Since the South Dakota v. Wayfair ruling over six months ago, companies have been waiting to see how New York (the fourth most populated state) would handle the new rules for remote sellers. Tax advisors assumed New York was taking their time in creating the right formula, however, this may not have been the case. Instead of creating a set of rules consistent with other states, New York has reapplied an old sales tax definition for vendors as explained in Important Notice (N-19-1).
Essentially, due to the elimination of the physical presence requirement through the Wayfair ruling, the notice states that “certain existing provisions in the New York State Tax Law that define a sales tax vendor immediately became effective”.
These existing provisions dictate that any business with cumulative gross receipts from the sales of tangible personal property in excess of $300,000, or any business that has more than one hundred transactions is considered “to be regularly or systematically soliciting business in the state”. After combing through the tax law immediately after the release of the notice, it appears that New York is referring to Section 1101(b)(8)(iv) which covers various definitions, including the definition of a vendor:
“1101(b)(8)(iv) For purposes of clause (E) of subparagraph (i) of this paragraph, a person shall be presumed to be regularly or systematically soliciting business in this state if, for the immediately preceding four quarterly periods ending on the last day of February, May, August, and November, the cumulative total of such person’s gross receipts from sales of property delivered in this state exceeds three hundred thousand dollars and such person made more than one hundred sales of property delivered in this state, unless such person can demonstrate, to the satisfaction of the commissioner, that he cannot reasonably be expected to have gross receipts in excess of three hundred thousand dollars or more than one hundred sales of property delivered in this state for the next succeeding four quarterly periods ending on the last day of February, May, August, and November.”
What Does New York’s Wayfair Ruling Mean for Remote Vendors?
Several concerns stand out regarding New York’s notice. The use of the phrase “immediately became effective” implies that these rules have been effective since June 21, 2018, and businesses should have been aware of this definition. New York also states that companies that have hit the threshold in the preceding four quarters and have not yet registered and filed should do so “immediately” and “now”.
New York’s aggressive wording helps to clarify the states intent. In doing so New York positions itself to assume the notion that companies should have been complying – effective June 21, 2018 – or shortly after that. New York has provided businesses no window of time to comply when compared to other states.
How is the Sales Threshold Defined?
Unfortunately, New York did not provide a clear definition as to the type of sales or nature of transactions which will be considered in the threshold determination.
The announcement on New York State’s website mentions “gross receipts from sales of tangible personal property delivered into the state” while the actual notice states, rather simply: “sales of tangible personal property.” It would appear New York is going to use an expansive definition of sales, potentially including wholesales and exempt sales.
One positive aspect of the notice pertains to the sales threshold; it must be equal to or exceeding $300,000 and one hundred transactions. Many of our clients do not meet or exceed the typical $100,000 threshold, but have well over two hundred transactions, therefore these companies will not be required to collect New York sales tax.
Not only have most states chosen a lower dollar amount for the sales threshold – typically $100,000 – but many have also chosen to require compliance on the part of the sellers, based on transaction volume, regardless of having met the dollar amount threshold.
How Should Companies React to the New York Wayfair Ruling?
Companies need to immediately evaluate their sales activity for the prior four quarters in New York. They should work with their tax advisors or CPAs to determine how they should define a sale for the threshold amount (gross/retail/wholesale/exempt). This analysis will be crucial and will impact many companies’ decisions regarding registration.
It is still unclear how New York will enforce the policy regarding the period between their new announcement and the Wayfair court ruling – 06/21/2018 through 01/15/2019. We will watch these developments closely over the coming weeks, as we expect many responses from industry groups regarding this development. We hope New York will give taxpayers a break and put to rest any thought of retroactive application to the new ruling.