Who’s responsible for sales tax in New York, the marketplace or the vendor?
- Mar 11, 2019 | Gail Cole
Is an out-of-state online marketplace responsible for collecting and remitting New York sales tax on sales facilitated in New York? Or is the marketplace seller itself responsible for the sales tax? Unclear on this point, an online marketplace sought guidance from the New York State Department of Taxation and Finance.
According to a department advisory opinion, a marketplace would be liable for collecting and remitting sales tax when:
- The marketplace has nexus with New York
- The marketplace seller qualifies as a New York vendor
When an out-of-state seller has nexus in New York
Sales tax nexus is the connection between a business and state that enables the state to impose a sales tax collection obligation on the business. When a business has nexus with New York, for example, it’s required to comply with New York sales tax laws. When it doesn’t, it isn’t.
Any business with a physical presence in New York has nexus with New York. Yet physical presence isn’t the only way to trigger sales tax nexus in New York.
Recently, the New York Department of Taxation and Finance announced that a certain amount of economic activity in the state could trigger nexus for out-of-state sellers (economic nexus). Remote businesses with more than $300,000 in gross receipts from sales of tangible personal property and 100 or more separate transactions in the state during the preceding four sales tax quarters are required to register with the state and collect and remit applicable sales taxes effective “immediately.”
The economic nexus thresholds apply to both individual sellers and marketplaces that do business in New York, which is why it’s not immediately apparent which of the two would be liable for the tax.
Here, efficient administration is the key. New York Tax Law § 1101(b)(8)(ii)(A) provides that “when in the opinion of the commissioner it is necessary for the efficient administration of this article to treat any salesman, representative, peddler or canvasser as the agent of the vendor, distributor, supervisor or employer … for whom he solicits business, the commissioner may, in his discretion, treat such agent as the vendor jointly responsible with his principal, distributor, supervisor or employer for the collection and payment over of the tax.”
Accordingly, the Tax Commissioner considers the marketplace to be the vendor liable for sales tax on its marketplace sales (at least in this specific instance). Thus, the individual marketplace seller is relieved from the need to register, collect sales tax, and file returns. The department considers the marketplace itself to be in a better position than the individual vendor to collect sales tax.
However, in this situation the individual sellers could still be liable for New York sales tax on any sales made in the state through other venues, such as their own ecommerce store.
Other states enacting marketplace sales tax laws
The lack of clarity surrounding sales tax liability for marketplace transactions isn’t unique to New York. To facilitate sales tax administration and clarify who’s responsible for collecting and remitting sales tax, many states are adopting marketplace sales tax laws. More than a dozen states already have such laws on the books, and more than 20 states have marketplace sales tax laws in the pipeline — including New York.
A department advisory opinion is binding only for the entity/person to whom it was issued. However, since advisory opinions are based on laws, regulations, and department policies in effect as of the date of publication, they can be extremely informative.