2d 1
• Copelco Leasing Corporation, TSB-A-95(15)S (May 18, 1995)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1999.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a99_42s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-99(42)S
Sales Tax
November 3, 1999

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S990219A

On February 19, 1999, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Jeffrey J. Coren CPA., 225 West 34th Street, Suite 2015, New York, New
York 10122.
The issue raised by Petitioner, Jeffrey J. Coren CPA, is whether there is any statutory or
regulatory provision which would require a supplier to selectively tax certain items sold to a
customer when the supplier has received a properly completed resale certificate.
Petitioner submits the following facts as the basis for this Advisory Opinion.
When purchasing various supplies from a single vendor, a customer supplies a resale
certificate. In certain situations, a purchaser may be entitled to the resale exemption on only some
of the products sold by that entity.
Example 1:
A vendor of paper products receives a blanket resale certificate from a deli-grocery. Does
a resale certificate protect the seller from liability for sales tax due on all sales made to the customer
providing the resale certificate?
Example 2:
Janitorial supplies are sold to a janitorial services provider by a supplier. Would a resale
certificate provided to a supplier of both chemical and paper products relieve the supplier of any tax
liability on the supplies even if some of the supplies might ultimately be taxable to the service
provider?
Example 3:
A restaurant or fast food emporium supplies a resale certificate to a vendor of both food and
non-food products. Does receipt of a resale certificate relieve this supplier of liability for sales tax
on this customer’s purchases?

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Applicable Law & Regulations
Section 1132(c)(1) of the Tax Law provides 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 . . . . [U]nless . . . a vendor, not later
than ninety days after delivery of the property or rendition of the service, shall have
taken from the purchaser a resale or exemption certificate in such form as the
commissioner may prescribe . . . the sale shall be deemed a taxable sale at retail.
Section 532.4(b) of the Sales and Use Tax Regulations provides, in part:
Burden of proof. (1) The burden of proving that any receipt, amusement
charge, or rent is not taxable shall be upon the person required to collect the tax and
the customer.
(2) A vendor who in good faith accepts from a purchaser a properly
completed exemption certificate or, as authorized by the Department, other
documentation evidencing exemption from tax not later than 90 days after delivery
of the property or the rendition of the service is relieved of liability for failure to
collect the sales tax with respect to that transaction. The timely receipt of the
certificate or documentation itself will satisfy the vendor’s burden of proving the
nontaxability of the transaction and relieve the vendor of responsibility for collecting
tax from the customer.
(i) A certificate or other document is "accepted in good faith" when a vendor
has no knowledge that the exemption certificate or other document issued by the
purchaser is false or is fraudulently presented. If reasonable ordinary due care is
exercised, knowledge will not be imputed to the seller required to collect the tax.
*

*

*

(4) Audit compliance verification procedures. Verification of the exemption
certificates and documents received by a vendor will occur during an audit of its
records. The verification shall include a review for proper completion and the

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timeliness of and receipt in good faith of such exemption certificates and other
documents.
*

*

*

(iv) Exemption certificates or documents not received by the vendor within
90 days after the delivery of the property or the rendition of the service will likewise
not, in and of themselves, be considered as satisfying the vendor’s burden of proof
concerning the taxability of the subject transaction.
*

*

*

(5) A vendor is not relieved of the burden of proof when it failed to obtain an
exemption certificate or accepted an improper certificate, or had knowledge that the
exemption certificate issued by the purchaser was false or fraudulently presented.
Opinion
Where a vendor has, in good faith, accepted a resale or exemption certificate within 90 days
of delivery of the property, it is not under a duty to investigate or police its customers and has no
duty to debate with its customers as to whether or not certain items are subject to sales tax. See
Allied Steam Corp., Adv Op Comm T&F October 23, 1990, TSB-A-90(51)S, citing Matter of SafTee Plumbing Corp. v. State Tax Commn., 77 AD2d 1. On the other hand, Petitioner’s customers
will owe sales or use tax on anything purchased with a resale or exemption certificate that was not
resold or put to an exempt use. It should be noted that a vendor may not rely on a resale or other
exemption certificate that is not provided within 90 days of the date of delivery. See Section
532.4(b)(4)(iv) of the Sales and Use Tax Regulations.
A vendor could not accept a resale or other exemption certificate in good faith, and would
be required to collect tax on the sale of tangible personal property or services if the vendor knows
the property or services are not purchased for resale, even though a resale or exemption certificate
has been timely furnished by the purchaser. See Section 532.4(b)(2)(i) of the Sales and Use Tax
Regulations. For instance, in the case of Example 3 above, a vendor would be required to collect
tax on the sale of dinnerware and linens if the vendor knows that the purchaser is a restaurant which
is not in the business of selling dinnerware and linens. The question of whether a properly
completed exemption certificate was accepted in good faith in a particular transaction is a factual
question which cannot be determined 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

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Law, Section 171, subd. twenty-fourth; 20 NYCRR 2376.1(a); Copelco Leasing Corporation, Adv
Op Comm T&F, May 18, 1995, TSB-A-95(15)S.

DATED: November 3, 1999

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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