When an out-of-state seller drop-ships goods to a New York third party at an out-of-state customer's request, must the seller collect New York sales tax, and on what amount?

Plain-English summary

Crescent Metal Products, Inc., an Ohio manufacturer of mobile food-service and cooking equipment, is a registered New York vendor. It sells to customers in other states, and those customers often resell the products. Sometimes an out-of-state customer asks Crescent to drop-ship the goods to a third party located in New York. Crescent ships everything F.O.B. Cleveland, bills the out-of-state customer (not the New York third party), and doesn't know what price the New York third party paid its customer. Crescent asked (1) whether it must collect New York sales tax on these drop-shipments, and (2) if so, at what rate and on what price.

The Department's answers:

• Yes, collect New York tax — unless you get a resale/exemption certificate. Under Tax Law §§ 1105(a), 1101(b)(4)(i), and 1132(c), Crescent should collect New York sales tax from its out-of-state customer when it drop-ships goods to a third party in New York at the customer's request, unless it takes a New York resale certificate or other appropriate exemption document from that customer. Section 1132(c) presumes every sale is taxable until the contrary is established and lets the vendor stop collecting only if it receives the certificate within 90 days of delivery.
• Base and rate: the tax is computed on the price the customer pays Crescent, at the combined state and local rate in effect where the goods are delivered in New York.
• No paper, you carry the burden. If Crescent doesn't get the documentation, then on audit the burden is on Crescent to prove the customer bought for resale or that the sale was otherwise exempt (citing Steelcase, Inc., TSB-H-87(219)S).

What this means for you

A drop-shipment into New York is a New York delivery

Even though Crescent bills an out-of-state customer and ships F.O.B. Ohio, the goods are delivered in New York. That New York delivery is what makes the transaction potentially taxable and triggers the registered vendor's duty to collect — the customer's out-of-state location doesn't change that.

The resale certificate is your protection

The clean way out is a New York resale certificate (Form ST-120) from the customer, taken within 90 days of delivery. With a proper certificate, the burden of proving non-taxability shifts to the customer. Without it, the § 1132(c) presumption of taxability stands and the vendor is exposed on audit.

Compute on your price, at the delivery location's rate

The taxable amount is the price your customer pays you, not the (often unknown) price the New York third party paid your customer. Apply the combined state + local rate for the New York locality where the goods are delivered.

Common questions

Q: I'm an out-of-state seller. Do I really have to collect New York tax on a drop-shipment into New York?
A: If you're a registered New York vendor and you drop-ship to a New York location at your customer's request, yes — unless you take a New York resale certificate or other exemption document from your customer.

Q: What amount do I charge tax on if I don't know the third party's price?
A: You don't need it. Tax is computed on the price your customer pays you, at the combined state and local rate where the goods are delivered.

Q: How long do I have to collect the resale certificate?
A: Within 90 days of delivering the property (Tax Law § 1132(c)). A certificate that's timely but has a curable defect can still qualify once the defect is fixed.

Q: What happens if I have no exemption documentation?
A: On audit the burden is on you to prove the sale was for resale or otherwise exempt; otherwise the sale is treated as a taxable retail sale.

Citations and references

Statutes, regulations, and authorities:

• Tax Law § 1105(a) (tax on receipts from every retail sale of tangible personal property)
• Tax Law § 1101(b)(4)(i) (retail sale defined; sale for resale is excluded)
• Tax Law § 1132(c) (all receipts presumed taxable; vendor relieved of collection only on a timely resale/exemption certificate taken within 90 days; burden then shifts to the customer)
• Steelcase, Inc., TSB-H-87(219)S (burden on the vendor to prove a sale was for resale or exempt absent documentation)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1992.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a92_3s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-92 (3)S
Sales Tax
January 30, 1992

