New York – Purchases of Oxygen Cylinders Did Not Qualify for Resale Exemption

SALT Report 2587 – The New York Division of Tax Appeals ruled that a Taxpayer who provides oxygen systems to its customers for in-home use could not prove that its purchases of oxygen cylinders were for resale.

In 2008, the Division of Taxation conducted an audit of the Taxpayer’s books and records. During the audit, it was noted that the Taxpayer did not pay sales tax on its purchase of the oxygen cylinders. At the conclusion of the audit the Division issued the Taxpayer a Notice of Determination with tax due in the amount of $121,282.35 plus interest, for a total amount due of $154,996.22.

The Taxpayer filed an appeal maintaining that the oxygen systems it purchased and provided to its customers were pursuant to the terms of written, monthly rental agreements. The Taxpayer argued that since New York law provides that the rental of tangible personal property falls within the definition of a “sale,” its purchases of the cylinders for rental purposes should qualify for the resale exemption. However, the Division argued that the Taxpayer’s primary business was providing oxygen services to its customers and that the provision of oxygen cylinders was incidental to that service.

Upon review of the case, the Administrative Law Judge found that the Taxpayer could not prove that the “object of the transaction” was the rental of equipment and not the sale of oxygen because the Taxpayer failed to submit its monthly contracts and invoices to prove its point. Further, the ALJ stated that New York law specifically states that the agreement provisions are critical in determining whether a transaction is a rental.

Additionally, the ALJ required that there be proof of a specified charge for the cylinder rentals. Here, the Taxpayer failed to submit any evidence of a separate charge on its monthly invoices that would indicate that the cylinder fees were the true object of the transaction.

As a result, the ALJ held that the Taxpayer did not submit any agreements or invoices; did not establish a direct relationship between the charges and the equipment provided; and did not demonstrate that there was a separate charge for the cylinders. Therefore, the Taxpayer’s appeal was denied and the audit assessment was upheld.

For Further Information

New York Division of Tax Appeals – Administrative Law Judge Unit, DTA No. 823971