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New York Sales Tax: Drop Shipments & Resale Certificates

author photo of Tom Mazurek

I've been getting a lot of questions lately from clients about drop shipments. These types of transactions can get complicated depending on the particular state or states involved; and there can be a number of issues with resale certificates, collecting sales tax and so on. Since most of my clients are located here in the Empire State, I never get any questions about how New York treats drop shipments, so I thought I'd write a quick post about this topic and hopefully answer some questions for those of you in other states.

The NYS Department of Taxation and Finance published Tax Bulletin ST-190 to explain the sales tax treatment of drop shipment sales. Typically, a drop shipment consists of two separate transactions or sales: a sale from a supplier to a retailer and a sale from the retailer to their customer. If all three parties in these transactions are located in New York State, there should not be any issues. The retailer issues a Resale Certificate (ST-120) to their supplier, then the retailer collects and remits the applicable amount of sales tax from their customer. However, when the retailer is not located in the same state as their customer or the supplier, problems arise because the retailer may not be able to issue a resale certificate. Many states, including New York, require a vendor to have a valid Certificate of Authority in order to use an exemption certificate. If the retailer cannot issue a resale or exemption certificate to the supplier, then the supplier will need to charge the retailer sales tax on a sale for resale.

Fortunately, New York makes an exception for "qualified out-of-state purchasers" who are purchasing tangible personal property for resale purposes, as long as the out-of-state purchaser:

  • is not registered or required to be registered for sales tax purposes with the NYS Tax Department; and,
  • is registered with another state, the District of Columbia, a province of Canada, or other country, or has its only location in a state, province, or country that does not require registration; and,
  • is purchasing items for resale that will be either (1) delivered to their customer or unaffiliated fulfillment services provider located in New York or (2) delivered to the purchaser in New York, but then resold from a business located outside the state.

A qualified out-of-state purchaser can only purchase tangible personal property for resale and cannot use the Resale Certificate to purchase taxable services for resale, as this would cause the purchaser to qualify as a vendor for New York sales & use tax purposes.

While this is a good answer for the out-of-state retailer, who avoids paying sales tax on a purchase they are reselling, there are other issues that need to be considered. Does the retailer have nexus with New York State, and should they actually be registered to collect and remit tax on their sales? If the retailer has employees, independent contractors or other affiliates soliciting sales in the state on their behalf, there's a strong likelihood they have nexus. If they are performing any installation, repair, or maintenance services in the state, they will have nexus. Furthermore, it's shouldn't come as a surprise that the NYS Department of Taxation and Finance stringently enforces their click-through and affiliate nexus laws while aggressively pursuing out-of-state businesses selling into the state. These issues should be considered by the retailer before completing a Resale Certificate that includes their name, address and checked boxes indicating they're a "qualified out-of-state purchaser," because these documents may potentially be audited at some point in the future.

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.


16 Responses to New York Sales Tax: Drop Shipments & Resale Certificates

  • Posted by Joe on November 13, 2018 10:09am:

    Hi Tom- Unique situation I'm trying to research- my NYS based company is purchasing product from one of our vendors in Texas and drop shipping to our customer in Illinois. We have supplied our resale ST-120 form to our vendor for previous purchases that have come directly to us in NYS for resale purposes. In this case, because we are drop shipping to Illinois, they are asking for an Illinois tax exempt cert from us. We are not registered as a retailer in Illinois- is there a separate form I need to fill out or should my ST-120 be adequate for them?

    • Posted by Tom on November 13, 2018 1:24pm:

      Illinois is tougher than most states when it comes to drop shipments and resale certificates. A lot of states will let you use your home state certificate as documentation. Illinois typically wants you to provide their resale certificate (CRT-61) which requires you to fill-in an IL registration number.

      IL does allow out-of-state retailers who are not required to collect tax in the state to register as a "reseller" and obtain a resale number so they can issue an IL resale certificate in these circumstances.

