My client manufactures displays in New York and sells FOB origin, with the customer's own common carrier picking them up at our dock -- do we still owe New York sales tax based on where the carrier ultimately delivers them, even though title passed at our loading dock?

Plain-English summary

Crowe Chizek & Company LLC's client ("Company") manufactures custom displays at its New York business location and is registered for New York sales tax. When an order is complete, Company notifies the customer, and the customer arranges its own common carrier to pick the display up at Company's New York dock and deliver it wherever the customer wants. If the shipment is destroyed in transit, Company bears no loss. Company's bill of sale is FOB origin, with the sales agreement specifying that title passes when the customer's representative picks the item up at Company's dock — though as a courtesy, Company prepares bills of lading and other shipping documentation showing the destination.

Crowe Chizek asked whether Company owes New York sales tax on these sales, given that title formally passes at Company's own New York dock.

The Department held that the FOB-origin/title-transfer contract language doesn't control — New York sales tax is a "destination tax," meaning the point of delivery to the purchaser (or the purchaser's designee) controls both whether tax applies and at what rate, regardless of where title formally passes. The regulations draw a sharp line based on who physically has possession and where:

• If Company delivered the goods itself (its own trucks, or a carrier Company hired) directly out of state, that's a nontaxable out-of-state sale.
• If Company delivered directly to a customer who immediately removes the goods from New York, or hands them to a foreign freight forwarder for export, courts have held that's actually an in-state, taxable sale — the customer's own subsequent export doesn't retroactively make the original transfer out-of-state.
• If Company delivers to the customer's own truck, or the customer's private/contract carrier, in New York, that's also an in-state transfer.
• But — and this is the key rule here — when the vendor hands the goods over to a common carrier, the sales tax is based on wherever that common carrier ultimately delivers the goods, even if the customer hired and paid the common carrier directly. Regardless of the contract's shipping terms (FOB origin, FAS, or anything else), delivery by a common carrier is legally treated as delivery by the seller, for sales tax purposes. This rule traces back to a 1996 opinion (Norman Levy Associates) and a 1982 Department memorandum on automotive fuel sales.

Applying that rule, Company must collect New York sales tax at the combined state-and-local rate in effect wherever the common carrier actually delivers the display — if that's an out-of-state address, no New York tax applies; if it's a New York address, New York tax applies at that local rate. The one caveat: Company must keep proper delivery records (customer invoices showing the delivery location, plus copies of the carrier's bills of lading) to substantiate that a given sale was delivered out of state and therefore isn't taxed.

What this means for you

Manufacturers and wholesalers selling FOB origin with customer-arranged shipping

Don't assume that FOB-origin contract language, or title passing at your own dock, determines your sales tax obligation. If a common carrier is doing the delivering — even one hired and paid entirely by your customer — New York taxes the sale based on where that carrier actually delivers the goods, not where title passed. Keep bills of lading and delivery-location records for every shipment to substantiate out-of-state, non-taxable deliveries.

Businesses shipping to customers who pick up with their own trucks vs. common carriers

The rule is different depending on who's transporting: delivery to the customer's own vehicle or private/contract carrier in New York is an in-state taxable transfer regardless of destination, but delivery to a common carrier is taxed based on the carrier's ultimate delivery point. Know which category your shipping method falls into.

Accountants and tax professionals

This opinion is a useful compilation of the "common carrier delivery is delivery by the seller" line of authority (Norman Levy Associates and its predecessors) — cite it whenever a client's FOB-origin shipping terms create confusion about whether New York or a destination state's tax applies.

Common questions

Q: If my sales contract says FOB origin and title passes at my dock, does that mean I don't owe New York tax on out-of-state deliveries?
A: Not by itself. If a common carrier is doing the actual delivery, New York taxes the sale based on where the carrier delivers the goods, not where title passed under your contract terms.

Q: Does it matter that my customer hired and paid the common carrier, not me?
A: No. Delivery by a common carrier is treated as delivery by the seller for sales tax purposes, regardless of who hired or paid the carrier.

Q: What records do I need to keep to support not charging New York tax on an out-of-state delivery?
A: Customer invoices showing the delivery location and copies of the common carrier's bills of lading, referenced to the specific sales transaction.

Q: Does this ruling apply to my shipping arrangement?
A: Not automatically. This is an Advisory Opinion binding only on the petitioner and only as to the facts it described. The specific method of delivery (common carrier vs. customer's own vehicle vs. freight forwarder) changes the analysis, and your facts may differ.

