In a multi-party drop-shipment, must a registered manufacturer collect New York sales tax when it ships goods to a New York customer at another party's direction?

Plain-English summary

Sterling Electric, Inc., a California manufacturer of electric motors that is registered to collect New York sales tax, asked about its duty in a multi-party drop-shipment. The chain: a New York customer "D" orders spare parts from out-of-state supplier "C"; "C" orders from out-of-state distributor "B"; "B" buys the parts from Sterling and instructs Sterling to ship them directly to "D" in New York. Sterling ships as directed. Must Sterling collect New York sales tax?

The Department held Sterling must collect the tax.

• The sale is taxed where the goods are delivered. Under 20 NYCRR 526.7(e), a sale is taxable at the place where the property is delivered or possession is transferred to the purchaser or its designee. Sterling delivered the parts to "D" in New York.
• Everything is presumed taxable without a certificate. Section § 1132(c) presumes all such receipts taxable until the contrary is shown, and a vendor is relieved of collecting only if it takes a resale or exemption certificate from its purchaser.
• No certificate here → collect the tax. Sterling's purchaser ("B") gave it no resale or exemption certificate. So Sterling, having made a sale of tangible personal property delivered in New York, must collect the State (Article 28) and local (Article 29) sales tax on the receipts (§§ 1105(a), 1210).

What this means for you

If you drop-ship into New York, delivery here can make you the tax collector. A vendor registered in New York that ships goods to a New York location is making a New York sale, wherever the vendor and the intermediate parties sit. The destination controls.

Get a resale certificate from your customer — that's your protection. In a drop-shipment, your customer is usually the middle party that ordered from you (here, "B"), not the end recipient. If that party is buying for resale, obtain a properly completed resale certificate; without it, § 1132(c) presumes the sale taxable and you must collect. A certificate from the wrong party, or none at all, leaves you on the hook.

Don't assume the layers upstream shift the burden. The fact that other out-of-state companies stand between you and the end customer doesn't remove your collection duty when you're the one delivering into New York without a certificate.

Common questions

Q: I'm the manufacturer at the top of the chain — why am I collecting New York tax?
A: Because you delivered the goods to a customer in New York, and delivery location controls (20 NYCRR 526.7(e)). As a New York-registered vendor making a taxable New York sale, you must collect unless you hold a certificate.

Q: How do I avoid collecting on a legitimate resale drop-shipment?
A: Take a properly completed resale or exemption certificate from your purchaser (the party that ordered from you). Under § 1132(c) that's what relieves you of the duty to collect; without it, the sale is presumed taxable.

Q: Whose certificate do I need — the end customer's or my buyer's?
A: Your buyer's — the party you sold to. In this chain that's the intermediate distributor. Sterling had no certificate from it, so Sterling had to collect the tax.

Citations and references

Statutes and regulations:

• Tax Law § 1105(a) — tax on receipts from every retail sale of tangible personal property
• Tax Law § 1132(c) — presumption of taxability; resale/exemption certificate
• Tax Law §§ 1210, Article 29 — local sales tax
• 20 NYCRR 526.7(e) — sale taxable where property is delivered / possession transferred

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a81_37s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-81(37)S
Sales Tax
October 20, 1981

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S810702A

On July 2, 1981 a Petition for Advisory Opinion was received from Sterling Electric, Inc.,
16752 Armstrong Avenue, Irvine, CA 92714.
The issue raised is whether Petitioner is obligated to collect sales tax upon delivery of
tangible personal property within New York State in the type of transaction described below.
Petitioner, a manufacturer of electric motors, is located in California and is registered to
collect sales tax in New York State.
A customer, "D", located in New York State orders spare parts from its supplier, "C",
which is located outside New York State. "C", in turn, orders the parts from its distributor, "B",
which is also located outside New York State. "B" purchases the parts from Petitioner and
instructs Petitioner to deliver the parts to "D" in New York State. Petitioner ships the parts to "D"
in New York State as instructed.
Section 1105(a) of the Tax Law imposes a tax on the following:
"The receipts from every retail sale of tangible personal property, except as
otherwise provided in this article."
The Sales and Use Tax Regulations provide, in relevant part, as follows:
"(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." 20 NYCRR 526.7(e).
Section 1132(c) of the Tax Law provides, in relevant part, that it shall be presumed that all
receipts for property . . . of any type mentioned in [section 1105(a) of the Tax Law] . . . are subject
to tax until the contrary is established . . . . Unless . . . a vendor shall have taken from the
purchaser a certificate in such form as the tax commission may prescribe . . . to the effect that the
property . . . was purchased for resale or for some use by reason of which the sale is exempt from
tax . . . [or to the effect that] the purchaser is an exempt organization . . . the sale shall be deemed
a taxable sale at retail.

JAMES H. TULLY, JR., COMMISSIONER
TP-8 (4/80)

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-81(37)S
Sales Tax
October 20, 1981

Accordingly, inasmuch as Petitioner has made a sale of tangible personal property
delivered within New York State, and inasmuch as the purchaser has not tendered to the seller a
certificate described in section 1132(c) of the Tax Law, State sales tax imposed under Article 28
of the Tax Law and local sales tax imposed under the authority of Article 29 of the Tax Law are
due on the receipts arising from the sale. Tax Law §§1105(a) and 1210.

DATED: October 5, 1981

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau