New York Implements Economic Nexus by Resuscitating 1980’s Law

Erik Wallin
January 17, 2019

When New York first passed its law defining what constitutes a “vendor” subject to collecting sales tax in the 1980’s, the idea of online shopping sounded like science fiction. In retrospect, NY may have effectively enacted the first “economic nexus” law when they drafted their definition of “vendor” to include a person who regularly or systematically solicits business in New York through the distribution of catalogs, advertising flyers or letters, or by any other means of solicitation of business, to persons within New York and by reason thereof makes sales to persons within the state of taxable tangible personal property, if such solicitation satisfies the nexus requirement of the United States Constitution.

Well, let’s not give them too much credit. Based on examples and illustrations provided by the accompanying regulation, it seems clear they were thinking about catalog and radio advertising, and not internet sales. For years this law laid quietly, unenforceable, as the holdings in National Bella Hess and Quill prevented the states from imposing a collection and remittance obligation on out-of-state sellers without physical nexus.

Since the Supreme Court decision in South Dakota v. Wayfair many states have rushed to implement economic nexus. One state noticeably absent from the economic nexus conversation, until now, was New York! On January 15, 2019, more than 6 months after the Wayfair ruling, New York Department of Taxation and Finance issued Notice N-19-1 announcing its intention to enforce collection of sales tax by remote sellers.

In order to implement economic nexus, the Department has found that the Wayfair decision triggers the previously dormant 1980’s tax law. The law imposes a collection and remittance obligation on remote sellers who regularly or systematically solicit sales from New York if a seller made (in the immediately preceding four sales tax quarters):

1. More than $300,000 in gross revenue from sales of tangible property, AND

2. More than 100 separate sales of tangible property to NY customers

This standard is notable for several reasons. First, the revenue threshold values of $300,000 and 100 sales are materially different from the South Dakota standard of $100,000 or 200 sales. Second, the two requirements are connected by an “and” rather than an “or.” Meaning, for example, sellers who make a small number of high dollar value sales may not be required to register.

Further, sellers are not necessarily required to register once they exceed the thresholds. However, New York will presume you should unless you can affirmatively prove that you do not regularly and systematically solicit business from New York customers. For example, NY would be inclined to leave you alone if you can show that you do not reasonably expect to exceed the threshold for the next succeeding four quarterly periods.

For the purpose of determining sales and gross receipts per quarter, New York uses the following dates:

• March 1 through May 31,

• June 1 through August 31

• September 1 through November 30, and

• December 1 through February 28/29

It is currently unclear as to exactly when sellers are obligated to begin collecting. Notice N-19-1 was published on 1/15/2019 and refers to a 1980’s law which the state says took effect on June 21, 2018 (the date of the Wayfair decision). Under New York law, “persons required to collect tax” is defined to include “every vendor of tangible personal property or services.” However, if you are deemed a vendor because of the forward-looking remote commerce rule, you do not have to start collecting until twenty days after the date you are required to file a certificate of registration. A person is required to file a certificate of registration within thirty days after the day on which the remote seller threshold was met.

Doing the math, this could mean that remote sellers become liable to collect 50 days after the threshold is met. But if you already meet the threshold, when do you start counting? Do you start the day of the Wayfair decision, the date the notice was published, or some other time? New York has yet to clarify, except to say:

[A] business that has no physical presence in New York State but meets the requirements outlined above must register as a New York State vendor. Such business is required to register as a vendor immediately if it has not already done so.

New York issuing this Notice, essentially out of the blue, highlights the importance of staying informed on evolving tax compliance requirements. To help, Sovos provides an economic nexus table you can use to stay up to date on the latest changes. If and when more information regarding the exact date of enforcement becomes available, we will publish the information in the Sovos Regulatory Feed.

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Author
Erik Wallin
Erik Wallin is a Senior Tax Counsel on the Tax Research Team at Sovos Compliance. Erik has been with Sovos Compliance since 2011, and his main areas of focus are on U.S. Transaction Tax Law which includes special expertise in the taxation of technology and the taxation mechanisms that apply throughout the Colorado home rule jurisdictions. Erik is a member of the Massachusetts Bar, has a B.A. from York College of Pennsylvania, a J.D. from New England School of Law, and an LL.M. in Taxation from Boston University.

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