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Amended Sales Tax Guidelines for Industrial Development Agency Projects:

The New York Legislature has amended the laws governing Industrial Development Agency and Authority (IDAs) projects and related sales tax exemption benefits.  New York has tightened the reins on IDAs by limiting the types of projects that can receive sales tax exemption benefits and imposing new reporting and purchasing guidelines.  Contractors providing construction services on IDA projects should be aware of the new compliance guidelines issued by the Department of Taxation and Finance (Department).

IDAs are governmental tax exempt organizations generally created for the purposes of assisting with regional economic development and job growth.  IDAs typically establish an agency relationship with a developer, and sometimes contractors, for the purpose of extending sales tax exemption benefits to a particular construction project.  It has been standard practice for IDAs to issue a Sales Tax Exemption Letter (Letter) which typically identifies the project, the designated agent(s), the scope of applicable tax exemptions, and how exempt purchases should be made.

The Department’s previous guidelines stated that agents and their vendors should rely on the Letter as proof of authority for exempt purchases.  Similar to the use of an exemption certificate, an agent making an exempt purchase would provide its vendor with a copy of the Letter and the vendor would be relieved of its obligation to charge sales tax on the sale.  This practice has been amended.  Beginning June 1, 2014, agents, including contractors named as agent, will be required to complete and provide their vendors with a new exemption certificate: the ST-123, IDA Agent or Project Operator Exempt Purchase Certificate.

Not all IDA projects authorize contractors to act as agents.  If a contractor has not been named as an agent for the IDA, but is making purchases of materials that will be incorporated or transferred into the project, the contractor should use the ST-120.1, Contractor Exempt Purchase Certificate, to make applicable sales tax exempt purchases.

When an IDA designates an agent, it is required to file an ST-60, IDA Appointment of project Operator or Agent, with the Department.  The ST-60 is not an exemption certificate and is for IDA use only.

IDAs are now required to include specific terms and conditions in all project documents.  Each agent must agree to these terms and conditions prior to acting as agent.  Agency status can be revoked and IDAs are now charged with the responsibility of recapturing improperly claimed exemption benefits.

The agent directly appointed by the IDA is required to file an annual report with the Department showing the total value of all exempt sales during the year.  If a contractor is not directly named by the IDA, it is not responsible to file a report; however, in order to facilitate the primary agent’s annual report, contractors must keep accurate tax information and provide that information upon request.

As a result of the changes to the law, contractors should expect greater oversight and compliance obligations.

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SALES TAX SEMINARS:

Is your business complying with New York’s sales tax laws and regulations?  Are you exposed to liability?  Are you paying unnecessary sales taxes?  If you are interested in learning more about sales tax as applied to the New York construction and real estate industries, Cunningham & Cunningham, LLP has prepared an instructive seminar course on this topic that can be provided in-house.  For more information, visit www.cunninghamllp.com.