A New York sales tax exemption removes the obligation to collect state or local sales tax on a specific transaction, product, or buyer. The state’s 4% base rate rises to between 7% and 8.875% when county and city rates are added, although numerous exemptions mean not every sale is charged that combined rate. Groceries, prescription drugs, resale inventory, and manufacturing equipment can all qualify for exemptions. However, the exemption that applies and paperwork required to prove the exemption depend entirely on who’s buying and why.

Below, we’ll discuss how New York’s exemption categories work, who qualifies for each, and how to document exempt sales correctly.

Key takeaways

• New York’s exemptions fall into three categories: product-based, use-based, and buyer-based.

• The same item, such as manufacturing machinery, can be taxable or exempt depending on how the buyer uses it.

• Sellers must keep exemption certificates and related sales records for at least three years, and they can be liable for uncollected tax if documentation is missing.

What is a New York sales tax exemption?

A New York sales tax exemption removes the obligation to collect New York sales tax on a specific transaction, product, or buyer. The buyer often needs to provide documentation that proves they qualify before the seller can leave off the tax.

Who qualifies for a sales tax exemption in New York?

Qualification depends on which exemption you’re claiming.

Here’s who typically qualifies:

• Resellers: Qualify when they’re buying inventory they intend to resell rather than consume, such as a clothing wholesaler stocking garments for a retail store. The tax is collected later from the end customer instead.

• Manufacturers: Qualify for exemptions on machinery, equipment, and supplies used directly in producing goods for sale. Equipment used for administrative or general business purposes doesn’t count, even if it sits on the same factory floor.

• Nonprofit organizations: A 501(c)(3) federal designation alone doesn’t exempt you from New York sales tax. Nonprofits have to file Form ST-119.2 separately with the state and receive an Exempt Organization Certificate (Form ST-119) before they can make tax-free purchases.

• Government entities: Federal, New York State, and most local government agencies are exempt on purchases tied to their official functions.

• Farmers: In New York, farmers qualify for exemptions on equipment, feed, and supplies used in agricultural production.

• Specific licensed practitioners: Certain industries, such as veterinary medicine, have separate certificates for professionals buying items used directly in patient treatment.

What products and services qualify for a sales tax exemption in New York?

Some exemptions apply regardless of who’s buying. Most food and food ingredients sold for home consumption, such as bagged flour, are exempt. However, a hot rotisserie chicken from a grocery store’s deli counter is taxable because it’s considered prepared food. Candy and soda are also taxable even though they sit on the same shelves as exempt groceries.

Clothing and footwear priced under $110 per item are exempt from the 4% state tax and the New York City local tax, but this rule isn’t uniform statewide. Counties and cities outside New York City can opt in or out of exempting clothing under $110 from their own local tax, which means a $95 jacket might be fully exempt in one county and partially taxed in the next.

Other categories of exempt goods include:

• Health-related items: Prescription drugs, many over-the-counter medications, and medical equipment for home use, such as wheelchairs and hearing aids, are exempt.

• Newspapers and periodicals: These are exempt regardless of buyer.

• Residential energy: Natural gas and electricity used for home heating get a reduced or exempt rate, depending on the locality.

• Manufacturing machinery and equipment: These are exempt when used directly in producing tangible property for sale, under Tax Law section 1115(a)(12).

• Raw materials: Exempt when they become a physical part of a manufactured product, since the tax is collected once the finished product sells.

• Capital improvements: Work such as installing a new roof or a permanent HVAC system isn’t taxed to the property owner, though the contractor still pays tax on materials.

The same physical item can be taxable or exempt depending on what it’s for, who’s buying it, and how it’s used after the sale. Usually, services are exempt from New York sales tax unless they are specifically listed as taxable, such as mobile telecommunication services and certain information services.

How do businesses use a sales tax exemption certificate in New York?

To use a sales tax exemption certificate in New York, the buyer fills it out and gives it to the seller; then the seller keeps it on file instead of collecting tax on that transaction. Which form gets used depends on what’s being claimed:

• Resale Certificate: Form ST-120 is used by businesses buying goods they’ll resell, lease, or rent to someone else.

• Exempt Use Certificate: Form ST-121 is used for machinery, equipment, and supplies that qualify for a use-based exemption, such as manufacturing or research and development.

• Exempt Organization Certification: Form ST-119.1 is used by qualifying nonprofits and government entities that already hold ST-119 exempt status.

• Certificate of Capital Improvement: Form ST-124 is used by property owners to certify that contracted work counts as a capital improvement rather than a taxable repair or maintenance service.

A buyer can issue a single-purchase certificate that covers one transaction, or a blanket certificate that covers every future purchase of the same type from the same seller until it’s revoked. Blanket certificates are common in wholesale relationships, so neither side has to redo paperwork every time an order goes through.

What records must businesses keep for sales tax exemptions in New York?

New York requires sellers to keep exemption certificates for at least three years from the later of two dates: the due date of the sales tax return that covers the exempt sale, or the date that return was filed.

The state also expects sellers to hold on to the records connecting that certificate to the actual sale, including:

• Invoices: Showing the date of sale and description of what was purchased

• Buyer information: Matching the name and details on the certificate to the transaction

• The certificate itself: Filed and accessible

If the Department of Taxation and Finance audits a business and finds a gap between the exempt sales it reported and certificates on file to back them up, the business becomes liable for the tax on those unsupported sales, plus interest.

What tools can help manage sales tax exemption certificates in New York?

Certificate management typically breaks down in one of two places: certificates that expire without anyone noticing, or exempt status that doesn’t carry through consistently across every sale to the same customer.

Purpose-built certificate management platforms store certificates and also flag renewals before they lapse, while tax calculation platforms such as Stripe Tax let a business mark a customer’s tax status as exempt or reverse-charge directly on their customer record. Once that’s set, Stripe Tax stops calculating sales tax on that customer’s future invoices and charges, so the exemption doesn’t depend on someone remembering to flag it manually on each transaction. However, this doesn’t replace the underlying requirement to collect and retain the actual exemption certificate from the buyer. Businesses dealing with New York’s county-level clothing tax rules, or a mix of resale, manufacturing, and nonprofit buyers, tend to get the most value from pairing both approaches.

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard, or using our powerful API.

Stripe Tax helps you monitor your obligations and alerts you when you exceed a tax registration threshold based on your Stripe transactions. It can also register to collect tax on your behalf in the US, automate US filings in the Dashboard, and manage global filings through trusted partners. Stripe Tax automatically calculates and collects sales tax, VAT, and GST on:

• Digital goods and services in all US states and over 100 countries
  
• Physical goods in all US states and 42 countries
  

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration, or add tax collection with the click of a button in the Stripe Dashboard.

• Register to pay tax: If you need to register for a sales tax in the US, let Stripe manage your tax registrations. You’ll benefit from a simplified process that prefills application details—saving you time and simplifying compliance with local regulations. If you need help registering outside of the US, Stripe partners with Taxually to help you register with local tax authorities.

• Automatically collect tax: Stripe Tax calculates and collects the right amount of tax owed, no matter what or where you sell. It supports hundreds of products and services and is up-to-date on tax rules and rate changes.

• Simplify filing: Stripe Tax automates US filings in the Dashboard, powered by TaxJar. For global filings, Stripe Tax seamlessly integrates with filing partners, so your global filings are accurate and timely. Let our partners manage your filings so you can focus on growing your business.

Learn more about Stripe Tax, or get started today.

FAQs about New York sales tax exemptions