As a business that makes sales in New York, you are likely aware of the sales tax that will apply to most of your customer transactions. What you or your clients might not be as familiar with are the many exemptions from sales tax that are available to lower your sales tax liability and optimize your related collection or reporting practices. Here, we explain some of those major exemptions but also explore some of the ways businesses find themselves the subject of an audit from the New York Tax Department or the recipient of an additional tax bill for improper use of an exemption.
Exemptions for Food, Medicine, Water, and Other Necessities of Life
Many states recognize that businesses generally pass their sales tax obligations to their customers at the time of purchase. When it comes to certain essential purchases, like food and medicine, New York chooses to exempt sales tax to avoid placing additional costs on New York residents. Businesses can use the following exemptions and corresponding certificates when making these types of sales:
- Food products, beverages, and health supplements that you sell for human consumption (excluding food and beverages that lack nutritional value such as candy, unnatural fruit juice drinks, sodas, and alcohol).
- Medicine, medical equipment and supplies, feminine hygiene products, prosthetic aids, etc. (See NY Publications 822 and 840).
- Energy purchases for residential use (Form TP-385).
- Certain food bought using food stamps.
- Clothing and footwear sold for less than $110 per article.
New York also Exempts Sales Tax for Goods Ancillary to Producing Necessities
New York also provides some sales tax exemptions for property bought to produce or manufacture essential, non-taxable items. Often, these are items that you rely on to grow or cultivate food, medicines, etc. Some examples include:
- Milk crates bought by a dairy farmer or licensed milk distributor (Form ST-121).
- Certain fishing vessels (Form ST-121).
- Veterinary services and drugs or medicine used on livestock or poultry (Form ST-125).
- Property or services for farming including commercial horse boarding, fuel, and utilities (Form ST-125).
Sales Tax Exemptions for Various Industries and Transportation in New York
We rely on innovations in industries to propel our economy to new heights. New York and other states often recognize this reality and choose to invest and encourage that activity by exempting sales tax for related purchases. These exemptions can save you costs on purchases you make to further your business:
- Commercial vessels (Form ST-121).
- Property and utilities used in research and development.
- Manufacturing (Machinery, equipment, utilities, and fuel). See Forms ST-121, FT-1012, and FT-1020.
- Computer system hardware bought for developing software and websites (Form ST-121.3).
- Certain trucks, tractors, and tractor-trailers. See TSB-M-81(25)S.
- Tractors, trailers, semi-trailers, etc. (Form ST-121.1).
- Public transportation vehicles (Form ST-121.1).
- Ferry boats and related property bought to use them (Form ST-121).
New York Sales Tax Exemptions for Items Related to Furthering Your Business
New York also exempts from sales tax certain purchases that are necessary for furthering your business. The biggest of these is when you buy something with the intent of reselling it, which largely covers sales between you and your suppliers. However, other exemptions also exist when it comes to marketing or packing:
- Property bought for resale (Form ST-120).
- Packaging materials related to property for sale (Form ST-121).
- Shopping papers and other printing services (Form ST-121).
- Certain promotional materials and related services (Form ST-121.2).
Where Taxpayers Get in Trouble Using New York Sales Tax Exemption Certificates
Some sales tax exemptions in New York require the use of a certificate to document the transaction’s exempt status while others do not. Receipt of the exemption certificate as the seller is what replaces your responsibility for collecting sales tax from the buyer. You can use sales tax exemption certificates on a per transaction basis or use a blanket certificate for similar purchases between the same buyer and seller.
For buyers, the exemption certificate allows you to make purchases without having to pay additional tax upfront. Sellers have the final word on whether to accept an exemption certificate or not, but buyers do have recourse when improperly charged for sales tax by applying for a refund or credit using Form AU-11. Knowing when you need a certificate (and using it correctly) is critical for defending your tax position during an audit.
Some issues that commonly arise for businesses in their use of sales tax exemptions include:
- Not having fully executed certificates (i.e., missing key information like signatures, contact info, other documentation required for the specific exemption).
- Untimely exemption certificate usage (buyers must provide the certificate to the seller within 90 days of the purchase date).
- Improper use of blanket certificates for transactions involving different buyers or tangible personal property that’s different from the original certificate (i.e., dissimilar property).
- Issuing or accepting certificates you know to be false or fraudulent.
- Non-compliance with other requirements for properly using your exemption certificates. See TB-ST-770 for more information.
Failing to properly use your sales tax exemption certificates can risk accidentally voiding the exempt status of your sale. You may also have liability for penalties, fines, jail sentences, and criminal charges for using false or fraudulent exemption certificates.
For Help Defending Your Use of New York Sales Tax Exemptions
We believe you should have every opportunity to benefit from the sales tax exemptions that apply to your business operation. These exemptions exist for good reason – to avoid taxes that burden your customers and to encourage the continued innovation and promotion of industry by protecting you from unnecessary sales tax.
We only highlighted some of the biggest sales tax exemption categories that are likely to affect your business in New York. You can review the NY Tax Department’s TB-ST-740 for a more detailed guide that covers exemptions in niche industries. Of course, you can always schedule a consultation with one of our tax professionals for a review of the New York sales tax exemptions that may exist in your market. We also offer our services to represent businesses during an audit or tax challenge that may involve unused tax exemption opportunities or require defending your company’s past use of an exemption.
Schedule a consultation with Sales Tax Helper today to protect your right to available sales tax exemptions in New York.