New York Sales and Use Tax Guide: Rates, Nexus, and Taxable Goods & Services

Sales and Use Tax Basics in New York

Sales Tax

In New York, sales tax applies to retail sales of tangible goods and certain services. Similar to other US states, tangible personal property or tangible goods refers to any physical personal property that humans can see or touch.

Some examples include raw materials, such as wood or metal, jewelry, furniture, machinery, appliances, canned or off-the-shelf computer software, and many others.

Use Tax

Use tax applies if a person buys a tangible good or a taxable service outside the state but uses it within the borders of New York. The use tax applies to the instate purchase of tangible goods and taxable services if the seller is not liable for sales tax, meaning that the seller does not collect and remit sales tax. In other words, the use tax applies whenever sales tax is unpaid on taxable transactions.

New York Sales and Use Tax Rates

In New York, the applicable sales and use tax rate is a combination of a statewide 4% rate plus any effective local tax rate. The local tax rates may be city, county, or school district sales and use tax rates. Due to the variety of local sales and use tax rates, they can be found on the New York Department of Taxation and Finance website, utilizing the consumer's address or ZIP code.

For a better understanding, the State of New York consists of five counties: Bronx (Bronx), Kings (Brooklyn), New York (Manhattan), Queens (Queens), and Richmond (Staten Island). The local applicable sales tax rates are between 0% and 5%.

Tax-Exempt Transactions

Generally, sales of tangible goods are subject to sales tax unless explicitly exempt. In contrast, sales of services are typically exempt from sales and use tax unless defined explicitly as taxable. Some transactions exempt from sales and use tax include purchases by vendors of specific property or services intended for resale, laundering, dry cleaning, tailoring, weaving, pressing, shoe repairing, shoe shining, and many other services.

Nexus Rules in New York

Taxable persons who sell non-exempt tangible goods and taxable services must register for sales tax purposes. The moment when the obligation arises depends on whether the taxable person is physically in New York or sells goods from outside the state.

Therefore, taxable persons must determine whether they have established a physical, economic, or marketplace nexus.

Physical Nexus

If a taxable person has a place of business in New York, such as an office, store, warehouse, and sells tangible goods or taxable services, it must register for sales tax. A physical nexus can also be established when a taxable person facilitates sales through employees, independent contractors, agents, or other representatives. Facilitating sales through catalogs or other advertising material also contributes to establishing a physical presence in the state.

Furthermore, if taxable persons sell taxable goods to consumers in New York and regularly deliver them in their vehicles, they are considered to have a physical presence. If a taxable person makes at least 12 such deliveries per year, it is thought that they regularly deliver goods to consumers.

Economic Nexus

Economic nexus is established if an out-of-state retail seller has a cumulative total of gross receipts from sales of tangible goods delivered into the state that exceeds USD 500,000 and has more than 100 sales of goods delivered there in the last four sales tax quarters.

Marketplace Nexus

Like economic nexus, marketplace nexus is established if a marketplace provider, meaning a marketplace operator, or marketplace seller, facilitates or makes sales exceeding USD 500,000 and 100 sales of tangible goods in the state in the previous four quarters.

Taxable Goods and Services in New York

Although most goods for human consumption, including food sold unheated and old in the same form and condition, quantities, and packaging as commonly used by retail food stores, are exempt from sales and use tax, some foods and beverages are subject to these taxes. 

Therefore, candy and confectionery, alcoholic drinks, soft drinks, fruit drinks, sodas and similar drinks, and heated or prepared meals are subject to sales tax.

The list of taxable services includes utility and intrastate telecommunication, telephone answering, prepaid telephone calling, and mobile telecommunication. Furthermore, maintaining, installing, servicing, repairing, and storing tangible goods, as well as maintaining, servicing, and repairing real estate property areas, are also taxable.

In addition to these services, particular personal care and wellness services, credit information, and rating services are taxable only in New York City.

Bundled Transactions and the True Object Test

Applicable rules for bundled transactions are interpreted through an Advisory Opinion issued by the New York State Department of Taxation and Finance. The opinion states that when a taxable person sells taxable and exempt tangible goods together and issues an invoice with a single bundled price for all goods sold, the whole transaction is subject to sales tax.

Therefore, taxable persons should separately charge and itemize each tangible good sold on the invoice to avoid this. By adopting this approach, taxable persons can apply sales tax rates only on taxable tangible goods.

