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New York sales tax due on remote sales


 New York settles with non-collecting out-of-state seller for $1.1 million.

A Minnesota corporation that made sales to New York residents but failed to collect and remit sales tax has settled with the state of New York for $1.1 million. Moving forward, the company will collect and remit sales tax on internet and phone sales delivered to New York.

After a whistleblower filed a complaint in the New York Supreme Court, the Attorney General’s Office investigated the Minnesota-based corporation and found that it “failed to collect and remit approximately $537,000 in sales taxes on taxable sales made over the phone and through the internet to New Yorkers” from 2011 to 2015. The attorney general contends the corporation had nexus in New York — a connection significant enough to merit tax collection — due to its presence and sales at trade shows through independent contractors and “other representatives.”

Although it did register with the state and collect and remit tax on sales made during the shows, the company failed to collect tax on taxable sales made online and by phone. Yet according to the New York State Department of Taxation and Finance, “How often you sell or how much you charge for goods and services does not usually determine whether you need to register for sales tax. For example, if you sell taxable items at a craft fair only once a year, you are required to register, and to collect and remit sales tax, because what you are selling is taxable in New York State.”

The company maintains that it was not required to collect New York sales tax on remote sales. Yet the lawsuit was filed under the New York False Claims Act, which deals with fraudulent or criminal acts and not oversight or technical errors. And indeed, after investigating, the Office of the Attorney General says it has evidence that the company “knowingly made and used, or caused to me made or used, false statements and records material to Defendant’s obligation to pay New York State and local sales tax.” Read the Stipulation and Settlement Agreement for additional details.

Attorney General Eric Schneiderman said, “Out-of-state companies … cannot shirk their obligations to New York. Companies that fail to collect and remit applicable sales taxes harm the State and local governments — something that cannot be tolerated.” Although New York residents owe use tax on taxable sales when sales tax wasn’t collected by the retailer, few actually pay it.

The attorney general thanked the whistleblower and his attorneys, as well as the New York State Department of Taxation and Finance, “for their assistance in bringing this case to resolution.” This is vindication for whistleblower Stephen B. Diamond of Chicago: in May, Cook County Circuit Judge James Snyder dismissed more than 200 qui tam cases brought by Diamond under the False Claims Act. Diamond will receive more than $220,000 from the settlement proceeds of the New York case.

Fallout

There are likely to be more qui tam sales tax cases in New York.

Businesses making remote sales to New York should be proactive. Learn how sales tax software facilitates sales tax compliance in all states.


Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.