New York Internet Sales Tax

Learn about the Internet sales tax rules for New York.

In the past, an online seller who sold to customers located in a particular state had to have some physical presence in that state before the state could require the seller to collect and pay state sales tax. However, the requirement for physical presence was overturned in the Supreme Court's 2018 decision in South Dakota v. Wayfair Inc.

While many states have rushed to enact new laws to take advantage of the Wayfair decision, New York is not yet among them. However, roughly ten years before Wayfair, New York had put in place special rules regarding online vendors selling in New York.

New York’s Amazon Law

In 2008, the New York legislature amended the definition of vendor in its sales tax statute. The change had the effect of requiring certain larger Internet retailers with no physical presence in the state to collect and pay New York's sales tax. More specifically, an out-of-state retailer must collect sales tax from New York customers if that retailer:

  • has an agreement with a business or seller located in New York to pay for customer referrals obtained via a link on the New York seller’s website (a click-through arrangement), and
  • the out-of-state seller's gross receipts from these directed sales to New York customers exceeds $10,000 during the preceding 12 months.

Similar laws were enacted in other states. For a long time, they were referred to as Amazon laws because they were aimed at large online sellers, such as Amazon.com, that might not have a physical presence in a particular state. Prior to Wayfair, this type of seller would not have had to collect sales tax from customers in states where it has no physical presence. New York’s statute was upheld by the New York courts in 2013.

New York’s Departent of Taxation and Finance (DOTF) has several readable publications that explain aspects of this law, including a bulletin with many illustrative examples and an answer to a FAQ.

New York’s Affiliated Persons Rules

In this context, the word person can include a variety of business entities as well as individual people. In simplified terms, affiliated persons are primarily defined as persons who have some degree of ownership interest in one or more other affiliated persons. New York sales tax law distinguishes situations where (a) more than 5% ownership interest is relevant, (b) more than 50% ownership interest is relevant, and (c) ownership interest that exceeds 5% but is less than or equal to 50% is relevant. The ownership interest can be direct or indirect.

Here are two examples of how affiliated persons can create sales tax obligations for an (ostensibly) out-of-state business:

  • The out-of-state business and an in-state business are affiliated persons, with one business having more than a 5% interest in the other business, and the in-state business uses, in New York, the same trademarks, trade names, or service marks as the out-of-state business.
  • The out-of-state business and an in-state business are affiliated persons, with one business having more than a 50% interest in the other business, and the in-state business engages in activities in New York that benefit the out-of-state business and otherwise satisfy the nexus requirement of the United States constitution.

For further guidance, including illustrative examples, consult the short, plain-English bulletin on the expanded definition of vendor published by DOTF.

Proposed Federal Legislation

At the federal level, Congress has repeatedly considered legislation that would affect Internet retailers and how online sales taxes are collected in all states. In the wake of Wayfair, new proposed federal laws address minimum amounts of sales before a seller may be retroactively required to collect sales tax (Online Sales Simplicity and Small Business Relief Act of 2018 (H.R. 6814)) and barring states from retroactively requiring sellers with no physical presence in a state to collect sales tax (No Retroactive Online Taxation Act of 2018).

Final Words – For Now

It should be clear even from this brief summary that New York law in this area is relatively complicated. You should strongly consider reviewing both the DOTF guide and the statute itself. If you still have questions, consider consulting a tax professional.

Also keep in mind that, because of Wayfair, New York may at any time pass new laws that supercede or add on to its existing laws.

For more information, see the DOTF website.

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