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The New York Department of Taxation and Finance (Department) recently issued a technical services bulletin in which it determined that a company facilitating third-party sales through its online marketplace is a "vendor," as defined under New York Tax Law, and is jointly liable with its third-party sellers for the collection and remittance of applicable sales tax to the extent that it has nexus with the state. TSB-A-19(1)S (March 7, 2019).

The company, a developer and marketer of software, services, and digital products, operates an online marketplace through which it sells its own products and services, and allows third-party sellers to market and sell their own software and digital goods. Under agreements with the third-party sellers, the company hosts and supplies the software and digital goods to customers, processes payments, and remits proceeds to the third-party sellers in exchange for a service fee. The company is in no way involved in any sublicensing agreements or pricing determinations, all of which are determined and managed by the third-party sellers and their customers.

N.Y. Tax Law Section 1101(b)(8), which defines a "vendor" required to collect the sales tax as "a person making sales of tangible personal property or services, the receipts from which are taxed by this article," includes a provision allowing the Commissioner to treat any "salesman, representative, peddler or canvasser" as an agent of the vendor for whom it solicits business as the vendor jointly responsible for the collection and payment of tax. Citing Jericho Boats of Smithtown, Inc. v. State Tax Commission,¹ the Department noted that this provision allows it to treat intermediaries that perform key acts in facilitating taxable sales as vendors.

The ruling does not specify which party has the primary responsibility for collecting sales tax but notes that both the marketplace provider and the third-party sellers would be liable for any uncollected tax, assuming that both entities have nexus with the state, and that both entities would be relieved of any such obligation if a valid resale certificate is provided by the customer. Further, the ruling explains that the marketplace provider would be entitled to a refund or credit for any excess sales tax it has collected and remitted, provided that it has refunded the customer the excess tax and makes a timely claim for refund.

Implications

The Department's ruling marks the second time this year that New York has sought to apply expanded collection obligations based on already existing law. The first instance occurred in January 2019, when it announced that, under the state's 1989 anti-Bellas Hess law, any remote seller with more than $300,000 in New York gross receipts and more than 100 transactions with New York customers during the previous four quarters must register and begin collecting tax on its New York sales. Since the U.S. Supreme Court's ruling in South Dakota v. Wayfair, Inc.,² nearly all the states that impose a sales and use tax have enacted such sales-based nexus provisions, and more than half of the states have proposed or enacted provisions relating to marketplace providers and facilitators. Unlike New York, these states have done so by enacting specific legislation rather than providing interpretations of existing laws. It should be noted that the New York legislature is currently considering various proposals related to taxing marketplace facilitators.

Nevertheless, any company that operates an online marketplace and facilitates sales by third-party sellers to New York based customers should register and begin collecting and remitting tax on such sales to the extent that it meets the sales and transaction thresholds currently being applied by the Department, unless it can verify that the third-party sellers are collecting and remitting the tax.

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ENDNOTES

¹Jericho Boats of Smithtown, Inc. v. State Tax Commission,144 A.D.2d 163 (3d Dep't 1988) (concluding that the Department properly treated a broker that facilitated the sale of boats by displaying the boats or pictures of the boats, arranging the sales, sometimes providing financing, and collecting the purchase price as the "vendor").

²South Dakota v. Wayfair, Inc., Dkt. No. 17-494 (U.S. S. Ct. June 21, 2018).