Wayfair and NY Sales Tax

October 23, 2019

In the past, we’ve documented some of the complexity surrounding sales tax compliance here in New York State. As we’ve discussed, compliance with the sales and use tax in New York isn’t easy, as businesses have to account for a veritable minefield of rules and regulations. In view of the now well-known United States Supreme Court South Dakota v. Wayfair decision, New York sales tax has added an extra layer of complexity.

Post-Wayfair Definition of “Vendor”

In the wake of the June 21, 2018 Wayfair decision, physical presence (or “nexus”) is no longer required for remote sellers to be subject to an obligation to collect and remit sales tax to the State of New York. Specifically, the New York State Department of Taxation and Finance (NYDTF) has developed an updated definition of “vendor” which reflects this Supreme Court decision.

In this post, we will go over the post-Wayfair definition of vendor for New York State sales tax purposes. We will then highlight an important document which business owners should consult with when complying with NY sales tax law. Avoiding NY state taxes will end up causing business owners a great deal of trouble; if you haven’t registered, and need to do so, you should register for sales tax as soon as possible.

Physical Presence in South Dakota v. Wayfair

Justice Kennedy, writing for the majority in Wayfair essentially removed the “physical presence” requirement established in Quill Corp v North Dakota, overruling it, along with National Bellas Hess v. Illinois. Prior to the Wayfair decision, states couldn’t impose online sales tax on businesses which had no substantial physical presence in the state.

Phrased differently, a business needed to have a substantial “nexus” to the State in order for New York to compel the business to collect and pay sales taxes. South Dakota v. Wayfair eliminated this requirement. Post Wayfair, there is no physical presence rule, or nexus, requirement, only an economic nexus requirement. The decision in this case was influenced by the rise of online and internet sales with no physical presence in a state yet still have tangible personal property delivered in that state.

Definition of Vendor in New York Tax Law

New York State has updated its tax law in view of the Wayfair decision. Now, a business is required to collect and remit state and local sales taxes to NY whenever it qualifies as a NY “sales tax vendor.” For NY sales tax purposes, this means a business entity which regularly and systematically solicits business in NY State by any means.

Regularly and Systematically

Under NY tax law, “regularly and systematically soliciting business” is defined quantitatively. If the gross receipts from the sales in New York total more than $300,000, and the business made more than 100 total sales, then that business qualifies as a New York vendor. Importantly, both of these conditions must be present in order to qualify. If a business has gross sales exceeding $300,000, but fewer than 100 total sales, then that business wouldn’t be defined as a NY vendor. This makes sense, because if a business only makes a few sales within NY, and they happen to be quite large, that business couldn’t really be accurately classified as a NY vendor. The time period for these sales is one year. The NYDTF provides the four sales tax quarters during which the one year period takes place.

Notice N-19-1 is Useful

If you’re a business making sales of taxable personal property in New York State, the document you need to consult is Notice 19-1, or N-19-1. The title of this document derives from its publication date in January of 2019. Notice-19-1 lays out all of the information pertaining to sales tax vendors in New York State. The document provides the current definition of a vendor, the four tax quarters, and provides links on how to register. If you need a quick overview of this topic, you should consult N-19-1.

Register to Avoid Future Tax Issues

Again, the Wayfair decision came about because of the increase in online businesses. Some online businesses, such as Amazon, conduct remote sales totaling millions of dollars of interstate commerce in a given year, even without any physical presence in a state. The Supreme Court decision, in effect, rebalanced the tax field in view of this modern reality. Accordingly, businesses meeting the new definition of a NY sales tax vendor should proactively register as one. In the absence of registration and compliance, taxpayers otherwise could face severe penalties in the future.

NY Sales Tax Post-Wayfair

This is a lot of information to take in. We know that. At Mackay, Caswell & Callahan, P.C., we tackle the difficult, abstruse topics which many other firms shy away from. We do this to benefit our clients. As we mentioned, complying with NY sales tax law was difficult before when we had the physical presence requirement. Now, post-Wayfair, things are even more convoluted. If you need assistance in this area, we can be of service.

Contact MC&C for Additional Counsel

MC&C regularly handles tax cases related to federal tax debt, NY state income tax debt, sales tax debt, and others as well. Our attorneys can help walk you through the post-Wayfair requirements, that way, you don’t get lost. Or, if you already have NY state income tax debt or sales tax debt, we can help you resolve this matter and begin financial repairs. Get in touch with one of our top New York City tax attorneys today for additional information.

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