New York Expands Definition of Sales Tax Vendor

Effective June 1, 2009, the definition of a sales tax vendor in New York has been amended to include, under certain circumstances, remote sellers of taxable property and services that are affiliated with a business located in the state. Previously, an in-state business could cause an out-of-state business to be classified as a sales tax vendor if, among other activities, it engaged in solicitation on behalf of the remote seller. The new definition expands the types of activities engaged in by the in-state vendor that cause an out-of-state vendor to be considered a sales tax vendor if one of the companies owns, directly or indirectly, more than 5% of the other or if the same person or affiliated group of persons owns, directly or indirectly, more than 5% of both companies.

If the companies meet the new definition of “affiliated”, and the in-state company either I) uses the same a trademark, service mark, or trade name; or II) engages in activities in New York that benefit the remote seller in its development or maintenance of a market in the state, to the extent that those activities satisfy the nexus requirement of the United States Constitution, the remote vendor must register for sales tax purposes. Condition II will be met if either direct or indirect ownership exceeds 50% and the in-state business engages in activities such as referring customers, accepting orders or returns, fulfilling orders, distributing or displaying advertisements, handling distribution or warehousing, or performing repair services. If direct or indirect ownership interest exceeds 5%, but is less than 50%, the department will evaluate the nature and extent of the activities performed by the New York affiliate and the extent of the actual direct or indirect control exercised by the owner to determine if the remote seller is a vendor. (TSB-M-09(3)S, Office of Tax Policy Analysis, New York Department of Taxation and Finance, May 6, 2009)

Posted on August 6, 2009