Does an out-of-state mail-order computer company create New York sales tax nexus just by hiring an independent New York repair company to make on-site warranty repair visits to its New York customers?

Plain-English summary

An out-of-state computer manufacturer sells its products by mail order: it advertises in national computer magazines, mails notices to past customers, and takes orders by phone or over the internet. It has no office, sales force, or sales representatives of any kind physically located in New York; all its hardware is assembled elsewhere and shipped to New York customers by mail or common carrier. Where it gets interesting is its warranty program: for the first year, the company offers an "on-site" hardware warranty under which it may hire an independent repair company -- based in New York -- to visit a New York customer's home or office to diagnose and fix hardware problems.

The Department held that arrangement, by itself, creates enough of a physical connection with New York to satisfy the constitutional nexus requirement. The regulatory test looks at "additional connections" with the state beyond mere mail-order solicitation, and having service representatives (even independent contractors, not employees) show up in person at customers' locations to perform warranty work on the seller's behalf is squarely one of the listed examples -- the Department's own regulations give an essentially identical fact pattern (Example 6) reaching the same result. The reasoning: knowing that a company stands behind its product with local, in-person service is itself an inducement that helps make the sale, so that local service presence is treated as the seller's own presence in the state.

Separately, and independently, the Department noted the company also mails advertising notices to New York customers who've purchased before -- which on its own is enough to make it a vendor under the "catalog/advertising-matter-plus-some-additional-connection" clause of the vendor definition (here, that additional connection is again supplied by the warranty-service nexus). Either way, the company must register as a New York vendor and collect sales and use tax on its mail-order sales to New York customers.

What this means for you

Mail-order, catalog, and e-commerce sellers with no physical location in a state

Having zero employees, offices, or sales reps in a state doesn't guarantee you're outside that state's sales tax net. If you contract with any local company -- even a fully independent one -- to perform in-person service, repair, or support for your customers on your behalf, that arrangement alone can create nexus, per the "service representatives in the State" factor in 20 NYCRR § 526.10.

Companies offering on-site warranty or service programs

The independent-contractor structure doesn't insulate you here -- the regulation's own example says "the result would be the same" whether the technician is your own employee or an independent contractor/agent acting on your behalf. What matters is that the service is provided on your behalf as the seller, inducing customer confidence in the purchase.

Accountants and tax professionals advising remote sellers

This is a pre-Wayfair physical-presence nexus opinion, built on the "additional connection" language in 20 NYCRR § 526.10(a)(4) and its own Example 6 (a near-identical mail-order-computer-with-on-site-warranty fact pattern). Note this predates 2018's economic-nexus regime -- today, a remote seller could separately have New York nexus purely from sales/transaction volume even without any in-state service arrangement, but this opinion remains useful for the physical-presence/service-representative analysis specifically.

Common questions

Q: If I have no office or employees in a state, can I still have sales tax nexus there?
A: Yes. Hiring even an independent, non-employee repair or service company to visit customers in that state on your behalf can be enough of a physical connection to create nexus, as this ruling shows.

Q: Does it matter that the repair technicians are independent contractors, not the seller's own employees?
A: No. The Department's own regulation states the result is the same whether the on-site technician is the seller's employee or an independent contractor/agent performing the work on the seller's behalf.

Q: Would mailing advertisements alone create nexus without the warranty service?
A: Mailing catalogs or advertising matter alone isn't automatically enough -- the vendor definition requires "some additional connection with the state" beyond the mailings. Here, the warranty-service arrangement supplied that additional connection.

Q: Can another out-of-state mail-order company rely on this exact result?
A: No. This advisory opinion binds the Department only for the petitioner's client on the facts described, though it applies the Department's general nexus regulation and an example already published in that regulation.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(8)(i) (definition of "vendor")
• Tax Law § 1131(1) (persons required to collect tax)
• 20 NYCRR § 526.10 (nexus factors, including "service representatives in the State," with Example 6 addressing a mail-order computer seller's on-site warranty program)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2000.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a00_42s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-00(42)S
Sales Tax
October 13, 2000

