Contractor’s Exemption Certificates Rejected. Audit Results Upheld:
This e-mail update service frequently draws attention to the importance of contractors understanding the proper rules, uses and protections associated with exemption certificates. Unfortunately, we are reminded time and time again of the price contractors pay for failing to understand. For example, a contractor challenging a sales tax assessment claimed that the exemption certificates it failed to produce during the audit were improperly rejected when finally produced during the administrative appeal process. Tax Appeals Tribunal was not convinced and the assessment was upheld.
During its sales tax audit, the contractor asserted that it performed capital improvement work. Despite the auditor’s requests, the contractor did not produce any corresponding ST-124, Certificate of Capital Improvement. The audit was concluded and the contractor was assessed a sales tax liability for the work it claimed was capital improvement. While challenging the assessment, the contractor finally produced what it claimed were the applicable exemption certificates. The Department argued that not only should the exemption certificates be rejected because they were improperly completed, but also because they were not timely produced during the course of the audit. The Tax Appeals Tribunal agreed stating that the regulations require exemption certificates to be produced during an audit. A failure to do so will result in exemption certificates being deemed improperly completed and untimely received. The consequence for the contractor was that it was denied the protections associated with proper and timely received exemption certificates. The contractor therefore bore the burden of proving that its projects did, in fact, satisfy the definition of capital improvement.
The contractor failed to produce any documents or testimony during its appeal to support the claim that the projects constituted capital improvements. Without being protected by proper exemption certificates and with a “clear lack of evidence” to support its factual claims, the audit results were upheld against the contractor.Categories: NY Sales Tax and Use News and Information