• Tax - New York Sales Tax on Internet Sales by Out-of-State Vendors
  • June 30, 2008 | Authors: Mark A. Goldsmith; Robert A. Friedman; T. Jerry Jackson
  • Law Firms: Troutman Sanders LLP - New York Office; Troutman Sanders LLP - Atlanta Office
  • Generally, New York State imposes a sales tax upon the receipts from every retail sale of tangible personal property within New York. Every vendor required to collect sales tax must register with the New York Commissioner, collect sales tax from in-state purchasers and remit the tax to the Department of Taxation and Finance. In the past, only vendors physically present in the state (through ownership of property located in New York or presence of employees in New York) were required to collect New York sales tax. Effective April 23, 2008, a seller of tangible personal property will be presumed to have a sufficient presence in New York to be required to register and collect sales tax for all of its sales in/to New York, if any in-state resident is compensated for directly or indirectly referring customers to the seller. Specifically, the new law provides that:

    “[A] person making sales of tangible personal property or services taxable under this article (“seller”) shall be presumed to be soliciting business through an independent contractor or other representative if the seller enters into an agreement with a resident of this state under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link on an internet website or otherwise, to the seller, if the cumulative gross receipts from sales by the seller to customers in the state who are referred to the seller by all residents with this type of an agreement with the seller is in excess of ten thousand dollars during the preceding four quarterly periods ending on the last day of February, May, August, and November. This presumption may be rebutted by proof that the resident with whom the seller has an agreement did not engage in any solicitation in the state on behalf of the seller that would satisfy the nexus requirement of the United States constitution during the four quarterly periods in question. (Emphasis added.)”

    Although the new law does not define its key terms - resident; direct or an indirect referral; commission or other consideration; or solicitation, it implies that the placement of a link on a New York resident’s internet website to the seller’s website will constitute a referral of potential customers to the seller. If the cumulative gross receipts of the seller related to this type of referral are in excess of $10,000 for the four pre ceding sales tax quarters, the seller must register as a sales tax vendor in New York and collect sales tax from all New York customers, unless the vendor can rebut the presumption by showing that the New York resident whose internet site refers customers to such seller did not engage in any solicitation in the state on behalf of the seller that would satisfy the nexus requirement of the United States constitution.

    In TSB-M-08(3)S ("TSB"), the New York State Department of Taxation and Finance provided some interpretive guidance to assist sellers in determining whether they are soliciting business in New York under the new law. Regarding the placement of a link on a New York resident’s internet website to the seller’s website, the TSB provides that if such a link is in exchange for the payment of compensation in an amount calculated without regard to completed sales, it will constitute an “advertisement” that is not subject to the presumption of the new law. With respect to rebutting the new law's presumption and "solicitation" activity, the TSB provides that unless the New York resident performs some additional solicitation activity targeted at New York customers, for the benefit of seller, then the link provided on the New York resident’s website to the seller’s website will not be sufficient to consider the seller as soliciting sales in New York.