N.Y. Comp. Codes R. & Regs. tit. 20 § 541.3

Current through Register Vol. 46, No. 50, December 11, 2024

Section 541.3 - Contracts with exempt organizations

Tax Law, §§ 1115(a)(15), (16), 1116 (a); Canal Law, § 30, subd. 7(e); Highway Law, § 38, subd. 7(f)

(a)Governmental entities.

When a contractor's customer is a governmental entity described in section 1116 (a)(1) or (2) of the Tax Law, the contract signed by the government representative and the prime contractor is sufficient proof of the exempt status of purchases made for such contract.

(1) Such governmental entities include:

(i) Pursuant to section 1116 (a)(1) of the Tax Law the State of New York, or any of its agencies, instrumentalities, public corporations (including a public corporation created pursuant to agreement or compact with another state or Canada), or political subdivisions. This group includes, but is not limited to:

(a) fire districts;

(b) special lighting districts;

(c) industrial development authorities;

(d) urban development corporations;

(e) school districts;

(f) water districts;

(g) villages, towns, cities and counties; and

(h) any authority, commission or independent board created by act of the Legislature for a public purpose.

Cross-reference:

For special reporting requirements for agents and project operators of industrial development agencies or authorities, see section 542.1 of this Title.

(ii) Pursuant to section 1116 (a)(2) of the Tax Law the United States of America and any of its agencies and instrumentalities, insofar as it is immune from taxation.

Cross-reference:

For further information on exempt governmental entities, see sections 529.2 and 529.3 of this Title.

(2) Payments on highways and canal contracts to foreign contractors.

(i) Section 30 of the Canal Law and section 38 of the Highway Law prohibit the Commissioner of Transportation from approving or authorizing the first partial payment and final payment to a foreign contractor, as defined in such sections of the Canal Law and Highway Law, who contracts for the improvement, maintenance or repair of the New York State Canal System or for construction or improvement of State highways until the foreign contractor furnishes satisfactory proof that all taxes due the Department of Taxation and Finance by such contractor under the provisions of or pursuant to a law enacted under the authority of articles 9 and 9-A (relating to New York State franchise and certain other taxes), article 12-A (relating to New York State and New York City Motor Fuel Taxes), articles 16, 16-A, 22, 23, and 30 (relating to New York State Personal and Unincorporated Business Income Taxes and New York City Personal Income Tax), article 21 (relating to New York State Highway Use Taxes), articles 28 and 29 of the Tax Law (relating to New York State and Local Sales and Compensating Use Taxes), and article 2-E of the General City Law (relating to the New York City Earnings Tax on Nonresidents) have been paid.

(ii) The certificate of the Department of Taxation and Finance to the effect that all the taxes set forth in subdivision (a) of this section have been paid is conclusive proof of the payment of such taxes for purposes of these provisions.

(b)International organizations.

Pursuant to section 1116 (a)(3) of the Tax Law the United Nations and any international organization of which the United States of America is a member, insofar as it is exempt from taxation.

Cross-reference:

For further information on the United Nations and exempt international organizations and required exemption documentation, see section 529.4 of this Title.

(c)Exempt organizations.

Exempt organizations described in section 1116 (a)(4)-(6) of the Tax Law are issued, upon application and approval in accordance with the procedure set forth in Part 529 of this Title, a numbered exempt organization certificate by the Taxpayers Services Division. A properly completed exempt organization certification issued by the exempt organization to a contractor constitutes proof of the organization's exempt status for purposes of the State and local sales and compensating use taxes.

Cross-reference:

For further details on nongovernmental exempt organizations, see sections 529.7 -529.9 of this Title.

(d)Contracts with exempt organizations.

(1) Tangible personal property incorporated into real property owned by a governmental entity or by an exempt organization is exempt, whether the contract is on a lump sum, time and material, cost-plus, or other basis.

(2) Purchase for contracts (other than agency contracts).

(i) Tangible personal property sold to a contractor, subcontractor, or repairman for use in erecting, repairing, adding to, or altering a structure or building owned by an exempt organization, described in section 1116 (a) of the Tax Law, is exempt when it is to become an integral component part of such structure or building.

Example 1:

An exempt organization contracts to have a building erected on its land. Purchases by its contractor of tangible personal property, such as nails, sheetrock, and plywood that become part of the structure are exempt.

Example 2:

A building is being erected for an exempt organization. Glass in the windows is broken and a glazier is engaged by the general contractor to repair the windows. The charges for such repairs are exempt and the purchase of the new glass is exempt.

Example 3:

A contractor builds a structure on speculation and subsequently sells the structure to an exempt organization. The contractor is not entitled to the tax exemption on the purchase of tangible personal property incorporated into the structure.

Example 4:

The owner of real property enters into a contract to erect a building to be leased, under a long-term lease, to an exempt organization. The contractor's purchases are not exempt as the owner of the building is not an exempt organization.

Example 5:

A contractor or a nonexempt entity owns land on which a building is erected to the specifications of an exempt organization. Under the terms of the contract, the organization will not own the land or the building until it is completed and ready for occupancy. The building materials are not exempt as the exempt organization will not own the building at the time the materials are incorporated into the real property.

(ii) Purchases of tangible personal property incorporated into the real property of an exempt organization by subcontractors and repairmen are accorded the same treatment as purchases by the prime contractor.

(iii) Tangible personal property purchased by a contractor, which remains tangible personal property after installation, is exempt from the tax when purchased for and sold to an exempt organization.

Example 6:

An exempt organization contracts to have a new wing built onto their existing building. The new wing includes the addition of a cafeteria. The contractor may purchase, exempt from the tax, the tangible personal property that becomes part of the capital improvement to real property and the tangible personal property which remains tangible personal property.

