The New York State (NYS) sales tax is a consumption tax imposed on the sale of most tangible personal property and certain services within the state. Here’s an overview of some of the key points to consider:
- The sales tax rate varies depending on the location. There are potentially three components, state, local and, in some cases, the Metropolitan Commuter Transportation District (MCTD) tax.
- Certain items are exempt from sales tax. These exemptions may include necessities like groceries, prescription drugs, medical equipment, and certain types of clothing. Additionally, some services, such as haircuts and legal services, are generally not subject to sales tax.
- Businesses that make sales subject to sales tax in New York State are required to register with the state and collect sales tax from their customers. The collected tax must be reported and remitted to the New York State Department of Taxation and Finance.
- If an item is purchased tax-free from an out-of-state seller, the buyer is generally required to pay a use tax directly to the state. The use tax rate is the same as the sales tax rate and ensures that purchases made outside of NYS are still subject to tax.
- Some localities within NYS may impose additional local sales taxes on top of the state sales tax. These local taxes vary by jurisdiction, and businesses operating in those areas must collect and remit the appropriate local taxes.
What is “nexus”?
In the context of sales tax, “nexus” refers to the level of connection or presence that a business has in a particular state, such as NYS. Nexus determines whether a business is required to collect and remit sales tax on its sales within that state. In NYS, nexus can be established through various factors, including:
- A business has nexus in NYS if it has a physical presence within the state. This can include having a physical store, office, warehouse, or any other physical location in NYS.
- NYS has implemented economic nexus provisions, which means that even if a business does not have a physical presence in the state, it may still have nexus if it meets certain sales thresholds. The specific sales threshold for economic nexus in NYS can change, so it’s important to refer to the latest guidelines from the New York State Department of Taxation and Finance.
- Nexus can be established if a business has certain relationships with affiliates or related entities that have a physical presence in NYS. This typically applies when the affiliates engage in activities that help the business make sales within the state.
- Click-through nexus applies to online retailers who have agreements with in-state affiliates that refer customers to their website in exchange for a commission or other consideration. If a business meets the criteria for click-through nexus in NYS, it may be required to collect and remit sales tax.
Capital exemptions
One of the common types of exemption In NYS, is for capital improvements. Capital improvements generally refer to permanent changes or additions made to real property that enhance its value, extend its useful life, or adapt it for new or different use. Here are some key points regarding capital improvement exemptions in NYS:
- Capital improvements to real property are generally exempt from sales tax in NYS. This exemption applies to both materials and labor involved in the construction or installation of the capital improvement.
- The capital improvement exemption typically applies to improvements made to commercial, industrial, and residential real property. It can include various types of construction or installation projects, such as renovations, additions, repairs, and upgrades.
- To qualify for the capital improvement exemption, the improvement must meet certain criteria. It should be permanently affixed to the real property, become a structural component of the property, or have a direct and immediate relationship to the property.
- Some examples of capital improvements that may be exempt from sales tax in NYS include the construction of new buildings, renovations or additions to existing structures, installation of heating, ventilation, and air conditioning systems, plumbing and electrical work, and other improvements that enhance the property.
- To claim the sales tax exemption for capital improvements, contractors or property owners must typically provide appropriate documentation, such as contracts, invoices, and other records that clearly demonstrate the nature of the improvement and its qualification for exemption.
It’s important to note that specific requirements and conditions for the capital improvement exemption can vary, and it’s advisable to consult the New York State Department of Taxation and Finance or a tax professional for the most up-to-date and accurate information regarding sales tax law and interpretations in NYS.