All About Sales Tax

In a decision with significant implications for the sales taxation of artwork, the New York Tax Appeals Tribunal ruled on February 28 that a $7 million painting (at least a one-half share in the painting) was validly acquired for resale resulting in a six-figure sales tax refund for a co-owner of the painting.  Tribunal decisions on sales tax are significant in their own right, since they are somewhat rare and (as opposed to administrative law judge rulings) they become binding precedent.  But the Objet LLC ruling should have particular relevance to the art industry since it tackles two issues that factor prominently in the high-stakes sales and related tax structuring that occur in the industry:  one being the form-over-substance nature of sales tax, and the other being the proper analysis for determining when property is purchased “exclusively for resale”.

In 2015, the New York Tax Law was amended to provide exemptions from sales and use tax for certain sales of electricity generated by residential or commercial solar energy systems and sold under a written solar power purchase agreement (“PPA”) (See N.Y. Tax Law §§ 1115(ee)(2), 1115(ii)(2); see also TSB-M-15(5)S).  These exemptions were in addition to the already existing sales tax exemptions for the sale and installation of residential and commercial solar energy systems equipment (See Tax Law §§ 1115(ee)(1), 1115(ii)(1); see also TSB-M-05(11)S and TSB-M-12(14)S). 

After several years of failed bills, Florida has finally joined the other 43 states that have passed economic nexus threshold for sales and use tax purposes in the wake of the U.S. Supreme Court’s decision in South Dakota v. Wayfair Inc. On April 19, 2021, Governor Ron DeSantis signed S.B.50 that enacted legislation imposing a sales tax collection requirement on both remote sellers and marketplace providers.

Here are the sales tax cases from the TiNY blog for the week of March 25, 2021.

Because this was handled by Hodgson Russ, we’ll forego editorializing and provide just the facts.

By way of summary: Petitioner paid sales tax on purchases of concrete used in foundation work for building projects. Petitioner then sought a refund for the sales tax it paid, claiming that the concrete purchases qualified as nontaxable installations of capital improvements. The ALJ determined that the transactions constituted taxable purchases of tangible personal property because it was Petitioner, and not the concrete vendor, who was responsible for the installation of the concrete.

We lumped these two cases together because they present pretty much identical facts, legal issues, and outcomes. Indeed, the opinion sections of each decision contain virtually identical structure and language. The issue in these cases was whether security services provided at real property construction projects were taxable.

The sales taxation of exotic dancing and transactions conducted in adult entertainment establishments has a long history before the Division of Tax Appeals and the New York courts. This case presents the most recent chapter. 

This case examines the operation of New York’s resale exemption and the limits of the protection conferred by resale exemption certificates.

When it comes to sales tax, form matters. And in this case, the imprecise and somewhat contradictory evidence regarding the form of what should have been a nontaxable equity purchase caused the Judge to sustain a sizable sales tax bill.

The issue in this case is whether the sale of laser technology used to treat dermatological ailments and related services constituted a taxable lease of tangible property or the provision of a nontaxable service. Petitioner provided to its dermatologist customers an ultraviolet light excimer laser system that generated and delivered targeted ultraviolet light to treat various skin conditions. Petitioner did not characterize the transactions as leases, nor did the customers receive the lasers for a set amount of time. Rather, Petitioner “consigned” the lasers to its customers and charged for “treatment codes,” which allowed the lasers to be used and treatments to be administered.

Petitioner provided marketing analysis services that the Division viewed to be taxable information services. Specifically, Petitioner helped its customers measure their advertising effectiveness by (1) surveying consumers or internet users who had seen a particular advertisement and those who had not seen the ad, (2) comparing and analyzing the results, and (3) informing its clients as to how well the ad performed and what the clients could do to improve ad performance. At first blush, there seems to be significant similarity to the MarketShare Partners, LLC case we reviewed a few weeks ago. In that case, the taxpayer was a marketing analytics firm that enabled large companies to measure, predict, and improve the impact of their marketing spend. The ALJ concluded that the main service was a nontaxable marketing consulting service rather than a taxable information service. So we’d expect a similar result in this case, right? Not so fast . . .