(iv) Except for agency contracts, contractors' purchases of construction supplies which do not become part of an exempt organization's real property and are used or consumed by the contractor, as well as purchases of taxable services, such as electricity used by the contractor, are subject to the tax.

Cross-reference:

For purchases under an agency contract, see paragraph (4) of this subdivision.

The following types of property and services are representative, but not intended to be all-inclusive, of contractor's purchases which are subject to tax, irrespective of whether the contractor has a time and material, lump sum, or other type of contract (except agency contract), with an exempt organization:

(a) construction machinery and equipment, including rentals and repair parts;

(b) contractors' office supplies;

(c) contractors' supplies, tools, and miscellaneous equipment, whether purchased or rented, including materials to make forms and scaffolding; and

(d) any other items purchased or rented by a contractor for his use in performing the contract and not incorporated into the realty.

Example 7:

Lumber and other materials which are used to build forms are not exempt since they do not become a component part of the structure.

Example 8:

Equipment rentals under the dominion and control of the contractor, such as rentals of cranes, bulldozers, backhoes, etc. for use 3 in building a structure for an exempt organization are subject to tax.

(v) Documents.

(a) If the customer is a governmental entity, copies of signed contracts and government purchase orders are sufficient evidence to establish the exempt status of the job between the governmental entity and the prime contractor. With respect to the documents required between a prime contractor and the subcontractors, a signed document between them which identifies the project, location, and exempt owner, will form the basis for tax exemption of tangible personal property purchased for incorporation into the exempt project. When purchasing such tangible personal property for the exempt project, the contractor or subcontractor will issue a properly completed contractor exempt purchase certificate to the supplier.

(b) If the customer is an exempt organization other than a governmental entity, the prime contractor must obtain an exempt organization certification from his customer and retain it as part of his records. Copies of the certification must also be furnished to all subcontractors on the job. The subcontractors must retain a copy of the certification in their records with a copy of the contract which identifies the project and the location. When purchasing tangible personal property for incorporation into the exempt project, the prime contractor and subcontractor will issue a properly completed contractor exempt purchase certificate to the supplier.

(3) Maintaining, installing, repairing and servicing tangible personal property and real property. Charges for maintaining, installing, repairing and servicing tangible personal property and real property are exempt from the tax when the exempt organization is the payer of record. When these charges are billed to and paid by a tenant, the charges (excluding charges for interior cleaning and maintenance services of a janitorial nature performed on a regular contractual basis for a term of not less than 30 days) are subject to the tax on the full invoice price, except for the charges billed to and paid by a tenant which qualifies as an exempt entity pursuant to section 1116 (a) of the Tax Law.

(4) Agency contracts.

(i) If an exempt organization described in section 1116 (a)(3) (4) (5) or (6) of the Tax Law enters into an agency contract with the prime contractor and all subcontractors, all purchases for such contract are exempt as long as the property and services are purchased by the contractor or subcontractor as agent for the exempt organization. In order to create a principal/agent relationship all of the following conditions must be met:

(a) purchases must be billed or invoiced by the vendor to the exempt organization or to the contractor specifying that the contractor is acting as agent for the exempt organization (e.g., X contractor, as agent for Y, name of exempt organization) and identify the place of delivery;

(b) payment must be made by the exempt organization or by the contractor, acting as agent, directly to the vendor from a special fund created by the exempt organization for this specific purpose;

(c) deliveries must be made to the job site; or under certain circumstances (such as where the materials require additional fabrication before installation on the job site or for storage to protect the materials from theft or vandalism prior to installation at the job site) deliveries may be made to a site, other than the job site, providing the ultimate delivery of the materials is made to the job site. Where delivery is made to a site, other than the job site, the purchases must be billed or invoiced by the vendor to the exempt organization or to the contractor as agent, identify the place of delivery, the exempt organization's full name and address and the job site location where the materials will ultimately be delivered for installation; and

(d) the contractor must furnish the vendor with the exempt organization certification when acting as agent for such organization. A statement signed by a responsible officer of the exempt organization which identifies the contract and the contractor, as agent for the exempt organization, must be either made on the exempt organization certification or appropriately attached thereto.

If the proposed agency contract differs from the requirements of this subparagraph, copies of the proposed contract and procedures may be submitted for an opinion to the Instructions and Interpretations Unit, Sales Tax Section, Technical Services Bureau, W.A. Harriman Campus, Albany, NY 12227.

(ii) All purchases or rentals of materials, equipment, tools, and supplies by an exempt organization or by a contractor or subcontractor, as agent for an organization which is exempt from sales taxes under section 1116(a)(3), (4), (5) or (6), are exempt from sales and use taxes when the contract fully complies with the requirements set forth in subparagraph (i) of this paragraph.

(iii) A contractor is liable for the tax due on purchases or rentals of equipment, tools and supplies made under a purported exempt organization agency contract if subsequently it is determined the contract does not qualify as an agency contract.

Example 9:

A contractor enters into a purported agency contract with an exempt organization for the construction of a capital improvement to real property. The exempt organization or the contractor, acting as agent for the exempt organization, makes tax free purchases or rentals of materials, tools and/or equipment and supplies. Subsequently, it is determined the contract does not qualify as an agency contract. The contractor is liable for the tax due on the purchases or rentals of tools and/or equipment and supplies. The purchase of materials incorporated into the capital improvement to real property owned by the exempt organization is exempt from the tax, providing proper exempt documentation is given to the vendor of the materials.

Cross-reference:

For additional information regarding equipment, tools and supplies, see sections 541.9 and 541.10 of this Title. For additional information regarding use tax liability, see Part 531 of this Title.

N.Y. Comp. Codes R. & Regs. Tit. 20 § 541.3