Must an out-of-state internet wine retailer with a NY direct shipper's license collect NY sales tax despite having no physical presence here?

Plain-English summary

The petitioner is a California internet wine retailer that sells bottled wine through its website/online catalogs and holds a New York out-of-state direct shipper's license (ABC Law 79-c) letting it ship directly to New York residents 21+. It ships only by common carrier and has no employees, agents, property, or place of business in New York. It asked whether it must collect New York sales tax.

The Office of Counsel concluded yes:

• The tax must be collected. Sales tax is imposed on the buyer but collected by a person required to collect it (Tax Law 1132(a)(1)).
• The Twenty-first Amendment gives states broad control over liquor. Section 2 lets states control importation/sale of intoxicating liquor; states have "virtually complete control" over the liquor distribution system (Midcal). New York conditions the direct shipper's license on the seller agreeing to collect sales tax and comply with vendor duties, and to consent to New York jurisdiction (ABC Law 79-c(3)(f), (i)).
• Physical presence isn't a bar. In Granholm v. Heald, the Supreme Court said New York could protect its tax revenue by requiring a permit as a condition of direct shipping and requiring licensees to file sales reports and remit tax. As commentators note, the Quill physical-presence nexus rule does not bar New York from imposing a nondiscriminatory registration and tax-collection requirement on an out-of-state winery.
• Result: the petitioner must collect New York sales tax on its New York wine sales, regardless of its lack of physical presence.

(Note: this 2013 opinion predates the 2018 Wayfair decision, which ended the physical-presence requirement for sales-tax nexus generally; the result here rests on the liquor-licensing condition.)

What this means for you

Out-of-state wineries and wine retailers shipping to New York

Holding a New York direct shipper's license comes with tax-collection duties. Accepting the license means accepting the obligation to register, collect New York sales tax, file reports, and remit -- even if you never set foot in the state.

A liquor-specific path to collection duty

This conclusion rests on the Twenty-first Amendment and the licensing bargain, not just general nexus rules. The privilege of direct shipping is conditioned on collecting the tax.

Common questions

Q: I have no presence in New York -- why must I collect its sales tax on wine?
A: Because you hold a New York direct shipper's license, and New York may condition that privilege on your agreeing to collect its tax. The Twenty-first Amendment supports that condition.

Q: Doesn't the physical-presence rule protect me?
A: No. The Supreme Court (Granholm) and commentators make clear physical presence doesn't bar a nondiscriminatory tax-collection condition on direct wine shipping.

Q: What duties come with the license?
A: Register, collect New York sales tax, file regular sales reports, remit the tax, and consent to New York jurisdiction.

Citations and references

• Tax Law section 1132(a)(1) (collection of sales tax by persons required to collect)
• Alcoholic Beverage Control Law section 79-c(3) (out-of-state direct shipper's license conditions)
• U.S. Constitution, Twenty-first Amendment, Section 2

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2013.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a13_35s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-13(35)S
Sales Tax
October 16, 2013

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S130415A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
Petitioner name redacted. Petitioner asks whether it must collect sales tax on its sales of bottled
wine in the State. We conclude that Petitioner must collect sales tax on its New York sales.
Facts
Petitioner is incorporated under the laws of California. It is a retailer of bottled wine,
which it sells through its website and on-line catalogs. Petitioner possesses an out-of-state direct
shipper’s license, pursuant to § 79-c of the Alcoholic Beverage Control Law, which authorizes it
to sell bottled wine directly to New York State residents who are 21 years of age or older for
their personal use if certain conditions are met. It transports its goods to New York exclusively
through common carriers. Petitioner has no employees or agents of any kind in the State and it
has no place of business or property in the State.
Analysis
The Tax Law imposes sales tax on retail sales of tangible personal property. The sales
tax is imposed on the customer but is to be collected by a seller who is a person required to
collect sales tax (Tax Law § 1132[a][1]).
Section 2 of the Twenty-first Amendment to the U.S. Constitution provides that “[t]he
transportation or importation into any State . . . for delivery or use therein of intoxicating liquors,
in violation of the laws thereof, is hereby prohibited.” Using the authority conferred by the
Twenty-First Amendment, the State has conditioned permission to sell wine produced outside
the State that is shipped directly to a resident in the State on, among other requirements, the
seller collecting sales tax and otherwise complying with the duties of a vendor under the Tax
Law (Alcoholic Beverage Control Law § 79-c[3][f]). Furthermore, paragraph (i) of subdivision
(3) of § 79-c requires licensees to “execute a written consent to the jurisdiction of this state, its
agencies and instrumentalities and the courts of this state concerning enforcement of this section
and any related laws, rules, or regulations, including tax laws, rules or regulations.”
Conditioning the right of an out-of-state wine seller to directly ship wine to New York
residents on the seller accepting the duty to collect the State’s sales and use tax is constitutional,
regardless of whether the seller has a physical presence in the State. According to the Supreme
Court, “[t]he Twenty-first Amendment grants the States virtually complete control over whether
to permit importation or sale of liquor and how to structure the liquor distribution system”

-2-

TSB-A-13(35)S
Sales Tax
October 16, 2013

(California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U.S. 97, 110 [1980]). In
Granholm v. Heald (544 U.S. 460, 462 [2005]), the Supreme Court rejected New York’s
argument that the need to protect sales tax revenues justified the State’s former prohibition
against direct sales of wine to residents by out-of-state distributors. The majority was careful to
note that its decision did not deprive the State of authority to regulate the importation of wine for
sale, in part to ensure the proper collection of the State’s taxes:
New York and its supporting parties also advance a tax-collection justification for the
State's direct-shipment laws. While their concerns are not wholly illusory, their
regulatory objectives can be achieved without discriminating against interstate
commerce. In particular, New York could protect itself against lost tax revenue by
requiring a permit as a condition of direct shipping. This is the approach taken by
New York for in-state wineries. The State offers no reason to believe the system would
prove ineffective for out-of-state wineries. Licensees could be required to submit regular
sales reports and to remit taxes.
(Id. at 491). As Professor Hellerstein has commented, the idea that the physical presence nexus
requirement of Quill v. North Dakota (504 U.S. 298 [1992]) “would independently bar New
York from imposing a nondiscriminatory registration and tax collection requirement on the outof-state winery is flatly inconsistent with the way the [Granholm] Court (not to mention the
dissenters) read the Twenty-First Amendment” (Hellerstein, State Taxation ¶ 19.02[4] [3d ed.]).
Accordingly, Petitioner must collect sales tax on its sales of bottled wine in the State.

DATED: October 16, 2013

NOTE:

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

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. The information provided in this
document does not cover every situation and is not intended to replace the law or
change its meaning.