Must a national charity collect New York sales tax on mail-order sales shipped into the state, and does it need to register as exempt first?

Plain-English summary

The National Wildlife Federation, a 501(c)(3) publicly supported charity, sells a limited range of products — from wildlife stamp albums to art objects — to members and membership prospects by mail-order solicitation, shipping from a warehouse in Virginia by U.S. Mail or common carrier. It keeps no shop or store in New York (it may own property or employ people there, but not as a store and not to solicit orders). It asked whether it must collect New York sales tax on those sales.

The Department's answer had two parts.

• Exemptions exist for charities — but there's a store exception. Section 1116 exempts certain sales by organizations devoted to religious, charitable, scientific or educational purposes (§ 1116(a)(4)). However, § 1116(b)(1) makes retail sales through a shop or store operated by such an organization taxable.
• You must establish exempt status first. An organization must establish its exempt status with the Technical Services Bureau before claiming any exemption, and the burden of proof is on the organization (20 NYCRR 529.1(b); the procedure is in 529.7). The Federation had not yet applied.
• Until then, it's treated like anyone else. Until it establishes exempt status, the Federation isn't regarded as an exempt organization, cannot use the § 1116 exemption, and must be treated the same as any other taxpayer.
• Once recognized, the mail-order sales are exempt. If the Technical Services Bureau recognizes it as an exempt organization under § 1116(a)(4), it will not have to collect tax on its mail-order sales shipped by mail or common carrier from its warehouse — because those are not sales by a shop or store.

What this means for you

Charity status isn't automatic — you have to register for it in New York. Being a federal 501(c)(3) doesn't by itself give you the state sales-tax exemption. You must apply to and be recognized by the Technical Services Bureau, and until you are, New York treats you like any other seller and expects you to collect tax.

The exemption stops at a shop or store. Even a recognized charity must collect tax on retail sales made through a shop or store it runs. Mail-order sales fulfilled from a warehouse aren't shop/store sales, so — once you're recognized — they can be made without collecting tax.

Sort your sales channels. A gift shop, a booth, or a storefront is a taxable channel; catalog and mail-order fulfillment from a warehouse is not. Knowing which of your sales run through a "shop or store" tells you where you still have to collect even after you obtain exempt status.

Common questions

Q: We're a 501(c)(3) — do we automatically skip New York sales tax?
A: No. You must establish exempt-organization status with the Technical Services Bureau first. Until then you're treated like any other taxpayer and must collect tax; the burden of proving exemption is on you.

Q: Once we're recognized, are our mail-order sales into New York taxable?
A: No. Mail-order sales shipped by mail or common carrier from your warehouse aren't sales by a shop or store, so a recognized exempt organization needn't collect tax on them.

Q: What if we run an actual gift shop or store?
A: Retail sales through a shop or store you operate remain taxable under § 1116(b)(1), even after you're recognized as exempt.

Citations and references

Statutes and regulations:

• Tax Law § 1116(a)(4) — exemption for organizations devoted to religious, charitable, scientific or educational purposes
• Tax Law § 1116(b)(1) — retail sales through a shop or store operated by such an organization are taxable
• 20 NYCRR 529.1(b) — the organization bears the burden of proving entitlement to exemption
• 20 NYCRR 529.7 — the procedure for establishing exempt-organization status

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a86_11s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86(11)S
Sales Tax
April 29, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S851106B

On November 3, 1985 a Petition for Advisory Opinion was received from the National
Wildlife Federation, 1412 Sixteenth Street, N.W., Washington D.C. 20036.
The issue raised is whether Petitioner is required to collect the sales and use taxes imposed
under Articles 28 and 29 of the Tax Law on its sales mailed into New York State.
Section 1116 of the Tax Law exempts from sales tax certain sales made by or to certain
enumerated exempt organizations. Among such exempt organizations are those exclusively devoted
to religious, charitable, scientific or educational purposes as described in section 1116(a)(4) of the
Tax Law. However, section 1116(b)(1) of the Tax Law provides that retail sales of tangible personal
property by any shop or store operated by an exempt organization described in section 1116(a)(4)
are subject to sales tax.
Petitioner states that it has been determined to be exempt from Federal income taxes under
section 501(c)(3) of the Internal Revenue Code and is classified as a publicly supported charity under
sections 509(a)(1) and 170(b)(1)(A)(vi) of the Internal Revenue Code.
Among other activities, Petitioner is also engaged in the sale of a limited number of products
covering several different product lines, ranging from wildlife stamp albums to art objects. These
sales are made by means of mail order solicitations. Petitioner limits its sales to members and those
individuals it is soliciting for membership and support. These items are shipped by the U.S. Mail
or by common carriers to purchasers from Petitioner's warehouse located in the state of Virginia.
Petitioner does not maintain a shop or store in New York State. From time to time, it may
own real property in New York State. This property will be used for various purposes but will not
be maintained or operated as a shop or store. Petitioner may also employ individuals in New York
State. However, these individuals will not solicit any orders for merchandise.
The sales and use tax regulations provide that an organization must establish with the
Technical Services Bureau its exempt status before it is entitled to any exemptions. The burden of
proving that an organization is entitled to exemption rests with the organization. (20 NYCRR
529.1(b)) Regulation section 529.7 sets forth the procedure for establishing exempt organization
status.
Petitioner claims that it is entitled to exemption from sales and use tax under section
1116(a)(4) of the Tax Law. However, Petitioner has not yet applied for exempt status as required
under regulation section 529.7.

RODERICK G. W. CHU, COMMISSIONER
GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (3/83)

-2­
TSB-A-86(11)S
Sales Tax
April 29, 1986

Until Petitioner establishes its exempt status with the Technical Services Bureau, Petitioner
will not be regarded as an Exempt Organization and therefore, cannot avail itself of the exemption
from collecting tax as provided by section 1116 of the Tax Law and in addition, must be considered
the same as any other taxpayer.
However, if Petitioner is recognized by the Technical Services Bureau as an exempt
organization under section 1116(a)(4), it will not be required to collect tax on its sales of tangible
personal property when such sales are made by means of mail order solicitations and the items sold
are shipped by U.S. Mail or common carriers to the purchasers from Petitioner's warehouse since
such sales are not sales by a shop or store.

DATED: March 26, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.