Does an out-of-state online retailer become a New York sales-tax vendor just by storing inventory at, and buying fulfillment services from, an unaffiliated fulfillment company in New York?

Plain-English summary

An online retailer of consumer and household products — organized in Texas, headquartered in Colorado — used to ship every order itself from Colorado. It then hired a national order-fulfillment company ("Company X"). Company X stores the retailer's inventory in fulfillment centers around the country (including New York), and picks, packs, and ships orders to the retailer's customers using unrelated common carriers. Company X also accepts orders, answers customer inquiries, and handles billing and collection, keeping a fee and remitting the balance. The retailer's only connection to New York is having inventory sitting in Company X's New York warehouses, and the two companies are not affiliated. The retailer asked: does this make me a New York vendor that has to collect sales tax? The Department said no — with an important caveat about Company X.

New York's sales tax is collected by "persons required to collect tax," chiefly vendors and marketplace providers. But Tax Law § 1101(b)(8)(v) contains a fulfillment-services safe harbor: a person who isn't otherwise a vendor doesn't become one merely by (a) purchasing fulfillment services performed in New York by an unaffiliated person, or (b) owning inventory located on that unaffiliated fulfillment provider's premises. "Fulfillment service" (§ 1101(b)(18)) covers exactly what Company X does — accepting orders, responding to customer inquiries, billing/collection, and shipping orders from the seller's inventory. Because Company X's New York activities were limited to those fulfillment functions and the two firms are unaffiliated, the retailer's inventory storage and purchase of those services do not make it a New York vendor.

The caveat: the safe harbor protects the retailer, not necessarily the fulfillment company. Since June 1, 2019, a marketplace provider must register and collect New York sales tax on the sales it facilitates if it has physical presence and its facilitated sales of TPP delivered into New York exceeded $500,000 and more than 100 transactions in the prior four sales-tax quarters. Company X provides an internet platform on which the retailer's products are sold and collects the customer receipts — so if it crosses those thresholds, Company X must collect tax on all those sales (including the retailer's), regardless of the fulfillment-services safe harbor. So the tax may still get collected — just by the marketplace provider, not the retailer.

What this means for you

Out-of-state sellers using 3PLs / FBA-style fulfillment

Storing inventory in a New York warehouse run by an unaffiliated third-party logistics (3PL) or fulfillment provider, and buying their fulfillment services, does not by itself make you a New York vendor (Tax Law § 1101(b)(8)(v)). This is a real safe harbor — having goods in a New York fulfillment center isn't automatically nexus. Two conditions matter: the provider must be unaffiliated with you, and its New York activities for you must stay within the statutory fulfillment-service functions.

Don't over-rely on it — check the rest of your footprint

The safe harbor only addresses inventory storage + fulfillment services. If you have other New York contacts (employees, offices, a separate physical presence, or you meet the economic-nexus thresholds for remote sellers), you can still be a vendor on other grounds. The opinion assumed the retailer "does not otherwise qualify as a vendor."

Marketplace sellers: tax may be collected by the platform

If your fulfillment/sales partner is a marketplace provider that facilitates your sales and collects customer payments, it may be the one required to register and collect New York tax on your sales (once it crosses $500,000 and 100 transactions). Coordinate so tax isn't double-collected or missed, and understand that marketplace-facilitated sales are generally collected by the provider.

Accountants and tax professionals

This applies the § 1101(b)(8)(v) fulfillment safe harbor and the § 1101(b)(18) fulfillment-service definition, then layers the § 1101(e)(1) marketplace-provider rules and the $500,000/100-transaction threshold (TSB-M-19(2.1)S). The affiliation question (§ 1101(b)(8)(v)(B)) is pivotal — an affiliated fulfillment arrangement would not get the safe harbor.

Common questions

Q: Does storing inventory in a New York fulfillment center make me a New York sales-tax vendor?
A: Not by itself, if the fulfillment provider is unaffiliated and its New York activities for you are limited to fulfillment services. That's the safe harbor in Tax Law § 1101(b)(8)(v).

Q: What counts as a "fulfillment service"?
A: Accepting orders; responding to customer correspondence/inquiries; billing and collection; and shipping orders from the seller's inventory (Tax Law § 1101(b)(18)).

Q: So no one collects tax on these sales?
A: Possibly tax is still collected — by the fulfillment company if it's a marketplace provider that crosses the $500,000 / 100-transaction thresholds. The safe harbor protects the retailer's vendor status, not the platform's.

Q: What if the fulfillment company is affiliated with me?
A: Then the safe harbor doesn't apply (§ 1101(b)(8)(v)(B)), and the inventory/activities could create vendor status. The opinion relied on the parties being unaffiliated.

Q: Can I rely on this opinion?
A: No. An Advisory Opinion binds the Department only as to the petitioner and the facts presented. It illustrates the Department's reasoning but cannot be relied on by another taxpayer.

Citations and references

Statutes and regulations:
- Tax Law § 1101(b)(8)(v) (fulfillment-services safe harbor — buying fulfillment services from / storing inventory at an unaffiliated provider doesn't create vendor status)
- Tax Law § 1101(b)(18) (definition of fulfillment service)
- Tax Law § 1101(e)(1) (definition of marketplace provider)
- Tax Law § 1101(b)(8) (vendor / persons required to collect tax)

Department guidance referenced: TSB-M-19(2.1)S (marketplace-provider registration and the $500,000 / 100-transaction thresholds, effective June 1, 2019).