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S980618A

On June 18, 1998, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Mark S. Klein, Esq., Hodgson, Russ, Andrews, Woods & Goodyear, LLP, 1800 One M
& T Plaza, Buffalo, New York 14203.
The issue raised by Petitioner, Mark S. Klein, Esq., is whether the use by its client of an
independent computer repair service to visit its client’s New York customers creates sufficient nexus
to require its client to collect New York State sales and use taxes on its New York mail order sales.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner’s client is an out-of-state company that manufactures computer systems which it sells
through mail order. Petitioner’s client has no office or sales force in New York and does not send
representatives into New York for any type of solicitation. The company solicits sales through
advertisements in national computer publications and allows customers to place orders through an 800
number or through its website on the Internet. Advertising notices are mailed to customers who have
previously made purchases from Petitioner’s client.
All of the computer components (keyboards, monitors, etc.) are stored out of state, assembled
out of state, and are shipped by Petitioner’s client to its New York customers through the mail or via
common carrier (e.g., Federal Express or UPS).
In addition to a standard hardware/software warranty, Petitioner’s client offers its customers
a one-year “on site” warranty. This warranty provides that during the first year of the warranty,
Petitioner’s client may hire an independent company to visit a New York customer’s place of business
to diagnose and repair certain computer hardware problems. The warranty is a manufacturer’s
warranty, i.e., the warranty of Petitioner’s client. The independent company hired to perform the
warranty work will be located in New York.
Applicable Laws and Regulations
Section 1101(b) of the Tax Law provides, in part:
(b) When used in this article for the purposes of the taxes imposed by
subdivisions (a), (b), (c) and (d) of section eleven hundred five and by section eleven
hundred ten, the following terms shall mean:
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(8) Vendor. (i) The term "vendor" includes:
(A) A person making sales of tangible personal property or services, the receipts
from which are taxed by this article;
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(C) A person who solicits business either:
(I) by employees, independent contractors, agents or other representatives; or
(II) by distribution of catalogs or other advertising matter, without regard to
whether such distribution is the result of regular or systematic solicitation, if such
person has some additional connection with the state which satisfies the nexus
requirement of the United States constitution;
and by reason thereof makes sales to persons within the state of tangible personal
property or services, the use of which is taxed by this article . . . .
Section 1131(1) of the Tax Law provides, in part:
"Persons required to collect tax" or "person required to collect any tax imposed
by this article" shall include: every vendor of tangible personal property or services;
every recipient of amusement charges; and every operator of a hotel. . . .
Section 526.10 of the New York State Sales and Use Tax Regulations provides, in part:
Vendor (a) Persons included. (1) (i) A person making sales of tangible personal
property the receipts from which are subject to tax is a vendor.
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(4)(i) A person who solicits business by the distribution of catalogs or other
advertising matter, without regard to whether such distribution is the result of regular
or systematic solicitation, if such person has some additional connection with the State
which satisfies the nexus requirement of the United States Constitution and by reason
thereof makes sales to persons within the State of tangible personal property or services
the use of which is subject to tax, is a vendor.

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Sales Tax
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(ii) For purposes of subparagraph (i) of this paragraph, the additional connection
with the State a person may have in order to qualify as a vendor shall include, but not
be limited to:
(a) the operation of retail stores in the State;
(b) the presence of traveling sales representatives in the State;
(c) the presence of employees, independent contractors or agents in the State;
(d) the presence of service representatives in the State;
(e) the maintenance of a post office box in the State for receiving responses to
such person's solicitations; or
(f) the maintenance of an office in the State, even if such office performs no
activities related to the sales solicited by such person.
Example 6: Company K is engaged in the mail-order retail sale of
computer hardware and software in New York State. Sales are solicited
in New York by means of direct mail advertising sent from the
company's Oregon headquarters. Company K has no property or
employees in New York State. The hardware and software are sent to
New York customers via common carrier. Customers of Company K
who experience problems using a product purchased may contact the
company by phone in Oregon for assistance. In certain instances, and
at no charge to the customer, Company K will send a computer expert
employed by it in Oregon to New York State and provide technical
assistance at the customer's premises. Company K is a vendor because
of its having service representatives in the State. The result would be
the same if, alternatively, Company K had an independent contractor or
agent based in New York State or elsewhere provide technical
assistance at the customer's premises on Company K's behalf.
(Emphasis added)
Opinion
As previously stated, Petitioner’s client is an out-of-state company that has no office, sales force
or sales representatives in New York. It solicits sales through advertisements in national computer
publications and advertising notices mailed to customers who have previously purchased its products,
and allows customers to place orders through an 800 number or through its Web site on the Internet.
Computers are shipped by Petitioner’s client to its New York customers through the mail or via

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common carrier. Petitioner’s client, under its “on site” warranty program, may hire an independent
company located in New York to visit a New York customer’s place of business to diagnose and repair
certain computer hardware problems.
A person qualifying as a vendor under Section 1101(b)(8) of the Tax Law which has established
a nexus with New York must collect sales and use taxes on its sales made in New York. A mail-order
computer sales company which hires an independent contractor or agent to provide technical assistance
to the mail order computer company’s customers at the customers’ premises on the company’s behalf
will have nexus for purposes of collecting New York State and local sales and use taxes. Customer
awareness that representatives for the vendor will service the computers it sells, serves as an
inducement to make purchases from the vendor. See Section 526.10 of the Sales and Use Tax
Regulations. Accordingly, if Petitioner’s client hires an independent company to visit its New York
customers at their place of business to diagnose and repair computer hardware problems, Petitioner’s
client will have sufficient nexus with New York. Since Petitioner’s client mails advertising notices to
customers in New York, Petitioner’s client will qualify as a vendor under Section 1101(b)(8)(i)(C)(II)
of the Tax Law and will be required to collect sales and use taxes on its mail order sales to customers
in New York.

DATED: October 13, 2000

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist III
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.