Citations and references

Statutes and regulations:

• Tax Law §1213 (deliveries outside the jurisdiction where sale is made)
• Sales and Use Tax Regulations §525.2(a)(3) (destination tax)
• Sales and Use Tax Regulations §526.7(e)(2) (out-of-state delivery not taxable)
• Sales and Use Tax Regulations §533.2 (records substantiating points of delivery)

Cases and prior opinions referenced:

• Matter of David Hazan, Inc., DTA Nos. 80024, 80025, affd 152 A.D.2d 765, affd 75 N.Y.2d 989
• Matter of Jacques Francais Rare Violin, Inc., TSB-H-85(6)S
• Matter of Maximilian Fur Co., Inc., DTA No. 801479
• Matter of Queens Discount Appliances, Inc., DTA No. 807403
• F & M Schaefer Brewing Co. v. Gerosa, 4 N.Y.2d 423
• Matter of Savemart, Inc. v. State Tax Commission, 105 A.D.2d 1001
• James Waite / Michael Waite, Officers of Harrison Radio Corp, DTA Nos. 806363, 806419
• Norman Levy Associates, Inc., TSB-A-96(23)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2008.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a08_53s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Taxpayer Guidance Division

TSB-A-08(53)S
Sales Tax
December 15, 2008

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S080118A

On January 18, 2008, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Crowe Chizek & Company LLC, 9910 Dupont Circle Drive East, Suite
230, Fort Wayne, Indiana 46845. Petitioner, Crowe Chizek & Company LLC, provided
additional information pertaining to the Petition on May 16, 2008.
The issue raised by Petitioner is whether its client’s sales of displays are subject to sales
tax at its place of business when picked up by a common carrier hired by the client’s customer.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner's client (hereinafter “Company”), has a business location in New York and is
presently registered for sales tax purposes in New York.
Company manufactures displays. Company accepts, in New York, customer orders to
produce displays. Once the display is completed, Company notifies the customer that its order is
ready. Customers arrange for a common carrier to pick up their display from Company in
New York State. Company delivers the display to the common carrier for delivery by the carrier
to the customer. The common carriers hired and paid by the customer then deliver the property
in accordance with the customer’s direction. Should an order be destroyed in transit, the
Company bears no loss.
Company’s bill of sale provides for shipping terms FOB origin and the sales agreement
specifies that title passes at the point that the customer’s representative picks up the item at
Company’s dock. Company, as a courtesy to its customer, does prepare bills of lading and other
like documentation that indicates the destination to which the products are shipped via the
customer’s designated common carrier.
Applicable law and regulations
Section 1213 of the Tax Law provides, in part:
Deliveries outside the jurisdiction where sale is made. Where a sale of tangible
personal property or services . . . is made in any city, county or school district, but the
property sold . . . is or will be delivered to the purchaser elsewhere, such sale shall not be
subject to tax by such city, county or school district. However, if delivery occurs or will
occur in a city, county or school district imposing a tax on the sale or use of such
property . . . the vendor shall be required to collect from the purchaser, as provided in

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section twelve hundred fifty-four, the aggregate sales or compensating use taxes imposed
by the city, if any, county and school district in which delivery occurs or will occur, for
distribution by the commissioner to such taxing jurisdiction or jurisdictions. For the
purposes of this section delivery shall be deemed to include transfer of possession to the
purchaser and the receiving of the property . . . by the purchaser.
Section 525.2(a)(3) of the Sales and Use Tax Regulations provides:
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.
Section 526.7(e)(2) of the Sales and Use Tax Regulations provides, in part:
(2) Except as otherwise provided in paragraph (3) of this subdivision, 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.
Section 533.2 of the Sales and Use Tax Regulations provides, in part:
Records to be kept. (a) General. (1) For the proper administration of the sales and
use tax law and to prevent evasion of the sales tax, it is statutorily presumed that all
receipts from sales and purchases of property or services of any type mentioned in
subdivisions (a) through (d) of section 1105 of the Tax Law, all rents for occupancy of
the type mentioned in subdivision (e) of such section, and all amusement charges of any
type mentioned in subdivision (f) of such section are subject to the tax until the contrary
is established. The burden of proving that any receipt, amusement charge or rent is not
taxable is on the vendor or the customer. To satisfy his burden of proof, a vendor must
maintain records sufficient to verify all transactions.
*

*

*

(b) Sales records. (1) Every person required to collect tax, including every person
purchasing or selling tangible personal property for resale must keep records of every
sale . . . and all amounts paid, charged or due thereon, and of the tax payable thereon.
The records must contain a true copy of each:
(i) sales slip, invoice, receipt, contract, statement or other memorandum of
sale;
*

*

*

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(iii)cash register tape and any other original sales document.
Where no written document is given to the customer, the seller shall keep a daily
record of all cash and credit sales in a day book or similar book.
(2) The sales record either must provide sufficient detail to independently
determine the taxable status of each sale and the amount of tax due and collected thereon
or may be substantiated by analysis of supporting records.
*

