How Property Management Companies and Building Owners Can Pay Less Sales Tax in New York
A recent New York State Advisory Opinion (TSB-A-13(2)S) determined, in application to the taxpayer's facts, that property management companies providing different building maintenance services were not required to collect New York sales tax on the wages of certain maintenance workers because those workers were employees of the building owners.
In New York state's Advisory Opinion (TSB-A-93(52)S), the Department provided guidance to the Building Owners and Managers Association of Greater New York and the Real Estate Board of New York about general factors used to determine whether maintenance workers are the employees of the building owner for purposes of the wage exclusion. The factors included:
- Even though the workers were typically hired by the agent, the owner (as principal) approved the prescribed work rules and practices for the workers, and the owner determined the number of employees, their work hours and shifts, etc.
- The contracts between the owner and agent expressly provided that the employees were solely employed by the owners and not the agent.
- The agent issued W-2 forms to the employees as agent of the owner.
- The agent used a special payroll account into which payments from the owner for payroll expenses were placed and that account was held in trust for the owner.
- The owner was liable for payment of unemployment insurance, social security, workmen's compensation and disability benefits.
- The owner was liable for the actions of the employees for tort liability purposes.
In the recent Advisory Opinion (TSB-A-13(2)S), the Petitioner entered into specific agreements with the building owner. Each of the agreements expressly provided that the Petitioner acted as the agent of the owner and that the workers were the employees of the owner.
If you are a New York real estate property management company, it is very important that you review your relationships with the building owners to determine if you have the proper agreements in place to ensure that you will be able to exclude the salaries of the maintenance workers from sales tax and support that position under audit.
The recent ruling is only applicable to the taxpayer that requests the ruling, but it does provide guidance in how the New York State Department of Taxation and Finance may apply the law to your facts.
If you would like assistance in taking advantage of this sales tax saving opportunity, please contact me.
Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States. He also writes a weekly column in Tax Analysts State Tax Notes entitled, "The SALT Effect." For more info, visit his website: www.leveragestateandlocaltax.com
You can reach Brian at firstname.lastname@example.org.
Because state and local taxes are deceptively simple and endlessly complicated.