A fight might be brewing over the Division’s longtime conclusion that IT monitoring services can constitute taxable protective services. Here, Petitioner offered managed and monitored security services, giving customers information to prevent, detect, respond to, and predict cyberattacks. The question in the case was whether these services constituted either taxable protective and detective services or taxable information services.

After weeks of being absent from TiNY (in part due to Chris Doyle’s encroachment on my territory), I’m back in a big way.  The Division of Tax Appeals issued a whopper of a sales tax determination – 55 pages!  It addresses one of the most perplexing issues in all of New York sales tax – the proper characterization of a technology product – is it a nontaxable service, taxable information, or taxable software?  Let’s dive in. 

The New York State Tax Department released new guidance last week in TSB-M-20(2)S addressing potential avenues for relief for those assessed as responsible persons for sales tax.  This new TSB-M largely mirrors amendments to Tax Law § 1133(a) that were enacted as part of the budget legislation for fiscal 2018-2019 which we covered here and here.  That legislation established statutory relief for certain limited partners and LLC members who were assessed and held jointly and severally liable for sales tax assessments solely by virtue of their interest in a partnership or LLC.  To qualify for relief, eligible limited partners and LLC members must principally show that: (i) they were not under a duty to act for the LLC or partnership in complying with the requirements of the sales tax; and (ii) their ownership interest and the percentage of their distributive share of the profits and losses of the LLC or partnership are each less than 50%. 

The NYS Department of Taxation and Finance issued a new advisory opinion today concluding that a contractor installing a new floor for a tenant at JFK Airport can purchase glue tax free because the glue becomes an “integral component part” of real property owned by an exempt entity. JFK Airport is owned by the Port Authority of New York and New Jersey. 

In a blog post published earlier this year, we noted the fact that the number of sales tax advisory opinions published by the New York State Tax Department had diminished precipitously over the past few years, to the point that, in 2019, the Department published only one advisory opinion.  Just four years earlier, it had published 53.  Because sales tax is such a fact-specific tax (a subtle change in underlying facts can cause a transaction to go from being nontaxable to taxable[1]), and because the stakes are so high (possible personal liability for those running the business), we pleaded with the Department to return to its previous level of activity and to start churning out advisory opinions.  We indicated that the “[t]the students are here. We’re waiting for the master to (re)appear.”

The upcoming legislative session is coming into focus with the recent issuance of the Governor’s Executive Budget (you can see our review here). Below is our review of the sales and use tax legislation that has been introduced so far this year along with the corresponding bill numbers. Two broad themes emerge: (1) New York is looking to increase revenue by taxing luxury and high end items, and (2) numerous local sales taxes have been extended.

I’m not exactly sure where the aphorism in the title of this post comes from, but its message is clear: when you’re ready to know something, you’ll seek out a way to learn it.  Well, I’ve been ready to learn everything there is to know about New York sales tax for a long time.  And in years past, the New York State Tax Department has been a wonderful master.  It has provided me with numerous ways to learn the complex rules governing New York sales tax.  This information includes sales tax Publications, Bulletins, Memorandums, Guidances, Notices, form instructions, and Advisory Opinions.

Here are the sales tax cases from the TiNY Blog for the week of February 13, 2020. 

Here are the sales tax cases from the TiNY Blog for the week of February 6, 2020. 

Every now and then, we’re going to do a deep dive into a sales tax case that we previously reported on in the TiNY Blog.  We keep the more abridged version in the TiNY Blog because, according to Chris Doyle, “Joe, your interest in the sales tax is at best annoying, and at worst pathological.”

Here are the sales tax cases from the TiNY Blog for the week of January 16, 2020. 

Here are the sales tax cases from the TiNY Blog for the week of January 9, 2020

Here are the sales tax cases from the TiNY Blog for the week of January 2, 2020. 

Happy New Year TiNY readers! Not only has the year changed, but there are a few changes going on here at TiNY as well. You may have noticed a byline on the posts for the last few weeks and wondered what that was all about. Well, TiNY has added a new author to the mix, our own Joe Endres, to report on sales tax cases, and today is his debut!