New York – Updated Guidance on Direct Payment Permits

SALT Report 2615 – The New York Department of Taxation and Finance updated its sales and use tax bulletin regarding direct payment permits. A direct payment permit allows qualified businesses who are unable to determine how taxable property or services will be used to pay sales tax directly to the Department instead of paying tax to a seller at the time of purchase. The Department’s bulletin explains eligibility rules, applying for a permit, proper use of a permit, and how to report and pay taxes on purchases made using the permit.

Eligibility

To be eligible for a direct payment permit, a business must:

  • Be registered for sales tax purposes,
  • Maintain a place of business in New York,
  • Have timely filed and paid all required returns for the four preceding sales tax quarters immediately prior to applying for a direct payment permit – unless the applicant is a new vendor that has not yet filed returns, and
  • Be unable to determine at the time of a purchase how taxable property or services will be used

Applying for a Direct Payment Permit

  • Businesses must file Form AU-298, Application for a Direct Payment Permit, and include a statement that describes:
  • The specific reasons the direct payment permit is needed,
  • The types of transactions for which the permit will be used, and
  • How the business will account for any taxes due and the types of records that will be kept
  • Once approved, the department will issue a specifically numbered direct payment permit to the applicant for use when making qualified purchases. If an application is not approved, the business will be notified by mail

Reporting Requirements

  • Once property or services that have been purchased with a direct payment permit are actually used, the permit holder must:
  • Determine whether or not that use is taxable,
  • Maintain records that detail all purchases and how and where they are used, and
  • Report and remit any taxes due on the sales tax return in which the taxable use occurs

Computing and Reporting Taxes

  • For purchases originally made and delivered in a jurisdiction with a higher tax rate than the jurisdiction in which the property is used must be reported for the jurisdiction with the higher rate,
  • For purchases originally made and delivered in a jurisdiction with a lower tax rate than the jurisdiction in which the property is used must be reported for the jurisdiction with the lower tax rate. However, the property is also subject to additional use tax for the jurisdiction with the higher rate, and
  • For purchases made in bulk and later used in jurisdictions with different tax rates will be subject to tax based on the rate in the jurisdiction of use

Proper Use of a Direct Payment Permit

A direct payment permit may only be used by the business it has been issued to and only in situations in which the business is unable to determine at the time of a purchase how taxable property or services will be used. Misusing a permit or failing to pay any taxes due will result in the assessment of penalties and interest and the business will be held liable for any taxes due. Misusing a permit will also result in the revocation of the permit.

For Further Information

New York Department of Taxation and Finance – Tax Bulletin ST-163