In the September 2018 edition of this column, we discussed the case of CLM Associates, LLC, DTA No. 826735 (N.Y. Tax App. Trib., Feb. 12, 2018), in which the Tax Appeals Tribunal held that a series of transactions among affiliated companies were subject to sales tax. See Joseph Lipari and Aaron S. Gaynor, “Recent Case Demonstrates Risk of Sales Tax in Affiliate Transactions,” NYLJ (Sept. 6, 2018). In CLM, the Tribunal disregarded that the companies engaging in the transactions comprised a single business enterprise, and looked to the formalistic nature of property transferring between separate entities for consideration. However, in the recent case of Apple Inc., DTA No. 827287 (N.Y. Div. Tax App., Nov. 20, 2018), the Division of Tax Appeals instead of disregarding the substance of a set of transactions, disregarded the form of the transaction to find that the popular customer electronics producer and retailer had under-collected sales tax in connection with a promotional program.
The Law
N.Y. Tax Law §1105(a) generally imposes tax on the sale of the “retail sale of tangible personal property.” Subdivision (a) of 20 N.Y.C.R.R. §526.5 generally defines “receipt” (the sales tax base) as “the sale price of any property.” However, subdivision (c)(3) of that regulation provides that, where a seller charges an unreimbursed discounted price, “the tax is due from the purchaser on only the discounted price” (emphasis added). Thus, if property normally sold for $100 is on sale for $80, sales tax is collected only on the lower $80 price. New York Sales Tax Bulletin No. TB-ST-806 (April 13, 2011) provides that the sale of gift cards is exempt from sales tax, recognizing that sales tax will be paid upon the redemption of the gift card (to the extent that the purchased items are subject to sales tax).
