N.Y. Comp. Codes R. & Regs. tit. 20 § 532.5

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

Section 532.5 - Direct payment permit

(a)General.

A direct payment permit is a notice to a vendor that the holder thereof is authorized to pay directly to the Department of Taxation and Finance any tax due on purchases made. The vendor's responsibility for the collection of tax from the permit holder is waived upon receipt of such permit.

(b)Eligibility for a direct payment permit.

In order to be eligible for a direct payment permit, a purchaser must meet the following conditions:

(1) at the time tangible personal property or services are acquired by a purchaser, it is impossible to determine the manner in which the property or services will be used;

(2) the purchaser must be registered as a vendor with the Processing Division, Sales Tax Section, and maintain a place of business in New York State; and

(3) the purchaser must have timely filed all required returns and timely paid all taxes due for the four quarterly periods immediately prior to the submission of an application for a direct payment permit. This condition may be modified in the case of a new vendor who has not filed returns.

(c)Applying for a direct payment permit.

(1) A person seeking a direct payment permit must file a properly completed application directly with the District Office Audit Bureau of the Division of Taxation, W.A. Harriman Campus, Albany, NY 12227. Applications may be obtained from the District Office Audit Bureau.

(2) The applicant must submit the following information:

(i) the business name and address;

(ii) the vendor identification number;

(iii) a description of the business conducted; and

(iv) a statement clearly indicating the applicant's need for the permit and the types of transactions for which the permit will be used.

(d)Authorization of permit.

(1) The department, upon review of the application filed and the statement submitted, has the sole discretion to issue a direct payment permit.

(2) If the District Office Audit Bureau of the Audit Division approves the application, it will authorize the use of a direct payment permit by the applicant by issuing a numbered direct payment permit.

(3) Should the District Office Audit Bureau disapprove or reject the application, it will notify the applicant by mail of such action.

(4) Upon the termination or suspension of the direct payment permit holder's business, or upon a change in the name or legal form of the business which requires a new registration, the permit shall be surrendered to the District Office Audit Bureau.

(e)Use of direct payment permits.

(1) A direct payment permit may only be used by the holder who makes purchases of tangible personal property or services, the use of which is unknown to him at the time of purchase.

Example 1:

A manufacturer-contractor purchases ingredients for use in the production of concrete septic tanks. Some of the septic tanks will be sold without installation, while others are to be sold installed. Since the manufacturer-contractor does not know the number of tanks that will be sold installed, he may use a direct payment permit when purchasing the ingredients.

(2) A direct payment permit may not be used:

(i) as a device to defer payment of the sales tax on purchases;

(ii) as a substitute for a resale certificate or other exemption certificates; or

(iii) as a device to transfer the permit holder's privileges to another person.

Example 2:

The holder of a direct payment permit purchasing display cases for use in his showroom gives his supplier a copy of his direct payment permit to defer the payment of tax on his purchase which is taxable. This is a use of the permit which is prohibited.

Example 3:

A holder of a direct payment permit engages a contractor to erect a warehouse and gives the contractor a copy of his direct payment permit. The contractor may not use the direct payment permit to defer his payment of tax on purchases which are for use by him in the erection of the warehouse. The contractor's liability for the tax on his purchases is not relieved by his customer's direct payment permit. This is a use of the permit which is prohibited.

(3) Direct payment permit holders are required to notify vendors, from whom they make purchases, of their status by submitting a copy of the direct payment permit with the first purchase order. Each vendor accepting a direct payment permit must, for verification purposes, maintain a method of associating a sale for which the permit was used, with the permit on file.

(4) A direct payment permit holder, who by reason of misusing such permit, fails to pay any tax due when required, shall be liable for penalty and interest in addition to the tax due and revocation of his permit. See Part 536 of this Title for penalties and interest.

(f)Reporting and payment of tax by a permit holder.

(1) When a direct payment permit holder uses property or services purchased under a direct payment permit, he is required to determine the taxable status of such use, and report it on the return covering the period in which the use occurred.

(2) The records of a holder of a direct payment permit must show all purchases, the use made thereof, the location of use, and the tax due thereon was reported and paid. These records must be available to the Department of Taxation and Finance for examination at any time upon demand.

(3) Each year, at the time physical inventories are taken for federal income tax purposes, a reconciliation of purchases made under the direct payment permit shall be prepared and retained as part of the permit holder's files. Any inventory difference not accounted for shall be included as additional purchases subject to use tax on the sales and use tax return for the reporting period in which the fiscal or calendar year ended.

(4) Any change in federal income (either voluntary or by final federal adjustment), which results in a change in opening inventory, purchases, or closing inventory, shall be reported to the Division of Taxation within 90 days, together with an amended return for the applicable reporting period in which the inventory was reconciled. The amended return shall be filed with the Division of Taxation, District Office Audit Bureau, W.A. Harriman Campus, Albany, NY 12227. Any purchases or inventory which are unaccounted for shall be reported as additional purchases subject to use tax on an amended return filed for the reporting period in which the fiscal or calendar year ended.

(5) If any change in inventory is a result of a final federal adjustment, a copy of the federal adjustment shall be attached to the return required to be filed under paragraph (3) or (4) of this subdivision. If the change was voluntary, substantiation for the change shall be maintained.

(6) A direct payment permit holder is required to comply with the reporting requirements for transactions in which the permit was furnished.

