Does a multi-level marketing company's $20 annual distributor-renewal fee, and the shipping/handling charges added to product orders, count as taxable receipts in New York?

Plain-English summary

Reliv, a Missouri-based multi-level marketer of nutritional, dietary, and skin care products, sells through a network of independent distributors rather than its own retail stores. Under a special "co-vendor" arrangement, Reliv itself pre-collects and remits New York sales tax on its distributors' retail sales (based on the suggested retail price, at the rate where the distributor takes delivery) so that individual distributors don't each have to register and file their own New York sales tax returns. Distributors pay a $20 annual renewal fee on their enrollment anniversary, which buys them a year of a monthly newsletter subscription plus distributor support services (like getting questions about the company or products answered). Separately, Reliv charges distributors shipping and handling on product orders -- 9.5% (minimum $4.50) on cans, 7.5% on cases. Reliv asked whether the renewal fee and the shipping/handling charges are both subject to New York sales and use tax.

The two charges came out differently. The renewal fee isn't tied to any retail sale of tangible personal property, and a newsletter subscription plus general support/question-answering service isn't one of the specific services New York's sales tax law lists as taxable. So the $20 annual fee escapes sales tax entirely. The shipping and handling charges are a different story: New York's definition of a taxable "receipt" specifically includes any shipping or delivery charge a vendor bills to a purchaser, regardless of whether it's separately stated on the invoice or who actually does the shipping. Because Reliv's co-vendor role means it's responsible for collecting tax on its distributors' full retail selling price -- and shipping/handling gets folded into what a distributor ultimately charges their own retail customer -- Reliv has to pre-collect sales tax on the shipping/handling portion too, the same way it does on the base product price.

What this means for you

Multi-level marketing companies and direct sellers

Membership, renewal, or subscription-style fees that aren't tied to a specific taxable sale and don't buy an enumerated taxable service can often escape sales tax -- but shipping and handling charges tacked onto actual product orders almost always can't, since New York's "receipt" definition specifically sweeps them in regardless of how they're labeled or billed.

Companies operating co-vendor / distributor-network sales tax arrangements

If you've centralized sales tax collection on behalf of your distributor network (a "co-vendor" setup), remember that your collection obligation follows the full amount a customer ultimately pays -- including shipping/handling markups your distributors add -- not just the base wholesale or suggested retail price.

Accountants and tax professionals

This ruling is a useful two-part template: it separately confirms (1) that a flat renewal/subscription fee for non-enumerated services (newsletter + support) is non-taxable regardless of the underlying business model, and (2) that shipping/handling charges are swept into the taxable receipt as a matter of statutory definition, independent of how a vendor structures its distribution network.

Common questions

Q: Is a multi-level marketer's annual distributor renewal fee taxable in New York?
A: Not in this case -- it isn't tied to a retail sale of goods, and the newsletter/support services it buys aren't among New York's specifically enumerated taxable services.

Q: Are shipping and handling charges always taxable in New York?
A: When they're added to the price of a taxable sale of tangible personal property, yes -- New York's statutory definition of a taxable receipt specifically includes shipping/delivery charges regardless of whether they're separately stated or who performs the shipping.

Q: What is a "co-vendor" arrangement?
A: A setup, available at the Commissioner's discretion, where a multi-level marketer like Reliv collects and remits sales tax on its distributors' retail sales centrally, so individual distributors don't each have to register and file their own New York sales tax returns.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(3) (definition of receipt, includes shipping/delivery charges)
• Tax Law § 1101(b)(8)(ii)(A) (commissioner's discretion to treat distributors as co-vendors)
• Tax Law § 1105(c) (enumerated taxable services)
• 20 NYCRR § 526.5(g) (shipping/delivery charges as part of taxable receipt)
• 20 NYCRR § 526.10(e) (co-vendor rules for club/multi-level marketing plans)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1999.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a99_19s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-99(19)S
Sales Tax
April 8, 1999

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S981103G

On, November 3, 1998, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Reliv, Inc., P.O. Box 405, Chesterfield, Mo. 63006-0405.
The issues raised by Petitioner, Reliv, Inc., are whether its annual renewal charge and its
shipping and handling charges are subject to sales and use tax.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner, a multi-level marketer, sells nutritional, dietary and skin care products through
a multi-level network of independent distributors. Petitioner’s physical location is in Chesterfield,
Missouri. Petitioner collects sales tax from its distributors based on the retail selling price of the
products at the rate in effect where the distributor takes delivery. Petitioner files one New York
State sales tax return rather than each distributor filing a return with New York State.
Distributors renew their status annually. The annual renewal fee of $20.00 is due on the
anniversary date of enrollment. This fee entitles distributors to a one-year subscription to a monthly
newsletter, as well as distributor support service (which includes questions answered about the
company, products etc.).
Petitioner charges the distributors a shipping and handling charge. This charge is based on
the type of purchase, such as cans or cases of product. The cans ordered have a 9.5%
shipping/handling charge with a minimum charge of $4.50. The cases of product ordered have a
7.5% shipping/handling charge.
Applicable Laws and Regulations
Section 1101(b) of the Tax Law provides, in part:
When used in this article for the purposes of the taxes imposed by
subdivisions (a), (b), (c) and (d) of section eleven hundred five and by section eleven
hundred ten, the following terms shall mean:
*

