State legislatures across the country have been busy this year introducing new legislation intended to force out-of-state sellers to collect sales tax on remote sales made to residents of their states. According to Multistate Associates, “lawmakers in 31 states have introduced 80 sales and use tax compliance bills this year, and in the executive branch, five states have proposed five regulations” (click here for their full article). States are desperate to stop losing out on sales tax revenue from remote sales and have offered up numerous proposals to overcome the physical presence requirements set forth in Quill, as Congress fails to act and the Supreme Court seemingly waits for the right case to wind its way through the judicial system.
New York is no exception when it comes to identifying new ways to expand nexus and compel out-of-state sellers to collect their sales tax. In fact, the Empire State has typically been at the forefront of finding new avenues to take a bigger bite of the proverbial apple. In 2008, New York was the first state to enact what came to known as click-through nexus legislation, specifically targeting internet retailers. The so-called “Amazon tax” required internet retailers like Amazon and Overstock, who had no physical presence in New York, to register and collect sales tax when they entered into agreements with New York residents, who in exchange for a commission or other consideration, directly or indirectly referred customers to their prospective websites [TSB-M-08(3)S]. This legislation faced a number of state court challenges, but in the end was upheld, and became the blueprint for many other states to follow.
In 2009, New York returned with more new legislation, again aiming to expand the definition of a sales tax vendor. This time the State targeted out-of-state sellers who are “affiliates” of businesses in New York. The businesses are affiliated if one owns, directly or indirectly, more than five percent (5%) of the other or if more than 5% of each business is owned, directly or indirectly, by the same business or by an affiliated group of businesses. This affiliate nexus legislation also broadly expanded the types of activities other than solicitation that could require an out-of-state seller to register and collect sales tax if an in-state affiliate conducts these activities on their behalf [TSB-M-09(3)S]. Many other states have subsequently passed similar legislation related to in/out-of-state affiliates.
Just two years ago, New York became the first state to target marketplace providers, introducing new legislation in 2015, as part of their budget process. A “marketplace provider” is a business such as Amazon or eBay who facilitates a sale for a marketplace seller by collecting the purchase price from the customer and providing the physical or virtual forum where the transaction takes place or arranging for the exchange of information or messages between the customer and seller. This legislation simplifies the tax collection process and minimizes the number of sellers who need to register, by shifting the tax collection responsibility from the out-of-state marketplace seller (who is likely not registered to collect sales tax in New York) to the marketplace providers. Only marketplace providers with sufficient physical presence in New York would be required to collect tax and provide documentation to sellers indicating that they are collecting tax on their behalf. While this legislation was not enacted in 2015, New York introduced the concept to other states. Governor Cuomo took another run at marketplace providers in this year’s budget, however the legislation failed to be enacted again. Marketplace Provider legislation has been enacted in three other states in 2017 – Minnesota, Rhode Island and Washington – so I would plan to see New York revisit this type of nexus-expanding legislation again in the future, especially if additional states enact similar proposals.
As New York continues to aggressively pursue out-of-state sellers through legislative measures, there is always the possibility the Department of Taxation and Finance may issue new or revised regulations that again broaden the definition of a “sales tax vendor” or expand nexus beyond physical presence. This has been accomplished in other states with some success. New York has not pursued controversial economic nexus measures like Alabama or South Dakota nor has the State attempted to introduce notice and reporting requirements like those recently implemented in Colorado after their long legal battle with the Direct Marketing Association. This does not mean that New York may not turn to these measures in the future, especially if federal legislation regarding remote sales continues to flounder in Congress or the State feels it cannot continue to lose sales tax revenue due to untaxed sales.
Other recent “New York (NY)” posts by Tom Mazurek, CPA:
- New York: Celebrate Manufacturing Day with Sales Tax Exemptions!
- New York Nexus: For Out-of-State Sellers, No News is Good News
- New York: New Law to Close Loopholes for Related Parties
- New York Sales Tax: Drop Shipments & Resale Certificates
- New York: Taxing Computer Software