Does a vendor owe New York sales tax when an out-of-state buyer has the goods shipped to a New York address?

Plain-English summary

C.R. Daniels, Inc. is a Maryland company registered as a New York sales tax vendor. It sells goods to a buyer in Pennsylvania, who asks Daniels to ship them straight to the buyer's own customer (its "designee") in Rochester, New York. Daniels asked its Pennsylvania buyer for a New York exemption document but didn't get one — and asked whether it owes New York tax on the sale.

The Department said yes — Daniels must collect New York tax.

• New York is a "destination tax" state. Under 20 NYCRR § 525.2(a)(3), the point of delivery — where possession passes to the purchaser or its designee — controls both whether tax applies and the rate. Delivery to a New York address is a New York sale, no matter where the buyer lives.
• Taxability is presumed unless a certificate is taken. Under Tax Law § 1132(c), receipts are presumed taxable unless the vendor takes a proper resale or exemption certificate from the purchaser within 90 days of delivery.
• Here, tax is due. Because Daniels ships to a New York address and got no exemption document, it must collect New York State and local tax at the delivery-locality rate.
• f.o.b. doesn't change it. Even if the sale is f.o.b. Maryland, delivery still takes place in New York, so New York tax still applies.

What this means for you

Ship-to, not bill-to, drives New York sales tax. As a destination-tax state, New York looks at where the goods are delivered. If they land at a New York address, it's a New York taxable sale — even when your customer is out of state and even when the customer resells to someone else.

Get the certificate, or charge the tax. The way to not collect tax on a resale or otherwise exempt drop-shipment is to take a properly completed New York resale/exemption certificate within 90 days. No certificate means the § 1132(c) presumption stands and you must collect. If your out-of-state customer won't give you one, charge the tax.

Shipping terms won't save you. f.o.b. origin doesn't move the taxable event out of New York if the goods are delivered in New York. Don't rely on f.o.b. language to avoid collection.

Common questions

Q: My buyer is out of state — why do I owe New York tax?
A: Because New York taxes by destination. The goods were delivered to a New York address, so it's a New York sale regardless of the buyer's location.

Q: How do I avoid collecting tax on a drop-shipment for resale?
A: Take a properly completed New York resale/exemption certificate from your purchaser within 90 days of delivery (Tax Law § 1132(c)). Without it, the sale is presumed taxable and you must collect.

Q: We shipped f.o.b. our out-of-state warehouse — doesn't that make it an out-of-state sale?
A: No. If delivery still occurs at a New York address, f.o.b. origin doesn't change the result; New York tax applies.

Citations and references

Statute and regulation:

• Tax Law § 1105(a) — imposes tax on receipts from every retail sale of tangible personal property
• 20 NYCRR § 525.2(a)(3) — the sales tax is a "destination tax": the point of delivery, or the point at which the vendor transfers possession to the purchaser or its designee, controls both the tax incidence and the rate
• Tax Law § 1132(c) — receipts are presumed taxable, with the burden on the vendor or customer to prove otherwise; unless the vendor takes a resale/exemption certificate within 90 days of delivery, the sale is deemed a taxable retail sale

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1988.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a88_38s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-88(38)S
Sales Tax
July 20, 1988

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S880225A

On February 25, 1988, a Petition for Advisory Opinion was received from C.R. Daniels, Inc.,
3451 Ellicott Center Drive, Ellicott City, MD 21043.
The issue raised is whether Petitioner is subject to sales tax when selling to a purchaser
outside of New York State, yet shipping the goods directly to the designee of the purchaser within
New York State.
Petitioner is a Maryland corporation registered as a sales tax vendor in New York who sells
to a purchaser located in Pennsylvania. Petitioner's Pennsylvania purchaser has a customer in
Rochester, New York. The Pennsylvania purchaser requests that Petitioner ship the goods purchased
by the Pennsylvania purchaser directly to the Pennsylvania purchaser's designee in Rochester, New
York. Petitioner has requested a New York State exemption document from the Pennsylvania
purchaser, yet did not receive one.
Section 1105(a) of the Tax Law imposes a tax on "[t]he receipts from every retail sale of
tangible personal property, except as otherwise provided in this article".
Section 525.2(a)(3) of the sales tax regulation states:
The sales tax is a 'destination tax,' that is, the point of delivery or the point at which
possession is transferred by the vendor to the purchaser or designee controls both the
tax incident and the tax rate. 20 NYCRR 525.2(a)(3).
Additionally, section 1132(c) of the Tax Law provides, in part:
(c) For the purpose of the proper administration of this article and to prevent
evasion of the tax hereby imposed, it shall be presumed that all receipts for property
or services of a type mentioned in subdivisions (a), (b), (c) and (d) of section eleven
hundred five. . . are subject to tax until the contrary is established, and the burden of
proving that any receipt . . . is not taxable hereunder shall be upon the person
required to collect tax or the customer . . . . unless a vendor, not later than ninety days
after delivery of the property. . . 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 other use by reason of which the sale is
exempt from tax, the sale shall be deemed a taxable sale at retail.

RODERICK G. W. CHU, COMMISSIONER
TP-8 (9/88)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-88(38)S
Sales Tax
July 20, 1988

A taxable sale occurs when delivery is made to an address within New York State regardless
of the state of residence of the purchaser. Conversely, when delivery is made to an address outside
of New York State, the sale is deemed to take place at such point of delivery and no New York sales
tax would be imposed regardless of the state of residence of the purchaser.
Accordingly, when Petitioner ships to a New York address, it is required to collect both the
New York State sales tax and any local sales tax that may be in effect in the locality to which it
delivers unless Petitioner obtains from its purchaser a properly completed exemption document as
described in section 1132(c) of the Tax Law.
Moreover, the result would be the same if the transfer is f.o.b. Maryland since delivery would
still take place within New York State.

DATED: July 20, 1988

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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