The issue in this case was whether Petitioner provided sufficient evidence that its sales of sulfuric acid to cesspool cleaning companies were sales for resale and not subject to tax.
Petitioner did not dispute that all of its sales were to contractors that provide cesspool cleaning services. Thus, the Judge found that Petitioner’s argument that it was selling acid that would be resold was contrary to the facts of the transaction. Cesspool cleaning companies generally do not sell acid to their customers. Rather, they use the acid in the performance of their taxable maintenance/cleaning services. And the tax law explicitly states that a sale of any tangible personal property to a contractor for “maintaining, servicing or repairing real property, property or land . . . is deemed to be a retail sale regardless of whether the tangible personal property is to be resold as such before it is so used or consumed . . . .” Tax Law § 1101(b)(4)(i). Thus, the ALJ concluded that the sales of acid were not properly viewed as sales for resale.
The Judge then turned to a more interesting question: Even if Petitioner’s sales to a particular customer ultimately failed to qualify as sales for resale, could Petitioner escape taxation because it accepted resale certificates from the particular customer? The Judge recognized that a vendor may generally escape sales taxation on sales for which the vendor accepts, in good faith, timely and properly completed resale certificates from their customer. Unfortunately for Petitioner, only one of the resale certificates in the record was for a transaction that occurred during the audit period. Petitioner claimed that other resale certificates were stolen from the business during a robbery (ed. if I ever turn to a life of crime, the last thing I am going to steal is sales tax exemption certificates). The Judge was unpersuaded and cited the fact that Petitioner was also missing resale certificates for the sales tax periods following the robbery.
Finally, the Judge concluded that the resale certificates were also not properly completed because they were provided by contractors. The implication is that any resale certificate provided by a “contractor” is per se invalid. But such a rule would appear to be inconsistent with other Tax Department pronouncements. For example, in Carolyn Mazzenga, CPA, TSB-A-01(1)S, a dealer of home improvement supplies, whose customers included homeowners, retailers, and contractors, asked if a resale certificate could be accepted in good faith if the word “contractor” or “contracting” appeared in the customer’s name. The Department concluded that the dealer could accept the certificates in good faith as long as the dealer did not have “actual knowledge” that the customer was a contractor and was purchasing the materials specifically to use in a capital improvement job or repair to real property. According to the opinion, “Where Petitioner's client accepts a resale certificate in good faith, it is under no duty to investigate or police its customers or to debate the taxability of the sales with such customers . . . . There is no provision in the Tax Law or the Sales and Use Tax Regulations that requires Petitioner's client to require further substantiation from its customer.” (internal citations omitted).
Contractors can wear two “hats” – a construction service provider and a retailer of tangible property (think pool cleaning companies that also maintain a retail store front that sells chemicals, floats, and other pool-related materials). When purchasing material that will be used exclusively in the retail side of the business, a contractor can purchase the material for resale. The business is not functioning as a contractor for purposes of this material, and, therefore, the resale certificate restrictions should not apply. We have seen the Division adopt this approach on audit.
Were it simply an issue of the customers being contractors, this case may have come out differently. But the untimeliness of the certificates, as well as a lack of any testimony from Petitioner that it exercised ordinary due care or took any steps, as the vendor, to ascertain the appropriate resale certificates, resulted in the Judge sustaining the Notice.
