Benjamin Katz, CPA
Vendors with no physical presence in the state may be required to collect and remit New York State and local sales tax…are you?
After almost seven months of silence following the Supreme Court’s decision in South Dakota v. Wayfair Inc., taxpayers were finally given an answer to the question of how the state of New York would respond. On January 15, 2019, the New York State Department of Taxation and Finance announced that effective immediately, vendors with no physical presence in the state are required to collect and remit New York State and local sales tax if the specified economic thresholds are met.
How Does New York State Define a Vendor?
For New York State sales tax purposes, a vendor is defined as a person who regularly or systematically solicits business in the state, and as a result, makes taxable sales of tangible personal property or services into New York. One is deemed to be regularly or systematically soliciting business in New York if, for the four most recent sales tax quarters, gross receipts from the sale of property delivered into the state exceed $300,000 and more than 100 sales of tangible personal property were made into the state.
Therefore, a business with no physical presence in New York is now required to register with the state for sales tax purposes if they are making taxable sales into the state and meet both the sales and transaction thresholds.
New York State’s Economic Nexus Thresholds
Each state has its own rules on what sales are included, as well as what look-back period should be used when tracking your in-state sales and transactions for their economic nexus thresholds. For New York, all sales of tangible personal property delivered in the state, including both taxable and non-taxable sales, are counted towards the $300,000 and 100 transaction thresholds. For the look-back period, New York will be using the preceding four sales tax quarters. The New York sales tax quarters are March 1st through May 31st, June 1st through August 31st, September 1st through November 30th, and December 1st through February 28th or 29th. This means that for the purpose of tracking sales and transactions to see if the economic nexus thresholds are met, businesses will need to reevaluate their sales tax nexus in New York State on a quarterly basis. Once the thresholds are met, the business is required to register with the state as a vendor and begin collecting and remitting sales tax.
An important distinction regarding New York’s economic nexus thresholds is the fact that both thresholds must be met in order for a remote seller to be deemed to have sales tax nexus in the state. This differs from the majority of other states, who generally consider an out of state seller to have sales tax nexus if just one of their economic nexus thresholds are met. There is also the issue of what is or is not taxable when looking at local sales tax in New York State.
For example, New York State offers an exemption from sales tax on the sale of clothing or footwear sold for less than $110 per item. This exemption, however, is optional at the locality level, with only ten localities following the state and exempting these items. The remaining localities require the collection of sales tax on these items, each at its own specified tax rate.
If a business only sells clothing that falls under this exemption, they could potentially have no taxable sales into New York State, and therefore, not be required to collect and remit New York State sales tax.
But what if those sales are into localities that do not provide the exemption? Does the business still have an obligation to collect and remit to those localities? Are they exempt from collecting and remitting sales tax to the localities if they do not have a New York State collection and remittance requirement? New York is yet to address complexities such as this, leaving some businesses unsure of their sales tax obligations in the state for the time being.
Tax Director Don Warrant discusses Wayfair as a major tax compliance issue for certain businesses. Listen here.
Assistance for the Daunting Task of Multi-State Sales Tax Compliance
Following New York’s announcement, there are now only eight states that have not enacted economic nexus thresholds in light of the Wayfair decision. Under these economic nexus rules, remote sellers of tangible personal property and taxable services now have the potential to be subject to sales tax collection and reporting requirements in dozens of states that they were previously exempt from due to a lack of physical presence.
Understanding the rules and requirements of each state without professional guidance can be a daunting task for a business, however, the importance of compliance cannot be overlooked as there can be harsh penalties for noncompliance.
Connect with us by clicking on the button or call the SALT team at Freed Maxick CPAs, P.C. at 716-847-2651 to discuss how we can help guide your business through all these sales tax changes following the Wayfair sales tax case decision.