The place to find business sales tax information

— as well as solutions, services and jobs!

New York’s Latest Internet Tax Move: Easier Process or Easier Targets?

author photo of Tom Mazurek

This past week, the Marketplace Fairness Act of 2015 was introduced in the U.S. Senate. This latest attempt by Congress to pass legislation authorizing states to require out-of-state businesses to collect sales tax comes on the heels of the Supreme Court’s decision in the Direct Marketing Association v. Brohl case, where Justice Kennedy’s concurring opinion about the rationality of Quill likely raised more eyebrows than the decision itself.

New York State, however, is not waiting for federal legislation to tax internet sales. If you recall, New York was the first state to pass click-through nexus or “Amazon tax laws” in 2008, requiring out-of-state retailers to collect sales tax if they pay commissions to in-state residents who refer customers to their websites. A number of other states, including California, Illinois, New Jersey and Michigan, have followed New York’s lead and imposed similar click-through nexus laws. Now, New York is looking to lead the way again in taxing electronic commerce, as Governor Andrew Cuomo has introduced new legislation in his 2015-16 budget requiring “marketplace providers” such as Amazon and eBay to collect sales tax when they facilitate a sale, whether the actual seller is located within or outside the State.

The proposed legislation defines a “marketplace provider” to mean a person who collects the purchase price, as well as performs one of the other specified sales functions such as providing the physical or virtual forum where the transaction takes place. The New York State Department of Taxation and Finance has long been authorized to require parties that facilitate a sale, such as auctioneers and consignment shops, to collect sales tax, file returns and remit the tax collected. The proposed legislation takes this authority one step further, to include virtual or internet marketplaces as well.

The intent of this legislation is to simplify the tax collection process and minimize the number of sellers who need to register, by shifting the tax collection responsibility (or burden) to the marketplace providers, in turn resulting in improved tax compliance.  According to New York State’s budget estimates, the “improved tax compliance” is expected to generate $59 million in new tax revenue annually after this provision takes effect on March 1, 2016, if approved by the state legislature. Only marketplace providers who have sufficient presence (i.e., nexus) in New York would be required to collect sales tax and provide documentation to sellers indicating they are collecting the tax on their behalf.

This proposed legislation is the next logical step in New York State’s aggressive pursuit of taxing out-of-state internet retailers who do not collect sales tax, either because they do not have nexus in New York State or because they do have nexus and have failed to register. While New York would argue they are pursuing the latter, and that this does not equate to an expansion of sales tax nexus, the main thrust of this legislation is to see that sales tax is collected at the time of sale on every sale to New York residents, ensuring the State gets its tax dollars while eliminating the chance that use tax would not be remitted by individuals.

While Congress and the Supreme Court continue the seemingly infinite debate over the taxation of remote sales, New York State has once again taken matters into its own hands and theoretically identified a way to collect tax on remote sellers without federal authority.  If this legislation passes this spring, it will be interesting to see how this stands up to potential legal challenges and whether any states follow New York’s lead as they have in the past.

Feel free to contact me with questions or comments (or suggestions regarding future blog topics) at Tom Mazurek, or on Twitter @TronconiSegarra. Thank you.

Questions or Comments?

Do you have questions about NEW YORK (and/or MULTI-STATE) sales tax - or does your business need assistance with other tax issues? Please use the "Request a Consultation" link on Tom Mazurek's FIRM PROFILE page to submit your business sales tax question and/or consultation request.

Other recent “New York (NY)” posts by Tom Mazurek, CPA:

NOTE: All blog content, comments, and participation subject to disclaimer at bottom of page.

Comments

3 Responses to New York’s Latest Internet Tax Move: Easier Process or Easier Targets?

  • Posted by LEONARD on December 8, 2015 11:44am:

    DOES A NY SUBSIDIARY WHO LICENSES A TRADING PROGRAM IT DESIGNED TO ITS PARENT COMPANY AND OTHER CUSTOMERS, HAVE TO COLLECT SALES TAX FROM ITS PARENT COMPANY

    • Posted by Author photo of Tom Mazurektommazurek on December 9, 2015 11:19am:

      Len,

      Thanks for your question. Without knowing all the facts here, I cannot give you a definitive answer, however, I can tell you the following:

      The subsidiary would need to charge the parent sales tax if the parent and subsidiary are separate legal entities. The fact that they are commonly owned or part of the same consolidated group doesn’t change the fact that you have a retail sale between two different legal entities here (for sales tax purposes). Same goes for charging tax to other customers.

      Whether the software is taxable and where tax is due, depends on a number of circumstances.

      Tom

  • Posted by Author photo of Tom MazurekTom Mazurek, CPA on April 7, 2015 11:29am:

    The New York legislature passed the 2015-16 budget legislation in the early morning hours of April 1st. The "Marketplace Provider" provisions outlined above (Part X of Governor Cuomo's proposed budget bill) were omitted from the approved legislation along with other proposed sales tax provisions.
    Stay tuned for a forthcoming post outlining the sales tax provisions that were included in the 2015-16 New York Budget.
    Tom

Submit a comment or question - only your first name will appear

Disclaimer:

Access to any portion of SalesTaxSupport.com is contingent upon your acceptance of our Terms of Use. This Web Site and content provided by STS Publishing, LLC and its third party content providers, including, but not limited to information, documents, forms, comments, advice and opinions, is for informational purposes only, and is not a substitute for professional advice, nor does the use of this Web Site constitute a professional-client relationship. The Web-Site also includes advertisements, directory listings, job postings and links to third party web sites, all of which are provided for your convenience only and in no way constitute a referral, endorsement, or warranty by SalesTaxSupport.com of any product or service provided by such third parties. All content is provided “as is” with no guarantee regarding accuracy, suitability, or timeliness. Your reliance on any content accessed on or through the Web Site, or on any product or service provider is strictly at your own risk.