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S911024A

On October 24, 1991 a Petition for Advisory Opinion was received from Crescent Metal
Products, Inc., 12711 Taft Avenue, Cleveland, Ohio 44108-1683.
The issues raised by Petitioner, Crescent Metal Products, Inc., are whether:
(1)
Petitioner is required to collect New York sales and use taxes from a customer located
outside of New York when Petitioner ships the goods to a third party located in New York pursuant
to the request of such customer.
(2)
If Petitioner is required to collect New York sales and use taxes, what tax rate and
purchase price should be used to compute the tax.
Petitioner is a manufacturer of mobile food service and instamatic cooking equipment. It is
an Ohio corporation with its headquarters in Cleveland, Ohio. It is a registered vendor with the New
York Department of Taxation and Finance and is authorized to do business in the State of New York.
All sales of equipment must be approved by Petitioner's home office in Cleveland, Ohio. Petitioner
collects New York sales and use taxes whenever it makes a sale to a New York customer.
Petitioner also sells products to customers located in other states. These non-New York
customers often resell Petitioner's products to third parties. Sometimes these third parties are located
in the State of New York. From time to time, non-New York customers request that Petitioner drop­
ship the products to third parties located in New York. Regardless of where the product is
drop-shipped, Petitioner ships all items F.O.B. Cleveland, Ohio and Petitioner always bills the nonNew York customer for the products. The non-New York customer, and not the third party located
in New York, is responsible for paying Petitioner's invoice for the products. Petitioner has no
knowledge of the purchase price paid by the third party located in New York to the non-New York
customer.
Section 1105(a) of the Tax Law generally provides for the imposition of sales tax upon "[t]he
receipts from every retail sale of tangible personal property, except as otherwise provided in this
article."
Section 1101(b)(4)(i) of the Tax Law defines retail sales as "[a] sale of tangible personal
property to any person for any purpose, other than (A) for resale as such or as a physical component
part of tangible personal property. . .".
Section 1132(c) of the Tax law provides in pertinent part, as follows:
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

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Sales Tax
January 30, 1992

or services of any 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,
amusement charge or rent is not taxable hereunder shall be upon the person required to collect tax
or the customer. Except as provided in subdivision (h) of this section, unless (1) a vendor, not later
than ninety days after delivery of the property or the rendition of the service, shall have taken from
the purchaser a certificate in such form as the tax commission may prescribe, signed by the purchaser
and setting forth his name and address and, except as otherwise provided by regulation of the tax
commission, the number of his registration certificate, together with such other information as said
commission may require, to the effect that the property or service was purchased for resale or for
some use by reason of which the sale is exempt from tax under the provisions of section eleven
hundred fifteen, and, where the certificate requires the inclusion of the purchaser's registration
certificate number or other identification number required by regulations of the tax commission, that
the purchaser's certificate of authority has not been suspended or revoked and has not expired as
provided in section eleven hundred thirty-four, or (2) the purchaser, not later than ninety days after
delivery of the property or the rendition of the service, furnishes to the vendor: any affidavit,
statement or additional evidence, documentary or otherwise, which the tax commission may require
demonstrating that the purchaser is an exempt organization described in section eleven hundred
sixteen, the sale shall be deemed a taxable sale at retail. Where a certificate or document referred to
in the previous sentence is received within the time limit set forth therein, but is deficient in some
material manner, and where such deficiency is thereafter removed, the receipt of such certificate or
document shall be deemed to have satisfied all of the requirements of the preceding sentence. Where
such a certificate or statement has been furnished to the vendor, the burden of proving that the
receipt, amusement charge or rent is not taxable hereunder shall be solely upon the customer. The
vendor shall not be required to collect tax from purchasers who furnish a certificate of resale, an
exempt organization statement or other exemption certificate in proper form, unless, in the case of
a certificate described in clause one of the second sentence of this subdivision whereon the
purchaser's registration certificate number, or other identification number required by regulation of
the tax commission, is required to be included, such purchaser's certificate of authority is invalid
because it has been suspended or revoked as provided in section eleven hundred thirty-four, and the
tax commission has furnished registered vendors with information identifying those persons whose
certificates of authority have been suspended or revoked, or unless such purchaser's certificate of
authority is invalid because it has expired, and the tax commission has provided registered vendors
with a means of determining whether such expiration has occurred. Where the vendor accepts such
a certificate from a person identified by the tax commission as one whose certificate of authority has
been suspended or revoked or from a person whose certificate of authority has been identified as
having expired, the receipt, amusement charge or rent from such transaction shall be deemed to be

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January 30, 1992

a taxable sale at retail. Provided, however, the tax commission may authorize a purchaser, who
acquires tangible personal property or services under circumstances which make it impossible at the
time of acquisition to determine the manner in which the tangible personal property or services will
be used, to pay the tax directly to the tax commission and waive the collection of the tax by the
vendor. . . .
Therefore in accordance with the provisions of Section 1105(a), 1101(b)(4)(i) and 1132(c)
of the Tax Law. Petitioner should collect sales tax from a customer located outside of New York
State when Petitioner ships the goods to a third party located in New York State pursuant to the
request of such customer unless the Petitioner has received a New York resale certificate or other
appropriate exemption document from the customer. The purchase price paid by the customer to the
Petitioner and the combined state and local tax rate in effect in the locality in which the goods are
delivered should be used to compute the tax.
In the event that the Petitioner does not obtain such documentation, then upon audit the
burden of proof shall be upon the Petitioner to prove that its customer purchased the merchandise
at issue for resale or that the sale was otherwise exempt from the imposition of sales tax. Steelcase,
Inc., Adv Op St Tx Comm, July 3, 1988, TSB-H-87(219)S.

DATED: January 30, 1992

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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