When an out-of-state distributor with New York nexus drop-ships candy and cookie dough directly to an in-state third party on behalf of a wholesaler customer with no New York nexus, does the distributor have to collect New York sales tax, and what paperwork does it need from the wholesaler?

Plain-English summary

Company X, an out-of-state distributor, sells candy and cookie dough to Y, an unrelated wholesaler with no New York nexus. Y resells those goods to its own customer, Z, who does have New York nexus and makes the ultimate retail sales. Rather than shipping to Y, X drop-ships the candy and cookie dough directly to Z at a New York location, using both common carriers and its own delivery vehicles — and X's own delivery activity is what gives X nexus with New York in the first place. Ernst & Young asked, on X's behalf, whether X has to collect New York sales tax on these drop-shipped sales to Y.

The answer splits cleanly by product. Cookie dough is a straightforward exempt food item under New York's general food exemption — X never has to collect any tax on it, regardless of paperwork, as long as X keeps records showing the sales were of exempt food. Candy is treated completely differently: New York's food exemption specifically carves out "candy and confectionery," so candy sales are presumed taxable unless the buyer documents an exemption. Here, though, Y is buying the candy for resale to Z, so the sale to Y qualifies for the resale exclusion — but only if Y gives X a properly completed Resale Certificate (Form ST-120) within 90 days of the sale. Because Y has no New York nexus and isn't required to register here, a separate Department memo confirms Y can still validly issue Form ST-120 as a "qualified out-of-state purchaser" (registered elsewhere, buying for resale, with the goods delivered to Y's own customer or fulfillment provider in New York) without itself registering in New York.

Separately, because X's own delivery activity (using its own vehicles regularly/systematically in the state) creates New York nexus for X regardless of the resale-certificate outcome, X must register for a Certificate of Authority and start filing sales tax returns — even in a scenario where it turns out to owe no tax at all, because everything it sells here is either exempt food or resold under a valid certificate. If X truly makes only resale sales and isn't required to collect or pay any tax directly, it qualifies for the reduced annual filing schedule instead of quarterly/monthly returns.

What this means for you

Distributors drop-shipping into New York on behalf of an out-of-state wholesaler

Your own delivery activity (not just your customer's location) can create New York nexus requiring registration, even if you ultimately collect zero tax because of resale certificates or food exemptions — registration and tax collection are separate questions.

Out-of-state wholesalers with no New York presence

You don't need to register in New York just to issue a valid Resale Certificate (Form ST-120) to your drop-shipping supplier — the "qualified out-of-state purchaser" rule lets you document the resale exemption without a New York Certificate of Authority, as long as you meet the specific conditions (registered elsewhere or in a state that doesn't require registration, and the goods flow to your own customer or fulfillment provider in New York).

Accountants and tax professionals

This is a clean multi-tier drop-ship fact pattern worth keeping as a template: exempt food items need no certificate at all, taxable items in a resale chain need the standard ST-120, and the "qualified out-of-state purchaser" memo (TSB-M-98(3)S) is the key citation for validating an unregistered out-of-state buyer's resale certificate.

Common questions

Q: Does drop-shipping directly to the end customer change who's responsible for New York tax?
A: Not automatically — the distributor doing the drop-shipping can still owe registration/collection obligations based on its own nexus-creating activity, while the resale exemption for its immediate (wholesaler) customer depends on that customer providing proper documentation.

Q: Does an out-of-state wholesaler need a New York Certificate of Authority to buy tax-free for resale?
A: Not necessarily — a "qualified out-of-state purchaser" (registered elsewhere or exempt from registration requirements elsewhere, buying for resale with goods flowing to its own New York customer or fulfillment provider) can issue Form ST-120 without registering in New York.

Q: Is cookie dough treated the same as candy for New York sales tax purposes?
A: No — cookie dough is exempt food with no special certificate needed, while candy is specifically excluded from the food exemption and stays presumptively taxable unless a resale or other exemption certificate is on file.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4) (retail sale definition); § 1101(b)(5) (sale definition); § 1101(b)(8)(i)(D) (vendor; regular NY deliveries)
• Tax Law § 1105(a) (retail sales tax)
• Tax Law § 1115(a)(1) (food exemption; candy exclusion)
• Tax Law § 1132(c) (resale/exemption certificates; burden of proof)
• Tax Law § 1134(a)(1)(i) (vendor registration); § 1136(a) (filing frequency)
• 20 NYCRR § 526.7(e) (transfer of possession); § 533.3(d) (annual return filing)
• TSB-M-81(9)S (Records Required to Be Kept by Sales Tax Vendors, July 15, 1981)
• TSB-M-98(3)S (Nonregistered Out-of-State Purchaser's Use of Resale Certificate Form ST-120, June 5, 1998)

