Does a Canadian nonprofit's new internet store, selling and renting films and videotapes to U.S. customers, have to collect New York sales tax on orders delivered to New York, given that it maintains a small New York City office?

Plain-English summary

The National Film Board of Canada (NFB) was launching an internet store, accessible from the United States, to sell and rent films and videotapes, with prices and credit-card transactions handled in U.S. currency. Its server and core operations are based in Canada, but NFB happens to maintain a small office in New York City. NFB asked whether it needs to collect New York sales tax on web orders from New York customers.

The analysis runs through the basics of New York vendor status. Both sales and rentals of films/videotapes count as sales of tangible personal property for tax purposes — a rental is treated the same as an outright sale under the statutory "sale" definition — so these transactions are generally taxable. The key trigger here is that a business "maintaining a place of business in the state" is automatically a vendor required to register and collect tax, and the regulations define "place of business" broadly to include things like an administrative office — which NFB's New York City office qualifies as, citing the U.S. Supreme Court's National Geographic Society case establishing that even a small unrelated in-state office is enough to create nexus for sales-tax purposes, regardless of whether that office has anything to do with the actual mail-order/internet sales operation.

Because NFB has that nexus-creating office, it must register as a New York vendor. From there, ordinary destination-tax rules apply: for any order where the film or videotape is actually delivered to a New York location, NFB must either collect sales tax at the local rate in effect where delivery occurs, or accept a properly completed exemption certificate from the customer within 90 days of the sale. Orders delivered to locations outside New York State aren't subject to New York sales or use tax at all, regardless of where NFB processes the transaction, what currency is used, or where its server sits.

What this means for you

Foreign or out-of-state sellers running e-commerce stores that ship to New York

An unrelated, seemingly minor physical presence in New York (even a small administrative office with no connection to your online sales operation) is enough to create nexus requiring registration and tax collection on orders delivered in-state — the location of your server, currency, or transaction processing doesn't matter.

Nonprofit and government-affiliated organizations selling media or merchandise online

Nonprofit or foreign-government status doesn't exempt you from ordinary vendor registration and collection obligations once you have New York nexus and make taxable sales delivered into the state.

Accountants and tax professionals

This is a useful, compact citation for the "any place of business, however small or unrelated, creates nexus" rule (citing National Geographic Society v. California Board of Equalization) — a good template for any foreign or out-of-state e-commerce seller with even a token New York office.

Common questions

Q: Does having a small office in New York that's unrelated to a company's main sales operations create sales-tax nexus?
A: Yes — under National Geographic Society v. California Board of Equalization and New York's regulations, maintaining any place of business in the state (including an administrative office) is enough to establish nexus, regardless of how that office relates to the taxable sales activity.

Q: Is renting a videotape treated differently from selling one for sales tax purposes?
A: No — a rental is defined as a "sale" under New York's Tax Law and is taxed the same way as an outright sale of the same tangible personal property.

Q: Does the currency used for a transaction or the location of a company's server affect New York tax obligations?
A: No — what matters is the destination where the property is actually delivered; if delivery occurs in New York, tax applies regardless of where the sale was processed, in what currency, or where the seller's servers or inventory are located.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(5) (sale definition; includes rentals); § 1101(b)(6) (tangible personal property); § 1101(b)(8)(i)(B) (vendor; place of business)
• Tax Law § 1105(a) (retail sales tax)
• Tax Law § 1132(c) (exemption certificates; burden of proof)
• 20 NYCRR § 525.2 (nature of tax); § 526.7(e) (transfer of possession); § 526.10 (vendor; place of business; interstate vendors)

Cases referenced:

• National Geographic Society v. California Board of Equalization, 430 US 561 (1977)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2002.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a02_48s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-02(48)S
Sales Tax
September 18, 2002

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S020125A

On January 25, 2002, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Luisa Frate, 3155 Cole De Liesse Road, St. Laurent, Quebec, Canada,
H4N2N4. Petitioner, Luisa Frate, provided additional information with respect to the Petition on
February 26, 2002.
The issue raised by Petitioner is whether the National Film Board of Canada (NFB) is
required to collect and remit sales tax on sales of videotapes and films made through NFB’s Web
site to persons in New York State.
Petitioner submits the following facts as the basis for this Advisory Opinion.
The NFB is in the process of implementing an Internet store accessible in the United States
from which it will sell and rent films and videotapes. NFB’s server is located in Canada. NFB will
be displaying its inventory items in United States currency and the transactions recorded on the
customer credit card will be captured in United States currency. NFB presently has a small office
in New York City.
Applicable Law and Regulations
Section 1101 of the Tax Law provides, in part:
(a) When used in this article the term "person" includes an individual,
partnership, limited liability company, society, association, joint stock company,
corporation, estate, receiver, trustee, assignee, referee, and any other person acting
in a fiduciary or representative capacity, whether appointed by a court or otherwise,
and any combination of the foregoing.
(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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(5) Sale, selling or purchase. Any transfer of title or possession or both,
exchange or barter, rental, lease or license to use or consume (including, with respect
to computer software, merely the right to reproduce), conditional or otherwise, in any
manner or by any means whatsoever for a consideration, or any agreement therefor,

