New York responds to Wayfair, taxes remote sales

Update 6.25.2019: Senate Bill 6615, signed into law on June 24, 2019, increases the sales tax economic nexus threshold from $300,000 to $500,000, retroactive to June 21, 2018. 

Update 4.29.2019: The New York Department of Taxation and Finance has published FAQs related to registration requirements for businesses with no physical presence in NYS. Economic nexus is enforced in New York as of June 21, 2018, "the date of the United States Supreme Court decision in Wayfair." It applies to all remote sellers meeting the $300,000 sales and 100 transactions threshold (described below) in the immediately preceding four quarters. Sales made through a marketplace should be included when calculating the threshold. The department recommends remote sellers review their New York sales after the conclusion of each sales tax quarter to determine if the threshold has been met; remote sellers must file a certificate of registration within 30 days after the date the threshold was met and begin to collect tax 20 days after that.

Approximately 30 states decided to tax remote sales in the aftermath of the Supreme Court of the United States decision in South Dakota v. Wayfair, Inc. (June 21, 2018). New York did nothing. As one state tax department after another announced it was considering how to best respond to the Wayfair decision, the New York Department of Taxation and Finance remained silent. Until now.

Wayfair overturned a physical presence rule that long prevented states from imposing a sales tax collection obligation on businesses with no physical presence in that state. The Supreme Court determined a sales tax collection obligation (nexus) could be triggered by a business’s “economic and virtual contacts” with the state (economic nexus). Now states can tax remote sales, which is a big deal.

As one of the most populous states in the country, New York has been closely watched by anyone and everyone interested in sales tax law. Yet until this week, the state has kept mum on the subject. And even now that the New York Department of Taxation and Finance has released some information on the topic, many questions remain.

What we know: New York will enforce economic nexus

According to departmental notices N-19-1 and Registration requirement for businesses with no physical presence in New York State , the Wayfair ruling allows the state to enforce existing provisions of the law that define a sales tax vendor as “a person who regularly or systematically solicits business in New York State by any means and by reason thereof makes taxable sales of tangible personal property to persons in the state.”

Post Wayfair, the department interprets “regularly or systematically soliciting business in the state” to include a person with no physical presence in the state who, in the immediately preceding four sales tax quarters:

• Made more than $300,000 in gross sales of tangible personal property delivered in the state (for both taxable and exempt sales); and
• Conducted more than 100 sales of tangible personal property delivered in the state.

The sales tax quarters are March 1 through May 31, June 1 through August 31, September 1 through November 30, and December 1 through February 28/29.

What we don’t know: How far back New York will hold businesses liable for sales tax

Unlike other states, New York hasn’t set a precise effective date for enforcing economic nexus. What it does say suggests affected remote sellers are liable for New York sales tax immediately following Wayfair: “Due to this ruling, certain existing provisions in the New York State Tax Law that define a sales tax vendor immediately became effective.” In other words, economic nexus in New York may be enforced back to June 21, 2018.

If New York does hold taxpayers liable for sales tax back to last June, it might increase the likelihood that its policy will be challenged.

How New York’s policy compares to South Dakota’s

The Wayfair ruling removed the physical presence limitation without replacing it with a similar bright-line test. This means states have few constraints as they create their remote seller sales tax laws.

However, the Supreme Court was concerned that states not overburden or discriminate against remote sellers. To that end, it highlighted three aspects of South Dakota’s tax system that “appear designed to prevent discrimination against or undue burdens upon interstate commerce.” These are:

1. The establishment of a safe harbor for small sellers
2. The prohibition of retroactive enforcement of its sales tax laws
3. The adoption of the Streamlined Sales and Use Tax Agreement to standardize and simplify sales tax laws and reduce the costs associated with sales tax compliance

The Wayfair ruling doesn't specify that states are required to mimic these three aspects of South Dakota’s law, but most have at least adopted the first two: They allow an exception for small sellers and they enforce remote seller sales tax laws on a prospective basis only. Several with complicated sales tax systems, such as Alabama, Colorado, and Louisiana, are also striving to simplify sales tax compliance for remote sellers, if not actually become Streamlined Sales Tax (SST) member states.

New York is allowing a generous exception for small sellers. However, it isn’t an SST member state and it hasn’t said anything about simplifying its sales tax laws. Perhaps most significantly, it seems to be enforcing economic nexus retroactively.

Additional details pertaining to New York sales tax management will be provided by the department soon.

Learn more about remote seller sales tax laws in other states. If you think you may be at risk for developing a sales tax collection obligation in one or more states, check out Avalara’s state-by-state guide to sales tax nexus rules.