E-Commerce Framework

Remote or out-of-state retail sellers, offering and selling tangible goods to New York consumers, must consider the criteria for establishing an economic nexus. Therefore, if within the previous four quarters their cumulative gross receipts from sales of tangible goods delivered into the state exceeded USD 500,000, and they made more than 100 sales of tangible goods delivered in the state, they must register for sales tax.

Marketplace Rules

Remote or out-of-state sellers can sell tangible goods and services through their website or marketplace facilitator platforms. If they sell on marketplaces, they are considered marketplace sellers, and specially defined rules for marketplace sellers apply.

Marketplace sellers registered for sales tax purposes in New York are relieved of the obligation to collect and remit sales tax for sales of tangible goods if they can prove that the sale was facilitated by the marketplace facilitators or providers registered to collect sales tax. 

Additionally, even if the marketplace facilitators fail to collect and remit sales tax, marketplace sellers can be relieved from liability if the failure was not caused by the seller's incorrect or insufficient information provided to the marketplace facilitators.

When a marketplace seller makes taxable sales through a means other than a marketplace facilitator, e.g., their website, it is responsible for collecting and remitting the sales tax due on those out-of-marketplace sales. Furthermore, marketplace sellers must collect and remit sales tax on any sales facilitated by the marketplace facilitators if those sales relate to non-tangible goods and non-taxable services.

Digital Goods and Services

As previously mentioned, prewritten or canned computer software is considered a tangible good and thus subject to sales tax, regardless of whether it is sold on a physical medium, such as a disk or USB, electronically, or by remote access. Moreover, even canned software modified to meet the requirements and needs of a specific consumer is subject to sales tax. Nevertheless, if these modifications are separately stated on the invoice, the modifications are non-taxable.

On the contrary, custom software designed and developed to meet a specific customer's need is not subject to sales tax.

Furthermore, a sale of computer software includes licensing, even if the software is accessed remotely over the Internet, because the consumer gains constructive possession and control. Under the New York sales tax rules, such remote access is taxable, and the local tax applies depending on where the software is used, not where it is hosted.

Digital products, such as music, e-books, ringtones, movies, and similar content transferred electronically, are generally tax-exempt. However, some exemptions do exist, and taxability rules should be determined on a case-by-case basis.

Digital Marketplace

Suppose a person agrees to facilitate sales of tangible goods on behalf of marketplace sellers and collect the receipts that consumers pay sellers. In that case, that person is considered a marketplace provider or facilitator. These marketplace facilitators ' sales tax rules and requirements depend on their location, whether in or outside New York.

Digital Platform Operator

If marketplace facilitators are located in the State of New York, they must register for, collect, and remit sales tax on facilitated sales of taxable tangible goods. However, if they are located outside New York, they do not have physical presence there. 

In that case, they must register for sales tax if, in the previous four quarters, their cumulative total gross receipts from sales made or facilitated of tangible goods delivered into the state exceeded USD 500,000 and they made or facilitated more than 100 sales of tangible goods delivered there.

Nevertheless, marketplace facilitators do not have to collect and remit sales tax on made or facilitated sales of goods not considered as tangible, such as transportation services, restaurant food, hotel occupancy, or tickets for a place of amusement.

Once registered for sales tax, marketplace facilitators cannot refuse to collect and remit due taxes on sales made by the marketplace seller, even if the seller is registered for sales tax.

Filing and Payment Requirements in New York

Sales and use tax registered taxable persons must file tax returns electronically if they prepare tax documents themselves without the assistance of a tax professional, use a computer to organize, document, and calculate required data, and have access to the Internet. Tax returns must be filed monthly, quarterly, or annually, depending on the due tax amount.

Tax returns should include information such as gross sales, non-taxable and exempt sales, taxable sales, purchases or uses subject to tax, credits claimed in the return, sales tax, use tax, and any special taxes that taxable persons collected or were required to collect, as well as current business information.

Penalties for Non-Compliance with Sales and Use Tax Requirements

Failing to file and pay due taxes results in imposing a minimum penalty of USD 50, even if no tax was due in the reporting period. The penalty and interest owed due to late filing or payment are calculated based on the amount of due taxes.

If a taxable person files a return within 60 days from the due date, the penalty is 10% of the owed tax, plus 1% for each additional month or part of the month, not exceeding 30% of the due tax. Suppose the taxable persons fail to file or file a return after the 60th day has passed. In that case, there are three potential penalties, of which the greatest one applies. 

The first potential penalty is 10% of the due tax for the first month, plus 1 % for each additional month, with a maximum of 30% of the due tax. The second potential penalty is USD 100, or 100% of the amount required to be shown as tax on the return, whichever is less. The final potential penalty is USD 50.