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including the rendering of any service, taxable under this article, for a consideration
or any agreement therefor.
(6) Tangible personal property. Corporeal personal property of any
nature. . . .
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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;
(B) A person maintaining a place of business in the state and making sales,
whether at such place of business or elsewhere, to persons within the state of tangible
personal property or services, the use of which is taxed by this article;
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(E) A person who regularly or systematically solicits business in this state by
the distribution, without regard to the location from which such distribution
originated, of catalogs, advertising flyers or letters, or by any other means of
solicitation of business, to persons in this state and by reason thereof makes sales to
persons within the state of tangible personal property, the use of which is taxed by
this article, if such solicitation satisfies the nexus requirement of the United States
constitution;
Section 1105 of the Tax Law provides, in part:
On and after June first, nineteen hundred seventy-one, there is hereby
imposed and there shall be paid a tax of four percent upon:
(a) The receipts from every retail sale of tangible personal property, except
as otherwise provided in this article.
Section 525.2 of the Sales and Use Tax Regulations provides, in part:
Nature of tax.
(a) Sales tax. (1) (i) Except as specifically exempted or excluded, sales tax
is imposed on the receipts from:

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(a) every retail sale of tangible personal property, as provided in section
1105(a) of the Tax Law;
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(iii) Each of the various types of transactions has statutory exemptions,
exceptions, exclusions and limitations. . . .
(2) Except as specifically provided otherwise, the sales tax is a "transactions
tax," with the liability for the tax occurring at the time of the transaction. Generally,
a taxed transaction is an act resulting in the receipt of consideration for the transfer
of title to or possession of (or both) tangible personal property or for the rendition
of an enumerated service. The time or method of payment is generally immaterial,
since the tax becomes due at the time of transfer of title to or possession of (or both)
the property or the rendition of such service . . . .
(3) Except as specifically provided otherwise, the sales tax is a "destination
tax." The point of delivery or point at which possession is transferred by the vendor
to the purchaser, or the purchaser's designee, controls both the tax incidence and the
tax rate.
(4) The sales tax is generally a "consumer tax." That is, the person required
to collect tax must collect the tax from the customer (i.e., the consumer)
when collecting the taxable receipt, rent or amusement charge to which the tax
applies. The customer cannot shift the liability for payment of the tax to another
person nor otherwise be relieved of such liability. The vendor, or other person
required to collect the tax, collects the tax as trustee for and on account of the State
and is also personally liable for the tax required to be collected.
Section 526.7 of the Sales and Use Tax Regulations provides, in part:
(a) Definition. (1) The words sale, selling or purchase mean any transaction
in which there is a transfer of title or possession, or both, of tangible personal
property for a consideration.
(2) Among the transactions included in the words sale, selling or purchase are
exchanges, barters, rentals, leases or licenses to use or consume tangible personal
property.
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(e) Transfer of possession. (1) . . . a sale is taxable at the place where the
tangible personal property or service is delivered, or the point at which possession
is transferred by the vendor to the purchaser or his designee.
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(2) . . . a sale of tangible personal property, in which the title to the property
passes in New York State, but in which delivery occurs outside of New York State,
is not subject to tax.
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(4) Transfer of possession with respect to a rental, lease or license to use,
means that one of the following attributes of property ownership has been
transferred:
(i) custody or possession of the tangible personal property, actual or
constructive;
(ii) the right to custody or possession of the tangible personal property;
(iii) the right to use, or control or direct the use of, tangible personal property.
Section 526.10 of the 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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(2) (i) A person maintaining a place of business in the State making sales,
whether at such place of business or elsewhere, to persons within the State of
tangible personal property or services, the use of which is taxed, is a vendor.
(ii) A person shall be considered to be maintaining a place of business in the
State if it, either directly or through a subsidiary, has a store, salesroom, sample
room, showroom, distribution center, warehouse, service center, factory, credit and
collection office, administrative office or research facility in the State.
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(b) Responsibilities of vendors. Every vendor, unless specifically excluded
by a section of the Tax Law or this Title, has certain obligations with respect to
registration, collection of tax from customers, filing of returns and payment of tax.
See Parts 532, 533, 539 and 540 of this Title.
(c) Interstate vendors. (1) A person outside this State making sales to
persons within the State, who maintains a place of business in the State as described
in paragraph (2) of subdivision (a) of this section . . . is required to collect the tax on
any taxable property or services delivered in New York.
Opinion
NFB will be making sales and rentals of tangible personal property in the form of films and
videotapes in the United States, including New York State. Sales of tangible personal property are
subject to New York State and local sales and use taxes. A rental is a sale for sales tax purposes.
See Section 1101(b)(5) of the Tax Law. Since NFB has an office in New York City, it will be
considered to have sufficient nexus with New York State to require it to register as a vendor in
New York State for sales tax purposes. See National Geographic Society v. California Board of
Equalization, 430 US 561 (1977); Section 1101(b)(8)(i)(B) of the Tax Law.
Where NFB sells or rents a film, videotape or other tangible personal property which is
delivered to a location in New York State, it is required to either collect the sales tax at the rate in
effect where the tangible personal property is delivered in the State, or, accept an appropriate and
properly completed document from the purchaser or lessee showing that the purchaser or lessee is
exempt from the sales tax on such purchase, within ninety days of the date of sale. See Section
1132(c) of the Tax Law and Section 532.4 of the Sales and Use Tax Regulations.
Sales of tangible personal property delivered to locations outside of New York State are not
subject to New York State or local sales tax.

DATED: September 18, 2002

NOTE:

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

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