New York declares remote seller economic nexus standard


Matthew DiDonato
New York - Manhattan
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John O’Brien
New York – Melville
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Brian DiMaria
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Jamie C. Yesnowitz
Washington, D.C.
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Chuck Jones
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Lori Stolly
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Metisse Lutz
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Patrick Skeehan
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On Jan. 15, 2019, the New York Department of Taxation and Finance issued Important Notice N-19-1, declaring that remote sellers without a physical presence in New York State but having more than $300,000 in sales of tangible personal property into the state and more than 100 transactions in the state are now required to register as a vendor and collect and remit sales tax.1 Effective immediately, this guidance was released in response to the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc.2 and is imposed based on existing provisions of the New York tax law pertaining to out-of-state vendors soliciting business in the state.

Background Since 1989, New York law has contained sales and use tax economic nexus provisions that remained dormant as long as the physical presence standard established in Quill Corp. v. North Dakota3 remained the law of the land. The statute provides that an out-of-state seller meets the state’s definition of a “vendor” with a sales and use tax collection obligation if it regularly or systematically solicits business in New York by catalogs, flyers, or by “any other means of solicitation.”4 Vendors are obligated to collect sales tax on taxable sales of tangible personal property.5 Remote sellers were presumed to be regularly or systematically doing business in the state if their cumulative gross receipts from the sale of tangible property for the immediately preceding four quarterly periods exceeded $300,000 and they made more than 100 sales of property delivered into the state.6 Prior to the Wayfair decision, these provisions remained largely unenforceable due to a requirement in the law that the solicitation must satisfy the nexus requirements of the U.S. Constitution.7

Remote seller nexus thresholds With the release of Important Notice N-19-1, the New York Department of Taxation and Finance announced that the dormant provisions in the New York Tax Law defining a sales tax vendor become immediately effective in light of the Wayfair decision. According to the Notice, an out-of-state vendor without physical presence in New York will be required to collect and remit sales tax if the vendor meets two conditions during the four immediately preceding sales tax quarters:8

  • The business made more than $300,000 in sales of tangible personal property delivered in the state
  • The business conducted more than 100 sales of tangible personal property delivered in the state

Businesses falling within New York’s definition of a “vendor” and making sales of tangible personal property are required to collect and remit state and local sales tax effective “immediately.” The Notice makes direct reference to the statutory provisions pertaining to the regular and systematic solicitation of business in New York, stating that these provisions became operative with the abrogation of the physical presence doctrine in Wayfair, and that the constitutional nexus requirements are met by exceeding the numeric thresholds contained in the statute.

The Department has created a website where it will post additional information regarding New York’s new economic nexus rules, including FAQs.

Commentary Though it was expected that New York would consider new sales tax economic nexus legislation in response to the Wayfair decision, the Department instead decided to release administrative guidance supported by existing provisions of an economic nexus statute already in place. While New York was one of the last states to formally adopt a sales tax economic nexus standard, the provisions appear to become effective immediately. However, because the Department is relying on an existing economic nexus statute, the provisions have arguably been in force since June 21, 2018, the date that Wayfair was decided. In Wayfair, the U.S. Supreme Court stated that South Dakota’s economic nexus law provided small merchants with a reasonable level of protection in part because the law did not apply retroactively. If the remote seller nexus standard is enforced retroactively to June 2018, such enforcement is potentially subject to legal challenge based on a Wayfair analysis. Further guidance is likely necessary to clarify the Notice’s effective date.

New York is unique in that it is one of the few states to impose an economic nexus standard with sales and transaction thresholds departing from South Dakota’s thresholds of $100,000 in sales and 200 separate transactions, which were sustained in Wayfair. Furthermore, New York joins only Alabama, Connecticut and Massachusetts in imposing a joint economic nexus standard consisting of both the dollar threshold and transaction threshold, using the “and” terminology in place of the “or” used by South Dakota and other states.9 Thus there is the possibility that out-of-state vendors having a high volume of sales (measured by dollars) but less than 100 separate transactions in a four-quarter sales period may transact a significant amount of business in New York and still not have a sales tax collection obligation.

Finally, both the Notice and the existing law referenced apply New York’s economic nexus provisions to sales of tangible personal property only. This distinction separates New York from South Dakota and the vast majority of states in determining how the sales threshold is measured for purposes of determining whether economic nexus is created. Therefore, out-of-state service providers having no physical presence in the state likely have no obligation to collect and remit New York sales tax. For example, providers of taxable information services or data processing services to in-state customers would not be obligated to collect and remit tax from those customers. However, to the extent that an out-of-state vendor provides taxable software in conjunction with the services, such transactions may require further analysis in order to determine whether they would be considered subject to tax in New York.

It remains to be seen whether New York will amend its current economic nexus law and implement different sales or transaction thresholds or impose new calculation standards that open the sales measurement to gross sales instead of merely sales of tangible personal property. For example, New York is currently considering proposed budget legislation that would require marketplace providers meeting the sales threshold for nexus purposes to register and collect tax for sales made by third parties through their marketplace platforms.10 In any event, out-of-state businesses with sales of tangible personal property into New York should evaluate whether or not they are required to register to collect and remit sales tax based on the sales and transaction thresholds set forth in the Notice.

1 Important Notice N-19-1, Notice Regarding Sales Tax Registration Requirement for Businesses with No Physical Presence in New York State, New York Department of Taxation & Finance, Jan. 15, 2019.
2 138 S. Ct. 2080 (2018). For a discussion of this case, see GT SALT Alert: Wayfair Ruling Overturns Quill Physical Presence Requirement.
3 504 U.S. 298 (1992).
4 N.Y. TAX LAW § 1101(b)(8)(i)(E).
5 Id.
6 N.Y. TAX LAW § 1101(b)(8)(iv).
7 N.Y. TAX LAW § 1101(b)(8)(i)(E).
8 The Notice specifies that the sales tax quarterly periods run from March 1 through May 31, June 1 through Aug. 31, Sept. 1 through Nov. 30, and Dec. 1 through Feb. 28/29.
9 See ALA. ADMIN. CODE r. 810-6-2-.90.03; S.B. 417, Laws 2018; MASS. REGS. CODE tit. 830, § 64H.1.7.
10 Fiscal Year 2020 New York State Executive Budget, Part G.

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