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao.htm
• Opinion: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales/24-45s.htm
• Printer-friendly PDF: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a24-45s.pdf

Original ruling text

TSB-A-24(45)S
Sales Tax
October 10, 2024

The Department of Taxation and Finance received a Petition for Advisory Opinion [ REDACTED ] (“Petitioner”). Petitioner, which sells tangible personal property to purchasers in New York, asks whether its purchase of certain order fulfillment services in New York and its storage of inventory on the premises of the person providing those services cause it to qualify as a vendor and thus require it to collect sales and use tax. We conclude that, if Petitioner does not otherwise qualify as a vendor, neither its purchase of the services at issue, nor its storage of inventory on the premises of the person providing those services, cause it to qualify as a vendor and thus be under a duty to collect sales and use tax.

Facts

Petitioner is an online retailer of consumer and household products that is organized under the laws of Texas and headquartered in Colorado. When Petitioner began operations, it handled all sales order fulfillment from its headquarters in Colorado. Recently, it hired a national provider of order fulfillment services, Company X. Through its fulfillment platform, Company X stores Petitioner's inventory in select fulfillment centers throughout the United States and draws on this inventory to fulfill sales orders on behalf of Petitioner. Company X handles billing and collection for these sales as well, retaining a fee for its services and returning the balance to Petitioner.

Petitioner's only presence in New York is the storage of inventory at Company X’s warehouses. Through Company X’s order fulfillment service, Petitioner stores inventory in New York at Company X’s fulfillment centers. Company X is responsible for picking the purchased items from Petitioner’s inventory, packaging them, and shipping the items to Petitioner’s customers. Company X hires common carriers, who are unrelated to it or Petitioner, to perform the shipping. In addition, Company X's order fulfillment service includes the following services: (i) accepting purchase orders electronically or by mail, telephone, fax or internet; (ii) responding to consumer correspondence and inquiries electronically or by mail, telephone, fax or internet; and (iii) billing and collection activities. Petitioner stipulates that Company X and Petitioner are not “affiliated persons” within the meaning of that term in Tax Law § 1101(b)(8)(v)(B). Company X provides each of these services for Petitioner in New York and provides no other services for Petitioner in New York. Petitioner has no other presence or activity in New York.

Analysis

The Tax Law imposes tax on the retail sale or use of tangible personal property and certain enumerated services. See Tax Law § 1105(a), (b), and (c). The sales tax is a tax on the purchaser, to be collected by “persons required to collect tax,” which include vendors and marketplace providers. Tax Law §§ 1101(b)(8), 1101(e)(1), 1132(a)(1). Tax Law § 1101(b)(8)(v) excludes from the definition of a vendor a person who is not otherwise a vendor “who purchases fulfillment services carried on in New York by a person other than an affiliated person” or who “owns tangible personal property located on the premises of an unaffiliated person performing fulfillment services for such person.” Tax Law § 1101(b)(18) defines “fulfillment service” to include the following activities “performed by an entity on its premises on behalf of a purchaser”:

(i) the acceptance of orders electronically or by mail, telephone, telefax or internet;

(ii) responses to consumer correspondence and inquiries electronically or by mail, telephone, telefax or internet;

(iii) billing and collection activities; or 

(iv) the shipment of orders from an inventory of products offered for sale by the purchaser.

According to Petitioner, Company X’s activities on behalf of Petitioner in New York are limited to the above activities. Thus, Company X is performing fulfillment services on behalf of Petitioner. Because Company X stipulates that it is an unaffiliated person with regard to Petitioner, Petitioner’s purchase of fulfillment services from Company X and its storage of inventory on Company X’s property in New York do not make Petitioner a vendor for sales tax purposes. See Tax Law § 1101(b)(8)(v).

However, effective June 1, 2019, a marketplace provider is required to register for sales tax purposes and collect sales tax for all sales of tangible personal property it facilitates if it has a physical presence in New York State if its gross receipts from sales it made or facilitated of tangible personal property delivered in New York exceeds $500,000 and it made or facilitated more than 100 such transactions. A sale is facilitated by a marketplace provider when it provides the forum in which, or by means of which, a sale takes place or an offer of sale is accepted, including an internet web site, catalog, shop, store, booth or similar forum; and it collects the receipts paid by a customer to a marketplace seller for a sale of tangible personal property, or contracts with a third party to collect the receipts for sales of such property. See Tax Law § 1101(e)(1).

Here, Company X provides an internet platform on which sales of Petitioner’s tangible personal property are made, and it collects the receipt from such sales from customers. Company X will be considered a marketplace provider and will be required to register and collect sales tax if the total gross receipts from all the sales of tangible personal property in New York that it made or facilitated in the preceding 4 sales tax quarters exceeded $500,000 and it made or facilitated more than 100 such sales. See TSB-M-19(2.1)S. If Company X qualifies as a marketplace provider, it must collect sales tax on all sales of tangible personal property to New York customers that it makes or facilitates, including sales of Petitioner’s products, regardless of whether the services provided to Petitioner are limited to fulfillment services as defined in Tax Law § 1101(b)(18).

DATED: October 10, 2024

MARY ELLEN LADOUCEUR
Principal Attorney

Note: 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.