Does an out-of-state reed manufacturer have to register for New York sales tax just because it employs three New York residents, working from their own homes, to test and pack its products before shipping them back out of state?

Plain-English summary

A Washington State manufacturer of musical instrument reeds hired three New York residents to test and, if needed, pack its finished reeds before they're shipped back to the company's Washington offices for sale -- any reeds that fail testing are returned to Washington to be recycled or disposed of. The company already withholds New York income tax for these employees. It has no sales offices or sales representatives of its own in New York; all sales go through its Washington headquarters, and any product that ends up with New York retailers arrives through ordinary wholesale distribution channels. Once a year, the company mails price lists and promotional postcards to prospective New York customers.

The Department held that having these three New York-resident employees -- even doing work as limited and one-directional as quality testing and packing, with the product always shipped back out of state afterward -- is by itself enough of a physical presence in New York to create sales tax nexus, under the regulatory factor covering "the presence of employees ... in the state." Because the company has nexus, if it ever delivers its product to a New York wholesaler or retailer (by mail, common carrier, or any other means), it must register as a vendor, even though those particular sales are wholesale sales for resale rather than direct retail sales. Since its only registration trigger is the resale side of the business, its filing obligation is the lighter annual information return, not a full quarterly or monthly sales tax return.

What this means for you

Out-of-state manufacturers with any New York-based staff

Nexus doesn't require a sales office or sales force -- even employees performing purely internal functions like quality testing or packing, who never interact with customers, can establish the physical presence needed for New York sales tax nexus. If you have any New York residents on payroll performing work for your company, even remotely and even for functions unrelated to sales, get a nexus analysis before assuming you're outside the state's reach.

Companies distributing products into New York exclusively through wholesalers

Selling only through normal wholesale channels doesn't avoid registration once you have nexus for some other reason (like in-state employees) -- registration is triggered by nexus plus making sales for resale into the state, regardless of your sales channel.

Accountants and tax professionals

This is a straightforward nexus opinion built on the "presence of employees ... in the State" factor in 20 NYCRR § 526.10(a)(4), paired with the resale-only annual-filer mechanics of Tax Law § 1136(a)(3) and 20 NYCRR § 533.3(d) -- essentially the same annual-filing outcome reached the same month in the companion Company A opinion, TSB-A-00(45)S, which involved sales representatives rather than production employees as the nexus trigger.

Common questions

Q: Does hiring remote employees in New York automatically create sales tax nexus for an out-of-state company?
A: This ruling says yes, at least where the employees are physically located in New York performing work for the company (here, testing and packing product), even if their work has nothing to do with sales and the product is shipped back out of state afterward.

Q: If my only New York sales are wholesale sales for resale, do I still have to register?
A: Yes, if you have nexus with New York for any reason (such as in-state employees) and you deliver product to New York wholesalers or retailers -- registration doesn't turn on whether the sales themselves are taxable.

Q: What filing frequency applies if I'm registered only because of resale sales?
A: An annual information return, under Tax Law § 1136(a)(3) and 20 NYCRR § 533.3(d) -- unless other taxable activity later requires quarterly or monthly filing instead.

Q: Can another out-of-state employer with New York-based staff rely on this exact outcome?
A: No. This advisory opinion binds the Department only for the petitioner on the facts described, though the underlying nexus-via-employees and annual-filing rules are of general application.

Citations and references

Statutes and regulations:

• Tax Law § 1134(a)(1) (certificate of registration requirement)
• Tax Law § 1136(a)(3) (annual return for resale-only registrants)
• 20 NYCRR § 526.10(a)(4) (nexus; presence of employees in the state)
• 20 NYCRR § 533.3(d) (annual filing schedule for resale-only registrants)

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_43s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-00(43)S
Sales Tax
October 16, 2000

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S980224B

On February 24, 1998, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Emerald Reed Company, Inc., P.O. Box 1422, Port Townsend, WA 98368­
0032.
The issue raised by Petitioner, Emerald Reed Co. Inc., is whether it is required to register
under Article 28 of the Tax Law.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner manufactures reeds for musical instruments at its offices in Washington State.
Petitioner has recently hired three employees who are residents of New York State to test and pack
the reeds. Petitioner is registered to withhold New York State income tax. Petitioner’s completed
reeds are shipped to its employees in New York State to be tested and, if needed, packed for sale.
The reeds are then returned to Petitioner’s offices in Washington State. Any reeds which do not pass
testing, are also returned to Washington State where they are either recycled or disposed of if not
recyclable.
Petitioner has neither sales offices nor representatives in New York State. All sales are
handled through the offices in Port Townsend, Washington. Any product sold in New York State
is obtained by the New York retailer through normal wholesale distribution channels. Petitioner
does not contemplate any changes to these procedures. Once a year, Petitioner distributes price lists
of its products and post cards soliciting sales of its products to prospective customers in New York.
Applicable Law and Regulations
Section 1134(a)(1) of the Tax Law provides, in part:
(i) Every person required to collect any tax imposed by this article ...
commencing business or opening a new place of business, (ii) every person
purchasing or selling tangible personal property for resale ... shall file with the
commissioner a certificate of registration, in a form prescribed by the commissioner,
at least twenty days prior to commencing business....
Section 1136(a)(3) of the Tax Law provides, in part:

