New York: Great State for Sales & Use Tax Refunds

Last Updated on September 6, 2024

Sales and use tax refunds are a great way to improve your bottom line and increase cash flow; however, not all states are refund-friendly. Some refunds can trigger audits in certain states and some states will drag out the process for years via administrative red tape. Fortunately for New York taxpayers, it’s one of the best states to file sales & use tax refunds.

New York has a 3-year look-back period or statute for filing sales and use tax refunds on fixed assets and expense purchases. It also has great exemptions for numerous spend areas, including manufacturing, research & development (R&D) and IT-related (software/hardware).

Manufacturers, as well as pharmaceutical/R&D companies, have numerous exemptions availed to them in New York. Below are a few that may apply:

• Manufacturing Equipment
• Utilities (electricity/gas used in production)
• Production Machinery Repair Parts
• Electrical Components, Screws, Nuts, Bearings, Washers, Filters, Pumps, etc.
• Production Tools and Supplies
• Drills, Taps, Blades, Grinders, Sockets, Files, etc.
• Material Handling Equipment, Repair Parts (if used within an Integrated Production Process)
• Forklifts, Cranes, etc. if used in manufacturing
• Abrasives, Grease, Fuel, Welding Gases, Gas Cylinders, Electricity, Natural Gas, etc.
• Cost of Goods Sold (COGS)
• Material incorporated into the final product
• Safety Clothing or Equipment
• Gloves, Coveralls, Ear Plugs, Hard Hats, Glasses, Safety Shoes, etc.
• Packaging Supplies
• Pallets, Boxes, Strapping, Wrap, etc.
• Research and Development
• Property purchased solely for research and development
• Pre-written Software used in manufacturing or R&D

For utilities (gas and electricity) used in manufacturing and R&D, New York has an apportionment rule. After a licensed engineer performs a utility exemption study, a determination is made regarding the percentage of the utilities used specifically in either activity, and only that percentage is deemed exempt in New York. (Water is exempt from sales tax regardless of activity if supplied through mains or pipes.)

For software, hardware and IT-related spend, these purchases may be taxable in New York, but so many companies are headquartered in the State, but have locations elsewhere, in addition to remote workers. In fact, one in five employees work remotely according to the Bureau of Labor Statistics. What if the New York location is purchasing, but usage is elsewhere?

If a New York company is purchasing laptops or software licenses that end up being allocated outside of the state, those purchases are non-taxable in New York. Companies in high technology, law and insurance, for example, can recover the sales tax paid in the state on those purchases, provided they have evidence on “what” and “where” those in-state purchases were being used. Since most states tend to audit companies in their headquartered state, they tend not to audit satellite offices and typically do not bother with remote employees working from home in other states – at least not for sales tax. Thus, while these NY purchases may be taxable in other states, the difficulty in tracking and likelihood of a non-NY audit is extremely low.

Aside from exemptions, there are three major reasons that make New York great for sales tax refunds. When a refund claim is typically filed, taxpayers may have to wait many months (if not years) before the claim works its way through the administrative process. In New York, however, the State must issue a decision within 90 days of the filed claim to avoid paying interest on the refunds. (Only Indiana has a similar rule when filing refunds.)

New York is also the only state that does not require a proof of payment (POP) when submitting a claim, whereas claims that require one may ultimately be dismissed if the taxpayer cannot supply the evidence. New York also allows for refunds to be taken as credits on the taxpayer’s monthly returns; only Texas has a similar rule in place.

Another differentiator for New York is filing refunds post sales & use tax audit. Typically, taxpayers should file credits while the audit is in process or simply file refund claims according to statute. However, in New York, the taxpayer has one full year from the expiration of a waiver to file for sales and use tax refunds for the audit period but can only file/win refunds up to the amount of the final assessment. Thus, if a company’s final assessment was $400,000, the taxpayer may only be entitled to that amount in awarded refunds. (Taxpayers do have six months from the waiver expiration to file for unlimited refunds within the audit period.)

Filing sales and use tax refunds is never a cakewalk as each state employs its own methodology in handling them. At the end of the day, the taxpayer should only have to pay its fair share – nothing more, nothing less. New York understands the right of taxpayers to file for refunds in the state and they do not penalize said taxpayers with an audit. Refund filers can typically expect to see refunds or guidance as to why refunds were denied within the 90-day window. In some cases, the turnaround time can even be faster. Compared to other states, New York ranks as one of the best for taxpayer sales and use tax refunds.