Two kinds of exemption
Things that are exempt by their nature, and purchases exempt because of who is buying or why.
Key takeaways
The second kind needs paperwork
A certificate on file. Without it the sale is taxable on audit, and the tax comes out of your own margin.
$110 rule — per item
Less than $110 per item on clothing and footwear. An item at exactly $110 is taxable in full. Applies to each item, not the receipt.
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What is taxable in New York
Most tangible goods, only named services
New York taxes most tangible goods and only the services it specifically names. The state rate is 4 percent, and the combined rate inside New York City is 8.875 percent. Everything else falls into one of two exemption categories, and the difference between them decides whether you need to keep paperwork. Registering to collect in the first place is a New York Certificate of Authority question.
01Category 1
Exempt by category, with no certificate needed
These are exempt because of what they are. No paperwork required at the register.
Most food sold for home consumption
Groceries are exempt. Prepared food, restaurant meals, heated food, and most beverages sold ready to drink are not. Candy, soft drinks and dietary supplements are taxable even though groceries are exempt.
Prescription and most over-the-counter drugs
Along with many medical devices and supplies.
Clothing and footwear under $110 per item
Exempt from the state’s 4 percent. Whether the local rate and the 0.375 percent MCTD surcharge also drop depends on the county’s election. New York City has elected the exemption, so a $90 pair of jeans bought in Manhattan carries no sales tax at all. Fabric, thread, buttons and zippers used to make or repair exempt clothing are exempt too.
Not eligible clothing
Handbags, jewelry, watches and most accessories are taxable at any price.
Newspapers and periodicals
And certain publications.
Laundry, dry cleaning, and shoe repair
New York taxes only the services it names, and these three are specifically exempted from an otherwise taxable category.
02Category 2
Exempt because of who is buying, or why
These need a certificate, and the seller must hold it. Without it, the sale is treated as taxable.
Certificate required
Purchases for resale
A reseller gives you a resale certificate and you do not charge tax. Without the certificate on file, the sale is taxable and the tax is yours to pay.
Certificate required
Exempt organizations
Charities, schools, and similar bodies with New York exempt status present their own certificate. Being a federal 501(c)(3) is not by itself enough.
Certificate required
Government purchases
Federal, state and local government purchases are exempt with the right documentation.
Certificate required
Production and manufacturing
Machinery and equipment used directly in production, and utilities consumed in it, have their own exemptions with their own forms.
Certificate required
Contractors and capital improvements
Work that constitutes a capital improvement to real property is treated differently from a repair, and the certificate is what separates them.
03Why paperwork matters
Why the certificate decides whether an exempt sale holds
On audit, an exempt sale without a valid certificate behind it becomes a taxable sale.
You pay that tax out of your own margin, because the sale happened years ago and nobody is going back to the customer for it. That is the single largest source of sales tax assessments we see.
A purchaser has 90 days from the sale to give you a properly completed certificate, and one you receive inside that window protects you. In practice you should still take it at the time of sale — a certificate produced three years later during an audit does not carry the same protection and the burden of showing the sale was exempt falls back on you.
90
days
to collect a valid certificate after the sale
A valid certificate shows all of these
Field 1
Date it was prepared
Field 2
Purchaser’s name and address
Field 3
Your name and address as seller
Field 4
Purchaser’s Certificate of Authority number
Field 5
Purchaser’s signature
A certificate missing any of these is incomplete, and on audit an incomplete certificate counts as no certificate. Check the buyer before you release the order. New York publishes a registered vendor lookup, and a Certificate of Authority showing as inactive or suspended makes the certificate worthless. Keep everything for at least three years. The audit window is three years, and six where taxable sales are underreported by more than 20 percent.
Good faith protects you. It does not cover a certificate you had reason to doubt, such as a resale certificate from a buyer with no plausible reason to resell what they bought.
04After the sale
Two things sellers get wrong after the sale
Exempt does not mean unreported
Exempt sales still go on your return. Leaving them off is a filing error even though no tax was due.
Out of state does not mean exempt
Shipping to another state may move the tax rather than remove it, and your own nexus in that state is a separate question.
Not sure your certificates would hold up? Send us what you are treating as exempt and we will tell you what the certificates need to say.
05FAQ
Common questions on the $110 clothing exemption
Does a $109 jacket carry sales tax in New York City?
No. Inside the five boroughs an item priced under $110 carries no state and no local sales tax. At $110 or more the whole price is taxed.
Do I need a resale certificate for every exempt sale?
No. Category exemptions such as groceries need no paperwork. Exemptions that depend on who the buyer is do, and the seller has to hold the certificate.
Does a manufacturer’s coupon lower the price for the $110 clothing test?
No. A manufacturer coupon does not reduce the selling price for the threshold. A store coupon does, because the store is not reimbursed for it.
Do delivery charges count toward the $110 clothing threshold?
No. Delivery charged separately and reasonably by the vendor is left out of the test. A $95 item with $20 of delivery stays exempt.
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Get your exemptions documented
One certificate review usually pays for itself in one audit avoided
If you sell into New York, we will review what you are treating as exempt and make sure the certificates behind it would hold up on audit. Call (212) 641-0673 or send the contact form. No charge for the conversation.
Reviewed by George Dimov, CPA, New York, NY. Serving clients in all 50 states, 15+ years advising New York businesses and individuals. President of George Dimov, CPA, a New York City firm serving clients across the five boroughs and nationwide.