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On January 15, 2019, the New York Department of Taxation and Finance (Department) issued a notice (N-19-1) announcing that any remote seller meeting the sales threshold set forth in N.Y. Tax Law Section 1101(b)(8)(iv) should immediately register as a vendor and begin charging and collecting tax.

The $300,000 threshold in New York-sourced gross receipts from the sale of tangible personal property and 100 transactions involving sales of tangible personal property to New York residents measures sales activity during the immediately preceding four quarters (March 1 through May 31; June 1 through August 31; September 1 through November 30; and December 1 through February 28/29). Enacted in 1989 as part of the state's "anti-Bellas Hess"laws, the threshold originally was intended to determine whether the presumption that the remote seller was "regularly and systematically" soliciting business in New York was met. Language in the 1989 law notes that vendors that regularly or systematically solicit business in New York via catalogs, flyers, or any other means of solicitation must collect tax "if such solicitation satisfies the nexus requirement of the United States Constitution." With the U.S. Supreme Court's abrogation of the physical presence doctrine in Wayfair,¹ the Department believes that requirement now can be met based on sales volume.

The Department has created a webpage where it will post additional information, including FAQs.

Implications

The Department's announcement was somewhat surprising, given that previous communications indicated that the issue was being studied and that new legislation would be forthcoming in 2019. Nevertheless, the law as described in the Department's notice should be presumed valid; in light of Wayfair, taxpayers should anticipate that it ultimately will survive any legal challenges with respect to its operation. As such, any business not already registered, or required to be registered, for sales tax in New York should immediately register and begin collecting and remitting sales and use tax on sales to in-state customers, if they meet the sales volume and transaction thresholds in the previous four quarters. It is specifically worth noting that, unlike other state provisions, the thresholds apply only to transactions involving sales of tangible personal property which, as defined under New York tax law, includes electronically delivered software but excludes most digital goods/services.

While no further guidance has been issued, the possibility exists that the New York Assembly could revisit the current version of the law and implement different thresholds or calculation standards (e.g., including all sales, rather than limiting the test to those of tangible personal property only as described in the existing statute). Already in the current legislative session, an act² has been introduced 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. This marks the third year in a row that the Governor Cuomo, as part of his proposed executive budget, has included marketplace provider/facilitator provisions. Given recent similar developments in other states, as well as the Court's ruling in Wayfair, this provision could garner more favorable legislative attention this year.

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ENDNOTES

¹ South Dakota v. Wayfair, Inc., 585 U.S. __ (2018).

² FY 2020 New York State Executive Budget.