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Sales Tax
October 16, 2000

However, a person required to register with the commissioner as provided in
section eleven hundred thirty-four only because such person is purchasing or selling
tangible personal property for resale, and who is not required to collect any tax or pay
any tax directly to the commissioner under this article, shall file an information return
annually in such form as the commissioner may prescribe....
Section 526.10(a)(4) of the Sales and Use Tax Regulations provides, in part:
(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.
(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:
*

*

*

(b) the presence of traveling sales representatives in the State;
(c) the presence of employees, independent contractors or agents in the
State ....
Section 533.3(d) of the Sales and Use Tax Regulations provides, in part:
Annual return. (1) Every person required to register with the Department of
Taxation and Finance (see section 533.1 of this Part and Parts 539 and 540 of this
Title) only because such person is purchasing or selling tangible personal property
for resale, and who is not required to collect any tax or pay any tax directly to the
Department of Taxation and Finance, must file a return annually in accordance with
the schedule provided in paragraph (4) of this subdivision.
(2) Any person required to file quarterly returns whose total tax due for the
four most recent quarterly periods for which data is available for such person within
the most recent six quarters for which data is available did not exceed $3,000, may
be notified by the department or may elect to file returns annually in lieu of quarterly.
*

*

*

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(4) An annual return is to be filed in accordance with the following schedule.
(i) Annual filers for years commencing on or after June 1, 1998, including
those persons who are not required to collect any tax or pay any tax directly to the
department, shall file their returns:
(a) For the short annual period of nine months beginning June 1, 1998, and
ending on February 28, 1999, on or before March 20, 1999.
(b) For annual periods beginning on or after March 1, 1999, which annual
periods shall begin on March 1st and end with the last day of February in the
subsequent year, on or before March 20th of each such subsequent year.
(ii) Quarterly filers who are notified by the department that they shall file
annually must file annual returns (unless they timely notify the department in
accordance with subparagraph [3][ii] of this subdivision that they wish to continue
filing quarterly returns) as follows:
(a) For the short annual period of nine months beginning June 1, 1998, and
ending on February 28, 1999, on or before March 20, 1999.
(b) For annual periods beginning on or after March 1, 1999, the annual period
shall begin on March 1st and end with the last day of February in the subsequent year,
with the annual return being due on or before March 20th of each such subsequent
year.
(c) Quarterly filers who become annual filers shall file their last quarterly
return for the quarterly period which ends immediately prior to the date on which the
annual period begins and in accordance with instructions provided in the notification
issued pursuant to paragraph (3) of this subdivision and in accordance with such
other applicable instructions. Annual returns must then be filed for subsequent
annual periods succeeding this last quarterly period.
(5) A properly completed annual return is to be prepared in accordance with
the instructions provided by the Department of Taxation and Finance. It must
include completed schedules, if required, and must show:
(i) the name, address and identification number of the vendor, recipient of
amusement charges, or operator of a hotel;

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(ii) gross amount, to the nearest whole dollar, of sales of tangible personal
property and services, food and drink, amusement charges, and rents;
(iii) amount, to the nearest whole dollar, of taxable sales of tangible personal
property and services, food and drink, amusement charges and rents for each
jurisdiction, and totals of all jurisdictions;
(iv) amount, to the nearest whole dollar, of purchases subject to use tax, for
each jurisdiction, and totals of all jurisdictions;
(v) amount of sales and use taxes for each jurisdiction, and totals of all
jurisdictions;
(vi) credits claimed and prepayments, if any;
(vii) sales and use taxes due;
(viii) late filing charge, penalties and interest, if any, and total amount due;
(ix) the signature of the vendor, officer or employee of the vendor signing the
return and the individual's title;
(x) the signature and address of a preparer, if other than the vendor; and
(xi) the date prepared.
(6) If, at any time during the course of the annual periods described in
paragraph (4) of this subdivision, the total tax due from a person required to file
returns is in excess of $3,000, such person must commence filing a quarterly or
monthly return as required by section 1136 of the Tax Law and the preceding
provisions of this section. On the first quarterly return so required, such person must
report and pay any tax due for the period commencing with the beginning of the
abridged annual period. Failure to do so may result in penalty and interest being
charged from the date a quarterly or monthly return should have been filed.
Opinion
Petitioner has three employees in New York State. The employees are New York residents.
Petitioner also distributes advertising materials in New York State once a year. Based on the facts
submitted, Petitioner has a nexus with New York State. If any of Petitioner’s sales are to
wholesalers or retailers located in this State, and Petitioner delivers its product to them in this State
by mail, common carrier or other means, it would be required to register even though such sales may

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be for resale. See Section 1134(a)(1)(ii) of the Tax Law. Under these circumstances, Petitioner
would be required to file an annual return under section 1136(a)(3) of the Tax Law and Section
533.3(d) of the Sales and Use Tax Regulations.

DATED: October 16, 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.