      However, you can't use "no physical presence" as a reason for not collecting tax anymore in IL because of the Wayfair decision. If you sell over $100,000 of products or have more than 200 transactions with IL customers, you may qualify to collect tax in the state now. The IL REG-1 registration form specifically asks about this now, so you may want to review your sales before registering, because you may need to start collecting tax.

      The IL DOR website indicates they will accept documentation other than a resale certificate, that meets the requirements laid out in 86 Ill Adm. Code 130.1405 (see link below)
      However, your supplier in Texas may choose not to accept this documentation if it does not have a valid registration number.

      Sorry I couldn't be more helpful. Unfortunately, Illinois is a tough state to deal with for sales tax purposes.

      Please feel free to email me directly if you have additional questions. Tom

  • Posted by Brandi on June 11, 2018 1:08pm:

    We are a WI based company that has a WI Tax Exempt Certificate. We may be awarded a project in NY and need to buy equipment for it on behalf of the client. If the equipment is ordered and shipped direct to the NY Client from a WI supplier will we need to pay NY sales tax on it? What if the supplier is in NY and ships direct to the client in NY? The client is tax exempt for this equipment if they were to purchase it direct.

    • Posted by Tom on July 11, 2018 11:37am:

      Hi Brandi, Are you buying equipment on behalf of your customer that you are in fact reselling to them? Or are you buying this equipment to use on this project and it will be your equipment when the project is complete.

      If it’s the former then you can use a resale certificate to purchase the equipment tax-free and then I would collect an exemption certificate from your customer if they're using it in a nontaxable manner.

      If it’s the latter, then you will need to pay NY sales tax on the equipment you are using to perform the project.

      Hopefully this answers your question.

  • Posted by Margo on April 24, 2018 9:52am:

    Hi Jim, I'm hoping you can help me with this - we are located in NYS. We have a customized app that we sell to customers. It is taxable. I have 2 similar scenarios :
    1. We bill Customer A for our app and do not include sales tax because they provide us with a resale certificate. They use our app along with the services they provide to their customer. Their customer is not tax exempt. I would assume they are charging their customer sales tax and the resale certificate is proper documentation.
    2. Same scenario except the final customer above is a tax exempt organization. Should we be charging sales tax on our app? Can Customer A still provide us with a Resale Certificate because they are passing the cost onto the final customer even though they are tax exempt?

    • Posted by Author photo of Tom Mazurektommazurek on May 2, 2018 1:28pm:


      If a customer is providing a resale certificate (ST-120) that would indicate they intend to resell your app to their customers. They would then be responsible for collecting tax on sales to their customers who are the ultimate consumer or end-user of the app, unless they provide an exemption certificate to avoid paying the sales tax. If the customer is a qualified tax exempt organization in NYS, they would be able to provide an exemption certificate (ST-119).

      My one question or concern is whether your customers are actually reselling your app or in fact using your app themselves to provide services to their customers. If they are using your app to provide services, then I do not think they should be entitled to use a resale certificate to purchase your app tax-free. It could be subject to tax. I don’t know enough about your business or sales, but that’s what I take away from your email. Please feel free to call or email should you have any questions.


  • Posted by Lydia on March 6, 2018 11:27am:

    We are a NY nexus branch of a company in that has several other stores in the tri-state area. For our clients who are NY nexus and complete the ST-120, if they are shipping to another state where we have a physical location are they still exempt? The items would be resold from the NY business. It is my understanding that we would charge tax unless they also have a certificate from the destination state. Thank you!

    • Posted by Author photo of Tom MazurekTom Mazurek on March 6, 2018 11:49am:


      If customers are purchasing products from one of your locations in NY and asking you to ship it to another state, you need to have resale/exemption certificate from the destination state in order to avoid charging sales tax on the sale (if you have nexus/store there).

      There are other issues related to drop shipments, however I'm not sure that's a questions here. If you have additional questions, please contact me directly.


