New York on Co-Vendor Agreements and Sales Tax
- Oct 15, 2013 | Gail Cole
The Department of Taxation and Finance recently released a tax bulletin on co-vendor agreements. In it, the department explains who should collect and remit sales tax.
What is a co-vendor agreement, you say?
“A co-vendor agreement applies to situations where a seller (generally a manufacturer, wholesaler, or other supplier) has independent distributors selling its products through party plans or similar arrangements (e.g., catalog, door-to-door sales, multi-level marketing, etc.).” Co-vendor agreements may also apply to other situations (NY TB- ST-142).
Sales tax is a relatively straightforward process when the transaction takes place in a brick-and-mortar store. A person buys something, the retailer adds the appropriate rate of tax to the sale, collects it, and submits it to the state in a timely manner. The process becomes quickly more complex when the players change: online sales transactions may be subject to state and local sales tax, and they may require the consumer to remit consumer use tax; sales transactions that involve co-vendors can lead the involved parties to wonder who bears the sales tax collection burden. Answers tend to vary from state to state.
In New York, “the supplier can request to enter into a written co-vendor agreement with the Tax Department… [whereby the supplier] takes on all the sales tax responsibility for its independent distributors.” In such situations, the supplier must register with the state and “collect and remit any sales taxes due … from the independent distributor based on the retail selling price of the items purchased at the tax rate in effect where the items are delivered to the independent distributor or the customer.”
The independent distributor involved “processes a customer’s order paperwork and submits it directly to the supplier. The supplier then sends the items ordered to the independent distributor for delivery to the customers….” The supplier may also ship items directly to the consumer.
It’s interesting to note that the independent distributor is not required to register as a vendor in New York. However, the distributor and the supplier are “jointly liable for any sales taxes due, even though only the supplier is actually registered and files sales and use tax returns.”
Meaning all parties should keep accurate records for all transactions.
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