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_52s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-02(52)S
Sales Tax
November 6, 2002

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S010530A

On May 30, 2001, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Ernst & Young LLP, 370-17th Street, Suite 3400, Denver, Colorado, 80202.
The issue raised by Petitioner, Ernst & Young LLP, is whether a vendor who meets the nexus
requirements for New York State sales and use tax purposes is required to collect and remit sales
and use tax on the sale of candy and cookie dough to its customer as described below.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner’s client, Company X (X), is a distribution company based outside New York. X
is in the business of selling candy and cookie dough to its customer, Y, an unrelated wholesaler
having no nexus with New York State. Y, in turn, resells the candy and cookie dough to its
customer, Z. X drop ships the candy and cookie dough to Z at a location in New York on behalf of
Y. X ships the orders by both common carrier and its own vehicles. Petitioner indicates that as a
result of X's delivery activities, it has nexus with New York. Z has nexus with New York and makes
retail sales of the candy and cookie dough to its customers.
Applicable Law and Regulations
Section 1101(b) of the Tax Law provides, in part:
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:
*

*

*

(4) Retail sale.
(i) A sale of tangible personal property to any person for any purpose, other
than (A) for resale as such or as a physical component part of tangible personal
property . . . .
*

*

*

(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

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manner or by any means whatsoever for a consideration, or any agreement therefor,
including the rendering of any service, taxable under this article, for a consideration
or any agreement therefor.
*

*

*

(8) Vendor. (i) The term "vendor" includes:
*

*

*

(D) A person who makes sales of tangible personal property or services, the
use of which is taxed by this article, and who regularly or systematically delivers
such property or services in this state by means other than the United States mail or
common carrier . . . .
Section 1105(a) of the Tax Law provides for the imposition of sales tax upon:
The receipts from every retail sale of tangible personal property, except as
otherwise provided in this article.
Section 1115(a)(1) of the Tax Law provides an exemption from the sales and use tax for:
Food, food products, beverages, dietary foods and health supplements, sold
for human consumption but not including (i) candy and confectionery . . . .
Section 1132(c) of the Tax Law provides, in part:
(1) For the purpose of the proper administration of this article and to prevent
evasion of the tax hereby imposed, it shall be presumed that all receipts for property
or services of any type mentioned in subdivisions (a), (b), (c) and (d) of section
eleven hundred five . . . are subject to tax until the contrary is established, and the
burden of proving that any receipt . . . is not taxable hereunder shall be upon the
person required to collect tax or the customer. Except as provided in subdivision (h)
or (k) of this section, unless (i) a vendor, not later than ninety days after delivery of
the property or the rendition of the service, shall have taken from the purchaser a
resale or exemption certificate in such form as the commissioner may prescribe,
signed by the purchaser and setting forth the purchaser's name and address and,
except as otherwise provided by regulation of the commissioner, the number of the
purchaser's certificate of authority, together with such other information as the
commissioner may require, to the effect that the property or service was purchased
for resale . . . the sale shall be deemed a taxable sale at retail. . . .
Section 1134(a)(1)(i) of the Tax Law provides, in part:

