N.Y. Comp. Codes R. & Regs. tit. 20 § 534.8

Current through Register Vol. 46, No. 19, May 8, 2024

Section 534.8 - Refunds or credits based on erroneous, illegal, or unconstitutional payment or collection of tax

Tax Law, § 1139

(a)Authorization.

(1) A refund or credit is allowable for any tax, penalty, or interest which was erroneously, illegally, or unconstitutionally collected or paid.

(2) Any person who has erroneously, illegally, or unconstitutionally collected a tax from a customer may, repay such tax to the customer and in turn claim a refund or credit of such tax from the Department of Taxation and Finance, provided the tax has been paid to the Department of Taxation and Finance.

(3) No refund or credit may be made to any person of tax which he collected from a customer until he shall first establish to the satisfaction of the Department of Taxation and Finance, as provided in section 534.2 of this Part, that he has in fact repaid such tax to the customer.

(b) Refund of taxes collected by a person liable for the payment of such tax.

(1) Where a person required to collect tax, collects tax on receipts, amusement charges or rent not subject to tax, for example, a vendor who collects tax on the sale of a service which is not subject to sales tax were he is the ultimate consumer of the tangible personal property used in rendering the service, the sale of which to a consumer is not taxable to him, or a contractor, subcontractor or repairman who collects tax on the receipts from erecting structures or buildings which become a part of the real property and which are a capital improvement, the tax collected must be paid over to the Department of Taxation and Finance. A refund of such erroneously collected tax is allowable to the purchaser of the nontaxable service or capital improvement. The vendor or contractor is liable for and will be assessed any tax due which he failed to pay on his purchase of tangible personal property used as the ultimate consumer in performing a nontaxable service or capital improvement. Any penalties and interest charges which have accrued on the amount of tax previously due will also be assessed.

Example 1:

A homeowner engages a contractor to erect a garage on a "furnish and install" contract. The agreed price of the garage completely erected is $2,400. The contractor purchases the building components without paying the sales tax due thereon. Upon completion of the garage, the contractor bills the customer $2,400 plus 7% tax or $2,568. The customer pays in full the amount billed and claims a refund of $168 for sales tax erroneously paid on a capital improvement. The refund is approved and paid. The contractor will be assessed the tax due on the building components purchased by him and any penalties and interest that have accrued.

(2) When a contract is entered into for a capital improvement any tax paid by a contractor or subcontractor as the purchaser at the taxable retail sale (which is considered in computing the contract price or for which reimbursement is required by the contractor to be made to him), is not deemed to be a collection of tax from the customer, since the tax is imposed on the contractor and not on the customer.

Example 2:

A homeowner enters into a "cost plus" contract for the erection of a garage. The contract specifically provides that the home-owner will reimburse the contractor in full for all of the contractor's costs including sales tax paid by the contractor upon materials used. The contractor purchased $1,100 worth of materials upon which he paid $77, the proper rate of sales tax. The homeowner is given an itemized bill for materials and sales tax totaling $1,177 and pays it. The reimbursement of the $77 to the contractor for the tax paid is a contractual reimbursement by the customer of the contractor's expenses and not an erroneous collection of sales tax and may not be refunded or credited to the homeowner. The same would be true of any other charge itemized in the contract and bill for the capital improvement to real property.

Example 3:

A customer enters into a lump sum contract for a capital improvement. The contractor included the sales tax on his purchases of material in computing the contract price, and showed such sales tax separately in periodic billings to the customer. The customer later files for a refund of the sales tax. Such refund is not allowable since it was not a payment of tax by the customer; it was reimbursement of the contractor's expenses.

N.Y. Comp. Codes R. & Regs. Tit. 20 § 534.8