*

*

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TSB-A-99(19)S
Sales Tax
April 8, 1999

(3) Receipt. The amount of the sale price of any property and the charge for
any service taxable under this article, valued in money, whether received in money
or otherwise, including any amount for which credit is allowed by the vendor to the
purchaser, without any deduction for expenses or early payment discounts and also
including any charges by the vendor to the purchaser for shipping or delivery
regardless of whether such charges are separately stated in the written contract, if
any, or on the bill rendered to such purchaser and regardless of whether such
shipping or delivery is provided by such vendor or a third party....
*

*

*

(8)(ii)(A) In addition, when in the opinion of the commissioner it is necessary
for the efficient administration of this article to treat any salesman, representative,
peddler or canvasser as the agent of the vendor, distributor, supervisor or employer
under whom he obtains tangible personal property sold by him or for whom he
solicits business, the commissioner may, in his discretion, treat such agent as the
vendor jointly responsible with his principal, distributor, supervisor or employer for
the collection and payment of the tax. An unaffiliated person providing fulfillment
services to a purchaser shall not be treated as a vendor by the commissioner under
this paragraph with respect to such activity.
Section 526.5(g) of the Sales and Use Tax Regulations provides, in part:
Shipping or delivery.
(1) Shipping or delivery charges by a vendor to its customer for the cost of
transporting tangible personal property to the customer are part of the vendor’s
receipt subject to tax where the sale of the property is subject to tax or where taxable
services were performed on the property. This is so regardless of whether the vendor
separately states such charges in a written contract or on an invoice and regardless
of whether the vendor ships or delivers the property itself or hires a third party to ship
or deliver the property. Similarly, charges by a vendor to its customer for picking up
the customer’s property upon which the vendor is to perform taxable services are part
of the vendor’s receipt from the sale of the services subject to tax.
(2) A charge by a vendor to its customer for the cost of transportation of the
property from the supplier, manufacturer, warehouse or catalog or other distribution
point to the vendor’s place of business is also part of the vendor’s receipt from the
sale of the property to the customer subject to tax, whether the charge is designated
as transportation, shipping, handling or in some other manner.

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TSB-A-99(19)S
Sales Tax
April 8, 1999

(3) A charge for transporting or delivering property by a transportation or
delivery company to the person or business requesting that the property be
transported or delivered is not a receipt subject to tax, since transportation and
delivery are not themselves services subject to tax.
Section 526.10(e) of the Sales and Use Tax Regulations provides:
Co-vendor. (1) Every person operating a club or similar merchandising plan,
or operating as an independent contractor representing a particular supplier selling
tangible personal property is a vendor for sales tax purposes and must collect tax on
merchandise sold by him.
(2)(i) Such person shall undertake all the responsibilities of a vendor, as listed
in subdivision (b) of this section. The person supplying the merchandise to him is
also deemed to be a vendor, and shall undertake all the responsibilities, as listed in
subdivision (b) of this section.
(ii) Both the representative and his supplier shall be jointly responsible for the
collection and remitting of the taxes and filing of returns.
(3)(i) A person supplying merchandise to a club plan secretary or independent
vendor shall collect in advance from the club plan secretary or independent
contractor a tax based on the retail selling price of the property at the tax rate in effect
where possession of the property is taken by the club plan secretary or contractor.
(ii) A club plan secretary or independent contractor whose supplier has
registered and is complying with the responsibilities of a vendor shall not be required
to register as a vendor.
Opinion
Multi-level marketers, like Petitioner, and their distributors may at the discretion of the
Commissioner of Taxation and Finance be treated as co-vendors jointly liable for the collection and
payment of tax. See Section 1101(b)(8)(ii)(A) of the Tax Law. Assuming Petitioner has received
the necessary authorization from the Commissioner, it would be a co-vendor within the meaning of
Section 526.10(e) of the Sales and Use Tax Regulations who also charges its distributors an annual
renewal fee on the anniversary date of their enrollment. Essentially, co-vendor arrangements provide
that a vendor collect sales tax on the suggested retail selling price of their products when making
sales to their distributors. The purpose of a co-vendor arrangement is to have the vendor register
and remit all state and local sales tax collected by its distributors rather than have each of its
distributors register, file returns and pay their taxes individually.

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TSB-A-99(19)S
Sales Tax
April 8, 1999

Under this unique arrangement that allows a distributor to make retail sales of tangible
personal property without being required to register (sales tax is remitted through Petitioner),
Petitioner must pre-collect the sales tax due on its distributors’ taxable sales at retail. If the amount
a distributor charges his or her customers for Petitioner’s products includes Petitioner’s shipping and
handling charges, in addition to the suggested retail selling price, then such additional amount will
be part of the distributor’s receipts subject to tax. Petitioner, therefore, must pre-collect the sales tax
on any shipping and handling charges that are added to the suggested retail selling price by
distributors when selling Petitioner’s products.
The sales and use tax is imposed on retail sales of tangible personal property and sales of
certain enumerated services in Section 1105(c) of the Tax Law. Petitioner’s renewal fee is not a
charge for any of the enumerated services, nor is it related to any retail sales of tangible personal
property to Petitioner’s distributors. Thus, Petitioner’s renewal fee is not subject to sales and use
tax.

DATED: April 8, 1999

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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