NY TSB-A-93(18)C Corporation Tax 1993-10-18

Are sales to a New York customer, drop-shipped to the customer's out-of-state buyers, New York receipts for the business allocation percentage?

Short answer: It depends on where the goods are shipped, not who the customer is. For the receipts factor of the Article 9-A business allocation percentage, receipts from sales of tangible personal property are allocated to New York where the shipments are made to points within New York (Tax Law section 210.3(a)(2)(A); 20 NYCRR 4-4.2), regardless of the F.O.B. point. So when a New York manufacturer sells to a New York wholesaler but, at the wholesaler's request, drop-ships the goods directly from its factory to the wholesaler's customers outside New York, those receipts are not New York receipts -- the shipments go to out-of-state points. Only shipments to points within New York go in the numerator; all sales of tangible personal property go in the denominator.

Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion (TSB-A), issued by the Office of Counsel at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. Taxpayer-identifying details are redacted. New York State and local sales taxes are administered centrally by the Department. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

Swanknit Inc., a New York manufacturer of children's clothing in Cohoes, sells to customers across the country, usually shipping by common carrier F.O.B. Cohoes. One customer -- a New York City wholesaler -- buys the goods but asks Swanknit to ship them directly from the factory to the wholesaler's own customers, and in almost every case those shipments go to locations outside New York. Swanknit asked whether these sales count as New York or out-of-state sales for the receipts factor of the business allocation percentage.

The destination of the shipment controls -- not the customer's location. Under section 210.3(a)(2)(A) and 20 NYCRR 4-4.2, receipts from sales of tangible personal property are allocated to New York where the property is shipped to a point in New York -- via common carrier or the taxpayer's truck to a New York point on the shipping document, regardless of the F.O.B. point, or delivered to a purchaser in New York. The regulation's Example 1 and W.A. Krueger, TSB-A-87(13)C, confirm that shipments to New York points (or to New York designees) are New York receipts.

Here, because Swanknit ships these goods to the wholesaler's customers at out-of-state points, those receipts are not included in the New York numerator. Shipments that do go to New York points are New York receipts. Either way, all sales of tangible personal property go in the denominator.

This is the destination rule that the later Flexovit, TSB-A-94(18)C, builds on (where a buyer picks up at a New York factory -- delivery in New York -- the receipt is a New York receipt).

What this means for you

Shipments are sourced to where they are delivered

For the receipts factor, sales of goods are New York receipts when shipped to points in New York -- the buyer's billing address and the F.O.B. point do not control.

Drop-shipping out of state can move receipts out of the numerator

Even if your customer is in New York, goods shipped from your New York factory to the customer's out-of-state buyers are not New York receipts.

The denominator captures all sales

All receipts from sales of tangible personal property go in the denominator; only the New York-destination shipments go in the numerator.

Common questions

Q: My New York customer had me ship the goods to its buyers in other states. New York receipt?
A: No. The receipts factor follows the shipment destination; goods shipped to out-of-state points are not New York receipts even if your customer is in New York.

Q: Does the F.O.B. point matter?
A: No. The rule looks to where the goods are shipped or delivered, regardless of the F.O.B. point.

Q: What goes in the denominator?
A: All of your receipts from sales of tangible personal property; only those shipped to New York points are added to the numerator.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 210.3(a)(2)(A) (receipts factor; sales of tangible personal property allocated where shipped)
- 20 NYCRR 4-4.2 (destination-of-shipment rule for tangible personal property)

Source

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (18) C
Corporation Tax
October 18, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C930621B

On June 21, 1993, a Petition for Advisory Opinion was received from Swanknit Inc., 100 No.
Mohawk Street, Cohoes, New York 12047.
The issued raised by Petitioner, Swanknit Inc., is whether sales to a New York corporation
where delivery is made to out-of-state destinations are considered to be out-of-state sales for
purposes of the business allocation percentage under Article 9-A of the Tax Law.
Petitioner, a New York corporation, is located in Cohoes, New York. It manufactures
children's clothing which it sells to various customers located throughout the United States. These
sales are customarily shipped by common carrier F.O.B. Cohoes, New York.
Customer A, is located in New York City. It is a wholesaler who resells the merchandise to
its own customers. Customer A requests Petitioner to ship the merchandise directly from Petitioner's
factory to Customer A's customers. In almost every instance, those shipments are made to locations
outside New York State.
Section 210.3(a)(2)(A) of the Tax Law provides that, for purposes of computing the receipts
factor of the business allocation percentage, receipts from sales of tangible personal property are
allocated to New York State where shipments are made to points within New York State.
Further, section 4-4.2 of the Business Corporation Franchise Tax Regulations states:
Receipts from sale of tangible personal property are allocable 100 percent to New
York State where shipments are made to points in this State. Tangible personal
property is considered to be shipped to a point in New York State if:
(a) the property is shipped via common carrier or via taxpayer's truck to a
point in New York State designated on the bill of lading or other shipping document,
regardless of the F.O.B. point; or
(b) the property is delivered to a purchaser at a point in New York State.

TP-9 (9/88)

-2
TSB-A-93 (18) C
Corporation Tax
October 18, 1993

Example 1:

A taxpayer has its factory in New York State. A
customer located in New Jersey comes into New
York State in its own truck or one rented by it and
picks up its purchase at the taxpayer's factory.
The receipts from such sale must be allocated to
New York State.

In W.A. Krueger Company, Adv Op St Tax Comm, May 29, 1987, TSB-A-87(13)C, it was
held that where books, magazines and catalogs are shipped by the petitioner to its customers located
in New York State or to designees of its customers located in New York State, in bulk, via common
carrier or through the mails, the receipts from such sales are properly allocated to New York State
and must be included in the numerator of the petitioner's receipts factor.
Herein, Petitioner manufactures children's clothing which it sells to various customers
throughout the United States. Petitioner ships such goods via common carrier to its customers or
its customer's designees. Where such shipments are to points within New York State, the receipts
from those sales are allocable to New York State and must be included in the numerator of the
receipts factor for purposes of computing the business allocation percentage in accordance with
Section 210.3(a)(2)(A) of the Tax Law and Section 4-4.2 of the Business Corporation Franchise Tax
Regulations. Where shipments are to points without New York State, the receipts from those sales
are not included in the numerator of the receipts factor. The denominator of the receipts factor must
include the receipts from all Sales of tangible personal property.

DATED: October 18, 1993

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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