The Master Has (Re)appeared!

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.”

Well, we are pleased to report that it appears that our plea was heard, and that the master has reappeared!  Through the first nine months of 2020, the Department has issued 16 sales tax advisory opinions.  Though this pace is still a far cry from the Department’s previous production, it is nearly triple the amount of opinions issued in the last two years combined.  

Here is a brief recap of the issues addressed in these opinions and their conclusions:

TSB-A-20(1)S: The Petitioner was both a retailer and distributor of tobacco products in New York State.  Consequently, Petitioner had to collect sales tax on retail sales of its tobacco products to customers in New York State.  As a distributor, Petitioner was also liable for payment of the tobacco products excise tax on tobacco products manufactured in or imported into the state.  Petitioner could claim a refund for tobacco products excise tax paid on receipts from its retail sales of chewing tobacco made to customers outside of New York State.

TSB-A-20(2)S:  All charges for dues, initiations and assessments related to various types of membership in a golf club were taxable despite the fact not all classes of members could own stock and run or vote for the Board of Directors. 

TSB-A-20(3)S:  Sales of reports detailing the consolidated performance of a customer’s online advertising activity were deemed to be a nontaxable information service. 

TSB-A-20(4)S: A golf club’s sale of new “limited memberships” to people 70 years of age and older were still subject to sales tax despite the fact that such members lacked the right to vote at the Club or share in the equity of the Club should it ever be liquidated or dissolved. 

TSB-A-20(5)S: Food sales from a concession stand operated by a tax exempt organization that conducts a softball league during summer months were subject to tax. 

TSB-A-20(6)S:  Sales of various types of movable wall partitions were exempt from tax because they qualifed as capital improvements.  According to the Department, the partitions, in effect, replace more traditional walls and offer equal sturdiness of construction.

TSB-A-20(7)S:  Charges for the installation of cellulose and spray foam insulation within attic spaces or in basement rim joist areas of residential homes or commercial buildings are not subject to sales tax because such installations qualify as capital improvements. 

TSB-A-20(8)S:  Sales of graphic arts packaging, including packaging solutions, press runs, and sample packaging designs to retailers were subject to tax when transferred in tangible form in New York State. Sales of the designs, comps or prototypes were not subject to tax when delivered in electronic form to customers within New York State. 

TSB-A-20(9)S:  Sales of sight-seeing pedal bus tours were not subject to tax.  According to the Department, as long as the price of the ticket was solely for a sightseeing tour and not for food or drink, the receipts from ticket sales would not be subject to sales tax.

TSB-A-20(10)S: Sales tax has to be collected and remitted to the state on sales of wedding dresses when the dresses are paid in full because title to the dress has transferred to the customer at that point, even though sometimes the dress remains with the vendor for additional alterations.  However, the vendor does not have to pay sales tax at the time it accepts a 50% nonrefundable down payment, because, at that point, neither title to, nor possession of, the dress has transferred to the customer. 

TSB-A-20(11)S: “Buy downs” that are provided by manufacturers of cigarettes to retailers and function like a reimbursement after the fact (i.e., after the sales is make to the end consumer) accrue tax that must be paid by the retailer. 

TSB-A-20(12)S: Certain property owners must install backflow prevention devices to prevent water from flowing back into a drinking water supply.  Inspection of backflow prevention devices solely for purposes of mandatory governmental code compliance were not subject to sales tax. However, inspections of those devices that were performed in conjunction with an installation or repair were deemed to be taxable.

TSB-A-20(13)S: Charges for the transfer of firearms by a federally licensed firearms dealer were not subject to tax.  According to the Department, receiving firearms from other firearm sellers, creating the required records for federal and state regulatory purposes, completing background checks, and ensuring that any state or local legal requirements for the transfer are met before then transferring the firearm to the purchaser, were not among the enumerated services that are subject to sales tax.

TSB-A-20(14)S: The services of site safety managers, fire safety managers, and emergency action watchmen at construction sites were deemed to be taxable protective services.  The fact that some of these services were allegedly governmentally mandated did not change this conclusion. 

TSB-A-20(15)S: Sales of orgeat almond syrup used to sweeten soft drinks and alcoholic beverages were deemed to be sales of a soft drink and subject to tax. 

TSB-A-20(16)S: Sales of the services of teaching private cooking, baking and decorating lessons in people’s homes are not subject to tax. 

So there you go.  We’ve tried to discern a pandemic-related theme or pattern in these opinions, but can’t find one.  Some safe outdoor activities, such as golf (member fees) and softball (concession stand sales) got hit with tax, while others like sight-seeing pedal bus tours and private cooking, baking and decorating lessons escaped taxation (I can’t tell you how much sour dough I’ve baked).  And we hope that this increased level of activity from the Department in issuing advisory opinions this year isn’t simply the “busy work” it can focus on during the pandemic shutdown.  In fact, we hope this level of activity actually increases in the months to come.  These opinions help taxpayers, businesses, and tax practitioners better understand the obligations imposed by New York State’s sales tax law.  And in our experience, better understanding always leads to better compliance.  

[1] For example, sell a physical picture to a customer in NY and you have to charge tax.  Sell that exact same picture to a customer in NY in digital form and transfer it via email and no tax is due. 

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