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Every person required to collect any tax imposed by this article, other than
a person who is a vendor solely by reason of clause (D), (E) or (F) of subparagraph
(i) of paragraph eight of subdivision (b) of section eleven hundred one of this article,
commencing business or opening a new place of business, (ii) every person
purchasing or selling tangible personal property for resale commencing business or
opening a new place of business . . . shall file with the commissioner a certificate of
registration, in a form prescribed by the commissioner, at least twenty days prior to
commencing business or opening a new place of business or such purchasing, selling
or taking of possession or payment, whichever comes first. Every person who is a
vendor solely by reason of clause (D) of subparagraph (i) of paragraph eight of
subdivision (b) of section eleven hundred one of this article shall file with the
commissioner a certificate of registration, in a form prescribed by such
commissioner, within thirty days after the day on which the cumulative total number
of occasions that such person came into the state to deliver property or services, for
the immediately preceding four quarterly periods ending on the last day of February,
May, August and November, exceeds twelve. . . .
Section 1136(a) of the Tax Law provides, in part:
(1) Every person required to register with the commissioner as provided in
section eleven hundred thirty-four whose taxable receipts, amusement charges and
rents total less than three hundred thousand dollars . . . in every quarter of the
preceding four quarters, shall only file a return quarterly with the commissioner.
(2) Every person required to register with the commissioner as provided in
section eleven hundred thirty-four whose taxable receipts, amusement charges and
rents total three hundred thousand dollars or more . . . in any quarter of the preceding
four quarters, shall, in addition to filing a quarterly return described in paragraph one
of this subdivision, and except as otherwise provided in section eleven hundred two
or eleven hundred three of this article, file either a long-form or short-form part­
quarterly return monthly with the commissioner.
(3) 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 526.7(e) of the Sales and Use Tax Regulations provides, in part:
Transfer of possession. (1) Except as otherwise provided in paragraph (3) of
this subdivision, a sale is taxable at the place where the tangible personal property

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or service is delivered, or the point at which possession is transferred by the vendor
to the purchaser or his designee.
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.
*

*

*

(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;
(ii) gross amount, to the nearest whole dollar, of sales of tangible personal
property and services, food and drink, amusement charges, and rents;

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(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.
Opinion
Petitioner asks if its client, X, who has nexus with New York for sales tax purposes, is
required to collect sales and use tax from its customer, Y, on sales of candy and cookie dough
delivered by X to Y’s customer, Z, at a location in New York State. Since X has nexus with
New York State for sales tax purposes and intends to make sales of taxable property and/or services
in New York, X is required to register as a vendor and obtain a Certificate of Authority to collect
sales tax from the Department of Taxation and Finance. See Section 1134(a)(1)(i) of the Tax Law.
Once X has obtained its validated Certificate of Authority it must file the required periodic sales and
use tax returns regardless of whether it has made any taxable sales or incurred any liability for
compensating use tax. As the holder of a valid Certificate of Authority, X is authorized to and may
commence making taxable sales of property and services in the State and may issue and accept
appropriate and properly completed sales tax exemption certificates.
Sales of cookie dough are exempt from sales and use tax pursuant to section 1115(a)(1) of
the Tax Law as sales of an exempt food item. Accordingly, X need not collect any tax on its sales
of cookie dough provided that it maintains records indicating that those sales were sales
of exempt food items. See Technical Service Bureau Memorandum, Records Required to Be Kept
by Sales Tax Vendors, July 15, 1981, TSB-M-81(9)S for additional information on record keeping
requirements.

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Receipts from X’s sales of candy are presumed to be subject to sales tax unless X receives
documentation from its customer indicating that the candy was purchased for resale or some other
exempt purpose or that the purchaser is an exempt organization under Section 1116 of the Tax Law.
See Section 1132(c) of the Tax Law. In the instant case, it is indicated that X’s customer, Y, is
purchasing the candy for resale. Under these circumstances, Y must provide X with a properly
completed Resale Certificate, Form ST-120, within ninety days of the date of sale of the candy in
order to purchase the candy without payment of tax. Technical Service Bureau Memorandum,
Nonregistered Out-of-State Purchaser’s Use of Resale Certificate Form ST-120 , June 5, 1998,
TSB-M-98(3)S provides that, if Y is a qualified out-of-state purchaser, Y need not be registered for
sales tax purposes in New York State in order to properly issue a Resale Certificate, Form ST-120
to X. That Memorandum states that a qualified purchaser is one who is not registered and is not
required to be registered as a sales tax vendor with the New York State Tax Department and is
registered with another state, the District of Columbia, a province of Canada, or other country, or
has its only location in a state, province or country that does not require registration; and it is
purchasing items for resale that will be either (1) delivered by the vendor to the purchaser’s
customer or unaffiliated fulfillment service provider located in New York State, or (2) delivered to
the purchaser in New York State, but resold from a business located outside the state.
X must maintain a method by which its sales invoices to Y can be associated with the Resale
Certificate issued to X by Y, so that X may substantiate that sales made to Y were for resale and,
therefore, are not subject to tax.
If X only makes sales for resale, and is therefore not required to collect tax, it will only be
required to file sales and use tax returns on an annual basis as set forth in Section 1136(a)(3) of the
Tax Law and Section 533.3(d) of the Sales and Use Tax Regulations.

DATED: November 6, 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.