State sales and use tax has become increasingly complex as the internet expands market opportunities for online vendors to sell products from all over the country and world. Despite the physical location of your business, your internet sales may create New York sales and use tax liability when delivered to a customer in New York. Different sales tax responsibility also applies in New York when you work with a third-party company that operates as a marketplace provider for your internet sales. A few years after the Wayfair Decision, the expectation is that states, like New York, will become more aggressive in their auditing and compliance measures to capture available revenue from online retailer sales tax collection. Know when you need to register with New York as a vendor and how to properly report and collect sales tax to avoid a future audit or unnecessary penalty.
When You Need to Register to Pay NY Sales Tax for Internet Sales
Because of the Wayfair Decision, sellers are now responsible for New York sales and use tax collection on transactions where the seller doesn’t have a physical presence in the state. This means online vendors and other internet marketplace providers will need to register with the New York Department of Taxation and Finance to report and pay sales tax by applying for a Certificate of Authority. New York considers you a vendor who regularly does business in the state if you cumulatively met the following criteria in the four preceding sales tax quarters:
- Your total gross receipts for sales of tangible personal property delivered to New York exceeded $500,000; and
- You made 100 or more sales of tangible personal property.
Prior to the Wayfair Decision, buyers were primarily responsible for paying the use tax on property they bought outside of New York for use inside the state. That burden now shifts to you as an online seller who delivers products into New York and meets the threshold requirements above.
Local New York Sales Tax Rates and Other Fees that May Apply to Your Internet Sales
In addition to the New York state sales tax rate, other local sales and use tax rates can also apply based on the city or county where you deliver products. Publication 718 provides businesses with the combined tax rate for all New York localities along with the reporting code for your sales and use tax returns. Depending on the nature of your sales, other New York fees can add to the total taxes you are responsible for collecting from your customers and paying to the Department of Taxation and Finance. For example, New York places an additional 5% tax rate on the sale of entertainment or information services via telecommunication. Businesses must stay current on the total tax rates that apply to their internet sales. Doing so will allow you to properly calculate the amount of tax due at sale and avoid any under or overpayment of sales tax.
Know When Your Internet Sales are Taxable or When an Exemption Applies
After registering as a vendor in New York, you can proactively plan for sales tax liability and incorporate necessary charges into your billing systems by knowing when property is taxable or not. New York’s reference guide can provide some initial orientation for identifying the sales tax status of your goods and services or when an exemption or resale certificate may apply. Your invoices and other recordkeeping practices will be the key to supporting your decision to collect sales tax or not on a particular internet transaction.
Responsibility for NY Sales Tax When You are a Marketplace Provider (or If You Work with One)
The responsibility for collecting and paying New York sales and use tax may shift depending on your status as a marketplace provider or marketplace seller. Marketplace providers are those businesses that provide marketplace sellers with a forum for offering their tangible property and collects the receipts from the customer after a sale (e.g., Amazon, eBay, Etsy, etc.). New York generally considers marketplace providers as vendors, and they must also register to report and pay sales tax by obtaining a certificate of authority. In comparison, a marketplace seller is anyone who agrees to have a marketplace provider sell their property. Marketplace providers are only responsible for the tax that is related to sale of tangible personal property, which means marketplace sellers must collect and pay the sales tax for things that New York does not classify as tangible personal property like:
- Passenger car rentals
- Restaurant food
- Hotel occupancy
- Admission to a place of amusement
Protecting Yourself from New York Sales Tax Liability as a Marketplace Seller
Despite marketplace providers having sales tax collection and reporting obligations, New York can still impose liability on marketplace sellers for the sales tax related to their tangible property. Except for cases where both parties are affiliated, marketplace providers can obtain relief for failing to collect sales tax when the cause is the insufficient or incorrect information from the marketplace seller. New York considers marketplace providers and sellers affiliated when an ownership interest of more than 5% exists by one over the other.
Marketplace sellers can protect themselves from unnecessary sales tax liability by supplying their marketplace providers with accurate information and by retaining a Marketplace Provider Certificate of Collection. The Certificate of Collection (Form ST-150) is an acknowledgment from your marketplace provider that they are responsible for collecting the tax when selling your property. Sometimes, marketplace providers will provide a publicly available statement in lieu of Form ST-150, but marketplace sellers should still retain evidence of this public statement in case of a dispute over sales tax responsibility.
How New York Sales Tax Applies to Related Delivery Charges
When you sell tangible property online, you likely pass the cost of delivery onto the purchaser either through a separately stated charge on the invoice or by incorporating the cost into the total purchase price. New York sales tax will generally apply to those additional delivery charges when they are for taxable property, which broadly includes charges labeled for things like postage, transportation, handling, etc. For example, the sale of a $100 table with a delivery fee of $10 would equate to sales tax on the total price of $110.
Properly calculating sales tax on delivery charges becomes more challenging when your delivery fee involves both taxable and nontaxable property. How you apply New York sales tax will depend on how you state the delivery charge on the invoice. If you only state one delivery charge, then New York will assume the total delivery charge applies to the taxable property (which means sales tax applies to the entire delivery fee). However, you can fairly allocate the delivery cost between the taxable and nontaxable property and only pay sales tax on the delivery charge for the taxable property.
Get Professional Help with New York Sales Tax as an Online Vendor
Audits and disputes frequently arise for online vendors because of the different parties that can be responsible for the ultimate payment of tax from an internet sale. In some cases, the purchaser is responsible because you don’t qualify as a vendor in New York. Alternatively, your marketplace provider could be liable for unpaid sales tax involving your tangible property. When sales tax issues arise for your business, you may find it helpful to meet with one of our sales tax professionals about audit defense. We give clients the support and representation they need to protest unfair sales tax assessments from the NYDTF. We also offer consultations to help with your current sales tax business practices and reduce the risk of future audits or penalties.
Schedule a free consultation for your questions on New York sales and use tax for your internet sales.