(i) A permit holder making purchases and taking delivery of tangible personal property or services in an area having a tax rate which is higher than the tax rate in the area where the property or services are used is liable for the payment of tax based on the higher rate.

Example 1:

A direct payment permit holder purchases and takes delivery of a forklift in County X (6% tax rate) for use in his plant located in County Y (5% tax rate). He does not know whether its use will be taxable or exempt as production equipment. The purchaser issues a copy of his direct payment permit to the supplier at the time of purchase. If the fork lift is not used for an exempt purpose, the permit holder must report on his next sales tax return, the amount of the transaction on the line for County X, under the heading "Purchases Subject to Use Tax" and remit the 6% tax based upon the point of delivery.

(ii) A permit holder, making purchases and taking delivery of tangible personal property or services in an area having a tax rate which is less than the tax rate in the area where the property or services will be used, is liable for the payment of tax based upon the higher rate.

Example 2:

A direct payment permit holder, located in County A (6% tax rate), purchases a forklift with his permit from a supplier in County B (5% tax rate). He does not know whether its use will be taxable or exempt as production equipment. Delivery is taken within County B by the permit holder. On the next sales tax return if the forklift is not used for an exempt purpose, the permit holder must report the transaction as "Purchases Subject to Use Tax" on the line for County B and remit 5% tax. The transaction is also subject to an additional compensating use tax of 1% for use of the forklift in County A. This additional use tax must be shown in the space provided on the return for reporting transactions subject to local tax only.

(iii) A permit holder operating in areas having differing tax rates, making purchases and taking delivery of tangible personal property in bulk (as described in section 1119[a] of the Tax Law) is liable for the payment of tax based on the rate in effect in the area of use.

Example 3:

A direct payment permit holder has his main office in County L where only the statewide 4% tax rate is in effect and branch offices in County M (5% tax rate) and County N (6% tax rate). He purchases in bulk various office and merchandising supplies, such as invoice books, stationery, and catalogs for use in all his offices from a printer located in County L at a cost of $10,000. At the time of purchase, he does not know at which location any part of the supplies will be used. The supplies are delivered to the permit holder's main office and the printer is issued a copy of the direct payment permit. The permit holder stores the supplies at his warehouse in County L and periodically distributes these supplies to his branch offices as needed. During a reporting period the permit holder withdraws these supplies for use as follows:

Main Office	$2,000
County M Branch	$1,000
County N Branch	$1,000

On his sales tax return for the period, the permit holder must report as "Purchases Subject to Use Tax" the cost of the supplies and the tax due as follows:

Purchases Subject to Use Tax	Sales and Use Taxes
New York State 4%	$2,000	$80
County M 5%	$1,000	$50
County N 6%	$1,000	$60

(7) Direct payment permit holders who make sales which are subject to sales tax, must report these transactions and pay the appropriate taxes on the return filed for the period in which the sales were made.

(8) The holder of a direct payment permit is required to pay the tax due on his purchases, not acquired for resale or an exempt use, directly to the department with his sales and use tax return for the period in which the use of the purchases becomes known.

(g)Revocation.

(1) A direct payment permit may be revoked for:

(i) failure by the holder thereof to timely file his sales and use tax returns and timely pay any tax due;

(ii) any misuse of the privileges granted by the permit or failure to comply with any requirement with respect to the permit;

(iii) a change in business operations, so that it is possible to determine the use of purchases at the time made.

(2) A notice of revocation sent by the District Office Audit Bureau of the Audit Division by ordinary mail to the vendor's address, as given on the last return filed by him, shall be sufficient notice to advise the holder of revocation and the effective date thereof.

(3) The holder of a revoked permit shall without delay surrender the permit to the District Office Audit Bureau.

(4) Any person willfully using a permit after revocation may be subject to the criminal penalty provisions of section 1817 of the Tax Law and the Penal Law. (See Part 536 of this Title.)

(h)Direct payment permits for omnibus carriers engaged in local transit service.

(1) Direct payment permit for the purchase or use of an omnibus.

(i) An omnibus carrier engaged in local transit service may make application for a direct payment permit with respect to his purchase or use of an omnibus. Such permit will not be granted unless the carrier has filed a certificate of registration with the Department of Taxation and Finance and the department has issued a certificate of authority to the carrier.

(ii) A copy of the omnibus direct payment permit must be furnished to the omnibus carrier's vendor in lieu of payment of sales or compensating use tax on each such purchase.

(iii) The omnibus carrier must pay the tax (after allowing for any credit taken by the applicant pursuant to subdivision [b] of section 1119 of the Tax Law) on such purchase or use of an omnibus directly to the department at the time of filing the return covering the period in which the omnibus was purchased or used.

(2) Direct payment permit for all taxable purchases. An omnibus carrier may apply for a direct payment permit with respect to all of its purchases. Such permit may be granted by the District Office Audit Bureau of the Audit Division if the carrier qualifies under the provisions of subdivision (b) of this section.

(3) Omnibus carriers who receive direct payment permits under paragraph (1) or (2) of this subdivision must comply with the requirements of subdivisions (e) and (f) of this section, and are subject to the provisions of subdivisions (d) and (g) of this section.

Cross-reference:

Refunds and credits for omnibus carriers engaged in local transit service, see Part 534 of this Title.

N.Y. Comp. Codes R. & Regs. Tit. 20 § 532.5