*

*

(3) The seller must maintain records which substantiate points of delivery if
delivery was made at a place other than his place of business. Such documents should
include receipts from parcel delivery services, common carriers, unregulated truckers, the
United States Postal Service, foreign freight forwarders, and logs from company vehicles.
Such documents must be referenced to specific sales transactions.
Opinion
Company manufactures displays. When the display is complete, Company notifies the
customer. Customers arrange for shipping of displays from Company’s location in New York to
the customer’s location of choice. The shipping is performed by common carriers. Company
prepares bills of lading and other documentation that indicate the destination to which the
products are shipped by the common carrier. Company’s bill of sale provides for shipping terms
FOB origin. The sales agreement specifies that title passes at the point that the customer’s
representative picks up the item at Company’s dock.
It should be noted that the expense of delivering manufactured goods from a
manufacturer to its customer is always borne by the customer. Whether the delivery cost is
included in the purchase price or separately indicated in the contract of sale and included on the
invoice as a separate distinct charge, the expense of the delivery of the goods to the purchaser is
either directly imposed upon or indirectly passed through to the purchaser. For other than “over
the counter” purchases at a “bricks and mortar” store, in most remote sales transactions (e.g.,
mail order, telephone, Internet, etc.), the customer is commonly provided the option of
determining the method (e.g., air, ground, etc.) and urgency (e.g., overnight, weekends, regular,
etc.) of delivery with appropriate differential costs imposed depending on the options chosen by
the customer. As discussed below, the details respecting delivery to the customer may affect the
incidence of the sales tax.
Section 525.2(a)(3) of the Sales and Use Tax Regulations provides that the sales tax is a
"destination tax." The point of delivery to the purchaser, or the purchaser's designee, controls
both the tax incidence and the tax rate. Section 526.7(e)(2) of the Sales and Use Tax Regulations

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provides that a sale of tangible personal property, where title to the property passes in New York
State, but delivery occurs outside of New York State, is not subject to tax. Thus, out-of-state
delivery by the vendor to the customer; whether by the vendor’s own vehicles, private and
contract carriers hired by the vendor, or common carrier, is considered to be a nontaxable out-of­
state sale.
However, if the property is delivered by the vendor directly to a customer who either
immediately removes the property from the state (Matter of David Hazan, Inc., Det Tx App
Trib, April 21, 1988, DTA Nos. 80024, 80025, affd 152 AD2d 765, affd 75 NY2d 989; Matter
of Jacques Francais Rare Violin, Inc, Det St Tx Comm, October 5, 1984, TSB-H-85(6)S;
Matter of Maximilian Fur Co., Inc, Det Tx App Trib, August 9, 1990, DTA No. 801479,) or
gives the goods to a foreign freight forwarder for export from New York, the sale is considered
to be an in-state sale subject to the applicable sales and use tax (Matter of Queens Discount
Appliances, Inc., Det Tx App Trib, December 30,1993, DTA No. 807403).
Likewise, when vendors deliver property to a customer’s own truck in New York ( F &
M Schaefer Brewing Co. v Gerosa, 4 NY 2d 423, 427; affd 3 AD2d 898; appeal dismissed, 358
U.S. 282) or to the customer’s private or contract carrier (Matter of Savemart, Inc. v State Tax
Commission, 105 AD2d 1001, appeal dismissed 64 NY2d 1039, lv denied 65 NY2d 604,) an in­
state transfer of possession of purchased goods is considered to have occurred. Where the
customer itself was a common carrier, in-state delivery to the customer for purposes of the
customer providing its own transportation and delivery to an out-of-state location was also
considered a transfer of possession within New York (James Waite, Officer of Harrison Radio
Corp; Michael Waite, Officer of Harrison Radio Corp, Det Tx App Trib, January 12, 1995, DTA
Nos. 806363, 806419).
However, in-state deliveries by vendors to a customer’s foreign freight forwarder for
delivery by the freight forwarder to the customer outside the country are considered to be out-of
–state sales. Moreover, when the vendor relinquishes possession of the property directly to a
common carrier, the sales tax is to be collected at the combined State and local rate in effect
where the common carrier delivers the property. This is so even if the common carrier is directly
contracted and paid by the purchaser (Norman Levy Associates, Inc. Adv Op Comm T&F, April
22,1996, TSB-A-96(23)S). Thus, regardless of the contract terms of sale (e.g., FOB, FAS., etc.),
for purposes of the incidence of the sales tax, delivery by common carrier is deemed to be
delivery by the seller. See also Technical Services Bureau Memorandum entitled 1982
Legislation Information For Sellers and Purchasers of Automotive Fuel, October 26, 1982,
TSB-M-82(28)S.
Accordingly, where Company has relinquished possession of the displays directly to the
custody of a common carrier, Company is required to collect the appropriate sales tax in effect at
the point where the common carrier delivers the displays to the customer. See section 1213 of
the Tax Law. Provided that Company maintains records indicating points of delivery, Company

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is only liable to collect sales tax on deliveries made to locations in New York State. Such
records should include the customer invoice showing the location of the delivery and copies of
bills of lading from the common carrier. See section 533.2 of the Sales and Use Tax
Regulations. Company is not required to collect New York State and local sales tax
where the records indicate that Company has released the display directly to a common carrier
for delivery by that common carrier to an out-of-state destination.

DATED: December 15, 2008

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Taxpayer Guidance Division

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the
person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.