NYDTF: Out-of-State Retailers Not Vendors Under Sales Tax Rules

After receiving a petition from an out-of-state retailer, which sells consumer and household products to New York customers, the New York Department of Taxation and Finance (NYDTF) published an Advisory Opinion answering a question related to sales and use tax liability in the state. 

Facts of the Case and the Department's Opinion

The petitioner in this case is a company (retailer) from Colorado, organized under Texas law, which initially fulfilled orders from New York consumers from its headquarters in Colorado. However, over time, the company started using a third-party order fulfillment company, Company X, in New York. The Company X stores the retailer’s inventory in its New York warehouses, picks and packages items, hires carriers for delivery, handles billing and collections, and responds to customer inquiries.

Due to this relationship with Company X, the retailer asked NYDTF whether using a third-party order fulfillment company would make it a vendor required to collect New York sales and use tax. In its analysis, the NYDTF underlined that, under the New York law, sales tax applies to retail sales and specific services, and vendors or marketplace providers are responsible for collecting the tax.

However, there are exceptions to this rule, one of which applies to a person who only purchases fulfillment services in New York from an unaffiliated company or stores property on the premises of such a fulfillment service provider. Such a person is not considered a vendor and thus is excluded from the sales and use tax requirements.

Since Company X meets the criteria defined for fulfillment services, and it is not affiliated with the retailer, the NYDTF concluded that the retailer’s use of Company X’s fulfillment services and its storage of inventory in New York do not make it a vendor for sales tax purposes. However, the NYDTF added that, if Company X meets the legal threshold for a marketplace provider, it must register and collect sales tax on all sales it makes or facilitates, including those of the petitioner’s products.

Conclusion

The NYDTF opinion highlights the importance of understanding how each requirement and criterion must be met for sales and use tax rules to apply. Moreover, the opinion emphasizes the need to interpret legislation broadly and consider all key factors that determine tax liability, such as affiliation, physical presence, and the scope of services provided, before concluding whether a business qualifies as a vendor in New York.

Source: New York Department of Taxation and Finance