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New York State & Local Tax Update: June 2017

Posted 4:00 AM by

NY SALT Update

Sales and Use Tax Due on Materials Used When New York Business Acted as Contractor

Purchases by a business of materials, which were installed as part of capital improvements to real property, were subject to sales and use tax. The taxpayer's business sold and installed cabinets, countertops, tile and other building products used in kitchens and baths. During the audit the Division of Taxation found that the taxpayers paid no sales or use tax on any of its purchases of materials, regardless of whether the materials were used in capital improvements or sold at retail, and the Division of Taxation asserted that additional taxes plus penalty and interest were due from the business.

The Tax Appeals Tribunal agreed with the administrative law judge's conclusion that the taxpayer's business was acting as both a retailer of tangible personal property (kitchen and bath construction materials) and as a contractor for installation of capital improvements for some of its customers. New York law provides that the sale of tangible personal property to a contractor for use or consumption in construction is a retail sale and subject to sales and use tax, regardless of whether tangible personal property is to be resold as such or incorporated into real property as a capital improvement or repair. Thus, the taxpayers, as responsible officers of the business, were liable for sales or compensating use tax on the materials their company purchased.

For more information, see In the Matter of the Petition of Costabile, N.Y.S. Tax Appeals Tribunal, 826105, April 14, 2017.

Online File-Sharing Software Subject to Sales and Use Tax

The Department of Taxation and Finance has issued an advisory opinion as to whether the sale, on a subscription basis, of online file-sharing applications for corporate boards of directors are subject to sales and use tax. The taxpayer provides online and on-premise (the application is downloaded onto the customer's server) applications that provide secure file-sharing for corporate boards of directors that are accessed through a standard web browser or iPad application. The applications include providing secure access to boardroom documents and the sharing and collaboration of documents. As the customers have access to the prewritten software on the taxpayer's portal, the Department of Taxation and Finance concluded that the taxpayer is making taxable sales of tangible personal property to the extent that the customers are using the prewritten software in New York.

The Department of Taxation and Finance noted that the taxpayer can accept a letter from its customers as to the proportion of employees and board members authorized to use the software who are in New York, and the taxpayer can collect the tax based on that proportion of its subscription charge for the software. As email is included as part of the service charge, the taxpayer can exclude from the tax that portion of the charge that can be identified as such from its books and records.

For more information, see New York Advisory Opinion TSB-A-17(2)S Feb. 27, 2017. 

About the Author
Donna Niesen is a partner in Katz, Sapper & Miller’s State and Local Tax Group. Donna provides a wide variety of tax consulting services in the areas of multistate sales and income taxes, business incentives, controversy services, and other state taxes. Connect with her on LinkedIn.

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