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All About Sales Tax

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Sales tax is one of the most interesting, and challenging, taxes. It’s interesting because it involves clients in every possible industry. Every active business has potential sales tax exposure, no exceptions!  And unfortunately sales tax compliance is particularly difficult for two, specific reasons.  First, the tax is perhaps the most fact-dependent – seemingly inconsequential changes in the underlying facts can transform a nontaxable sale into a taxable one.  Second, these rules are constantly changing.  It’s tough enough to keep up with these changes in just one state.  But many vendors, especially those selling over the internet, have to keep abreast of these changes in multiple states.  So it’s easy to fall behind on sales tax compliance. 

With this blog, we hope to keep you up to date on impactful changes in the sales tax compliance, especially in New York State.  We’ll review legislative and administrative changes in the sales tax; we’ll discuss new sales tax case law; and we’ll highlight the enforcement initiatives and tactics we’re seeing while defending businesses in sales tax audits.  We hope you find this content as interesting as we do.  Please contact us with any questions. 

Proposed Sales Tax Legislation for the Coming Legislative Session

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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.

Additional 2% Sales Tax on Luxury Items

Bills have been introduced (A9650 – Epstein, S7634 – Jackson) that propose to impose an additional 2% sales tax on the following luxury items:

  • Motor vehicles sold for over $70,000 (excluding commercial and electric vehicles)
  • Jewelry sold for over $5,000
  • Clothing over $1,000

The additional revenue would be directed to SUNY and CUNY for educational purposes.

Vessel Exemption Repeals

This one requires a bit of explanation. As part of the 2015 budget, New York enacted more generous treatment for boats purchased by nonresidents. New York’s tax law imposes the sales and use tax on only the first $230,000 of taxable base, regardless of whether the relevant taxable base is purchase price, fair market value, or fair rental value. New York will give taxpayers a credit against use tax for the sales tax paid on the boat to another state. However, that credit is limited to the amount of tax due and paid to the other state on the same $230,000 cap.

Finally, New York’s rules were changed to define a taxable “use” much more generously than under previous tax rules. Under the old rules, a taxable use occurred as soon as the boat entered New York. Under the new rules, a taxable use doesn’t occur until the first of the following events:

  • The use of the boat in New York for a period of 90 consecutive days;
  • The date upon which the boat is required to be registered under the Vehicle & Traffic Law (boats registered in another state are not required to be registered in New York unless kept here for 90 consecutive days); or
  • Actual registration.

For more detail, see our contemporaneous review of the issue here.

Well, sailors be warned, it looks like rough seas may lie ahead. Two bills have been introduced to eliminate this exemption. Below is a list of the proposed legislation: 

  • A9045 (Corroll)
  • S7136 (Hoylman)

Aircraft Exemption Repeals

Similar repeals relating to New York’s aircraft exemption have also been introduced. In 2015, New York extended its exemption for “commercial aircraft” to include “general aviation aircraft,” which covers recreational planes, private and corporate jets and helicopters, etc.—basically, aircraft used in civil aviation that aren’t “commercial aircraft.” You can read our full review of the broadened exemption here.

Well, owners and lessees of aircraft might be in for a bumpy ride. Legislation has been introduced that would eliminate this exemption. It appears that this legislation would result in the imposition of tax on commercial aircraft as well, which is broader than New York’s previous position. Here are the bill references if you want to take a look: 

  • A9053 (Corroll)
  • S7135 (Hoylman)

New Exemption for Flights of Beer

Though aircraft are facing an increased tax, flights of beer have been exempted. Bills A8956/S7162 passed the Assembly and Senate and were signed by the Governor on February 3, 2020. This law creates a new sales tax exemption for:

Sales by a brewery … of no more than four samples of beer not exceeding four fluid ounces each, and each sample shall be a different beer than the others. Only a customer's first purchase during each calendar day at each licensed entity shall be exempt….See N.Y. Tax Law §§ 1105(d)(ii)(C), 1115(a)(45).

So your first tasting round at a brewery is tax free! Of course, you’re only allowed one tax-free flight per day, so it looks like the next Hodgson Russ SALT Practice happy hour will be in the form of a brewery crawl!

Local Sales Tax Authorization or Extension

Legislation has been introduced to either extend or authorize a local sales tax as well as other taxes in certain counties.   

  • Cortland County - A9033, S7101 – extends local tax to 2022
  • Tompkins County – A9093, S7330 – extends 1% sales tax through November 2022
  • Livingston County – A9146, S7319 – authorizes an additional 1% sales tax from November 2020 through November 2023
  • Town of Newburgh, Orange County – A9155, S7302A – authorizes a hotel/motel tax
  • Chenango County – A9547, S7323 – extends 1% sales tax through November 2022
  • Otsego County – A9617, S7141 – extends 1% sales tax through November 2022
  • Broome County – A9621, S7560 – extends 1% sales tax through November 2022
  • Delaware County – A9643, S7566 – extends 1% sales tax through November 2022
  • Steuben County – A9704 – extends 1% sales tax through November 2022
  • Schuyler County – A9705 – extends 1% sales tax through November 2022
  • Wyoming County – A9723, S7322 – extends 1% sales tax through November 2023
  • Herkimer County – A9724, S7672 – extends 1.25% sales tax through November 2023
  • Herkimer County – A9731, S7668 – extends 1.25% sales tax through November 2022
  • Tioga County – A9725, S7559 – extends 1% sales tax through November 2022
  • Westchester County – A9727, S7648 – extends 1% sales tax through November 2022
  • Yates County – A9736, S1441A – extends 1% sales tax through November 2022
  • Onondaga County – A9738, S7789 – raises the occupancy tax by 2% on the per diem room rate (from 5% to 7%)
  • Chemung – A9811, S7234 – extends 1% sales tax through November 2022
  • City of Yonkers – A6017, S7348 – authorizes Yonkers to impose an additional 0.5% sales tax through November 2021
  • City of New Rochelle – A9774, S7521 – extends 1% sales tax through 2023
  • Schoharie County – A9897, S7568 – extends 1% sales tax through November 2022
  • Schoharie County – A9893, S7602 – extends 1% sales tax through November 2023
  • Wayne County – A9778, S7689 - extends 1% sales tax through November 2023 

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