N.Y. Comp. Codes R. & Regs. tit. 20 § 411.2

Current through Register Vol. 46, No. 45, November 2, 2024

Section 411.2 - Distributors' bond requirement

Tax Law, § 283(3)

(a) Before any person may be registered as a distributor of motor fuel with the Department of Taxation and Finance, and at all times after such person is registered as a distributor, such person is required to file or deposit and maintain with the department:

(1) a bond executed by a surety company which is:

(i) authorized to transact business in this State;

(ii) registered with and under the supervision of the Insurance Department of New York State; and

(iii) approved by the Superintendent of Insurance as to solvency and responsibility; or

(2) such other acceptable security enumerated in section 411.3 of this Part.

Such bond or security must be in such amount as the department may require to secure the payment of any liability of such distributor under article 12-A of the Tax Law and under articles 28 and 29 of the Tax Law with respect to sales and uses of motor fuel. The amount of such bond or security required to be filed or deposited may be increased by the Department of Taxation and Finance at any time it deems such necessary in protection of the revenues pursuant to such articles.

(b)Determination of the amount of a bond.

(1) Prior to the approval of an application for registration as a distributor of motor fuel and during any subsequent review of a registered distributor, the Department of Taxation and Finance, in determining the amount or sufficiency of a bond, will:

(i) determine the estimated or representative six-month maximum potential tax liability of the applicant or of the distributor (see paragraph [2] of this subdivision);

(ii) analyze the certified financial statements of the applicant or distributor with particular emphasis on the ratio of current assets to current liabilities and net worth (total assets less total liabilities) as determined in accordance with generally accepted accounting principles;

(iii) evaluate any independent information concerning an applicant's or distributor's nature of operations, reliability, overall financial status, liquidity, or history of financial solvency and stability; and

(iv) review the taxpayer's compliance record to determine whether there are or were any delinquencies in filing returns and/or payment of any taxes as a distributor of motor fuel or for any other taxes due New York State for which the applicant or distributor may be or may have been responsible.

(2) For purposes of this section, maximum potential tax liability is determined based on an anticipated total number of gallons of motor fuel expected to be imported into the State or produced, refined, manufactured, compounded, sold, transferred, used or otherwise distributed within New York State by the applicant or based on a representative total number of gallons of motor fuel imported into the State or produced, refined, manufactured, compounded, sold, transferred, used or otherwise distributed within New York State by the distributor, without any reductions for those gallons subject to tax-free or exempt sales. Generally, in determining the amount of such representative or anticipated total gallonage, the department shall, based on a prior consistent business practice of the applicant or distributor, consider those gallons of motor fuel purchased and/or reasonably expected to be purchased within the State on which the taxes on motor fuel pursuant to articles 12-A, 28 and 29 of the Tax Law have been or will be assumed or paid by another distributor of motor fuel snd included in such purchase price, as evidenced by certifications of tax payment. (See sections 412.3 and 412.4 of this Title for certifications.) The number of gallons of motor fuel determined is multiplied by the rate of the motor fuel tax per gallon and by the applicable rate (see section 561.3[b] of this Title) of the prepaid sales tax per gallon. The sum of these taxes shall then be adjusted where necessary to reflect a six-month tax liability.

(3) In all cases, an applicant or a distributor will be required to file and maintain with the department a bond adequate to at least meet the requirements of subparagraphs (i) through (vii) of this paragraph. Provided further, unless the applicant, distributor or the department can establish otherwise, to negate valuation considerations (e.g.,cost-to-market, intangibles, collectibility of receivables, intercompany accounts, etc.) only 80 percent of net worth shall be recognized for purposes of determining the amount of a bond.

(i) Generally, if an applicant's or a distributor's ratio of current assets to current liabilities (current ratio) is at least one-to-one and 80 percent of the net worth is equal to or greater than the six-month maximum potential tax liability, a bond will be required in the amount of $50,000.

(ii) Generally, if an applicant's or a distributor's current ratio is at least one-to-one and 80 percent of the net worth is less than the six-month maximum potential tax liability, a bond will be required for the difference between 80 percent of the net worth and the six-month maximum potential tax liability.

(iii) Generally, if an applicant's or a distributor's current ratio is less than one-to-one and 80 percent of the net worth is equal to or greater than the six-month maximum potential tax liability, a bond will be required for one third of the six-month maximum potential tax liability.

(iv) Generally, if an applicant's or a distributor's current ratio is less than one-to-one and 80 percent of the net worth is less than the six-month maximum potential tax liability, a bond will be required for the greater of:

(a) the difference between 80 percent of the net worth and the six-month maximum potential tax liability; or

(b) one third of such six-month maximum potential tax liability.

(v)

(a) Notwithstanding the provisions of this paragraph, generally the amount of a bond required to be filed and maintained pursuant to the provisions of this section shall not be less than $50,000. However, in extraordinary circumstances the Department of Taxation and Finance may fix the amount of a bond for less than $50,000.

Example:

A physically isolated community is serviced by a small retail gas station. The station's only feasible source of motor fuel is to import such fuel from outside the State. As the $50,000 minimum bonding far exceeds the station's six-month maximum potential tax liability, the department may authorize a bond in a lesser amount.

(b) Provided further, generally the amount of a bond shall not exceed the six-month maximum potential tax liability of the applicant or of the distributor except to the extent such six-month maximum potential tax liability is less than $50,000.

(vi) Additionally, where the six-month maximum potential tax liability cannot be determined, for example where the applicant or distributor is unable to furnish an average monthly gallonage of motor fuel sold, transferred, used or otherwise distributed within the State, a bond of not less than $100,000 will be required if the applicant's or the distributor's current ratio is at least one-to-one and 80 percent of the net worth does not equal or exceed $100,000. Should the current ratio be less than one-to-one and/or 80 percent of the net worth equal to or in excess of $100,000, the amount of the bond required to be filed and maintained with the department may be fixed by the department on any reasonable basis.

(vii) In addition to subparagraphs (i) through (vi) of this paragraph, the amount of a bond may be adjusted where any information indicates the need for a bond in greater or lesser amount.

N.Y. Comp. Codes R. & Regs. Tit. 20 § 411.2