  • Posted by Robin on October 16, 2017 11:17am:

    I own a business in maryland. I collect sales taxes for maryland sales. I sometimes sale to customers out of state. I recently sold a product to a New York customer and had the item dropped shipped from the manufacture. The manufacture charged me new york sales tax for the product. Should they of done this?

    • Posted by Author photo of Tom Mazurektommazurek on October 16, 2017 11:34am:


      Thank you for your question. This is a pretty common situation when it comes to drop shipments. The manufacturer charged you sales tax because they are registered to collect tax in NY. Since they are shipping a product into a state where they are registered, they have to collect tax unless the seller provides a resale or exemption certificate.

      NY does allow out-of-state businesses who are not required to be registered in the state (no nexus) to use their resale certificate (ST-120). You just need to complete Part 2 instead of Part 1 and provide your Maryland sales tax account number.

      You can find the form here:

      Not every state allows an unregistered business to use their resale certificate, so you need to check each state's rules and make sure you aren't required to file in the state.


  • Posted by Joseph on June 29, 2017 11:06pm:

    Hey Tom,

    Thanks for the informing post. I'm still a little confused. I don't believe I create nexus in New York state. I do not have any employees or store fronts in New York. I run my online store from my laptop at home by myself. I acquired a DBA for my business. My suppliers are located in China and ship the product straight to my customers. Do I have to collect sales tax or register for any certifications? Would love if you could answer my question so I could start making sales. Thanks in advance!

    • Posted by Author photo of Tom Mazurektommazurek on June 30, 2017 6:09am:


      Thanks for your question. Contrary to the feelings of many of states, Nexus still requires physical presence. While you may not have any employees or storefronts in NY, if you are physically located in the State, and running your business from here, then you have Nexus and should collect NY state and/or local sales tax on your sales to customers in the state.
      Hope this response helps, good luck with your business!

      • Posted by Justin on December 23, 2018 2:39pm:

        Hi Tom,

        I am in a similar situation. I am In the process of starting an online dropshipping business. I live and will operate by myself from my home in NYC. Do I need to register for a license to collect sales tax in NY? And do I only collect from NY? Do I have to register for all other states once I make sales there? I will primarily dropship from China suppliers. If I decide to use some from USA do I then collect from customers who purchase in same state as that supplier?

        • Posted by Tom on December 28, 2018 9:15am:

          Thanks for your question. Since you're business will be located in New York, then you should register and collect NY state and local sales tax based on where product is being shipped to within the State. You can find how to register for a Certificate of Authority here:

          As for other states, that depends on many factors, such as whether your sales exceed certain dollar or sales thresholds or if your business creates physical presence in another state. Since you're just starting out, I don't think you need to worry about other states until your sales start to take off. For more info on sales thresholds, you should read Sylvia Dion's blogs on the Wayfair decision on this site.

          You may run into problems if your Chinese or US suppliers are registered to collect tax in any of the states. They may require you to provide them a resale certificate, which may force you to register in other states (possibly) or you'll have to pay sales tax on product you're going to resell.

          There's a lot to sales tax these days in the wake of the Wayfair decision, so feel free to follow-up if you have additional questions. At the very least, you should register and collect sales tax in New York to start.

          Happy New Year!

  • Posted by Eddie on May 21, 2017 4:54am:

    If I as a private customer buy a big diamond in NY city and ship to Ohio do I have to pay sales tax? If I purchase from a wholesale diamond firm and they ship to Ohio can I avoid sales tax? Thank you

    • Posted by Author photo of Tom Mazurektommazurek on May 22, 2017 3:30pm:

      If you purchase a diamond in NYC and instruct the jeweler to ship the diamond out-of-state to Ohio, then the jeweler should not collect NY sales tax on you purchase.
      However, you would owe use tax in Ohio on the purchase price of the diamond you had shipped to the state. You may want to consult the Ohio Department of Taxation website to determine how much tax to remit and what method you should use.

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