Does New York compensating use tax apply when a New York resident brings goods bought abroad through New York customs and then reships them out of state as a gift, and can foreign tax paid offset it?

Plain-English summary

A New York State resident bought goods in a foreign country and paid a foreign "sales/purchase tax" at the time of purchase. Back in the United States, the resident declared the goods to customs at a New York airport, then arranged to have them shipped from New York to a resident of another state as a gift. Petitioner Walter Helly asked whether New York's compensating use tax -- the counterpart to sales tax, aimed at goods bought without New York sales tax being collected -- applies to this transaction.

New York defines "use" broadly to include exercising any right or power over tangible personal property, including receiving, storing, or arranging for its further shipment. The Department found that declaring the goods through New York customs and then arranging their onward shipment as a gift was enough of an exercise of control to count as a "use" of the property within New York State -- even though the resident never kept the goods in New York for personal use. Because the goods were purchased at retail abroad, and no New York sales tax was collected, that New York "use" triggers compensating use tax, computed on what was actually paid for the goods abroad. New York does offer a credit against use tax for sales/use tax legally paid to another U.S. state or jurisdiction -- but the Department held that credit doesn't extend to tax paid to a foreign country, because the statutory word "state" (per the General Construction Law and a 1928 court decision) doesn't reach foreign jurisdictions, regardless of whether the foreign tax was refundable or truly comparable to a U.S. sales tax.

What this means for you

Individuals bringing goods into New York from abroad, even briefly or for reshipment

Simply passing goods bought overseas through New York on their way somewhere else -- clearing customs here and arranging further shipment -- can be enough to trigger New York compensating use tax, even if you never personally keep or use the goods in New York. The "use" test is about exercising control over the property, not about where you ultimately enjoy it.

Travelers who paid VAT or a similar tax abroad

Don't assume a foreign sales or value-added tax you paid abroad offsets New York use tax -- it doesn't. New York's credit for tax paid to "another state" only covers other U.S. states and jurisdictions, not foreign countries, no matter how similar the foreign tax looks to a U.S. sales tax.

Accountants and tax professionals

This is a clean, citable answer to "does my client owe NY use tax on something bought abroad and merely routed through New York," and a reminder that the Tax Law § 1118(7)(a) reciprocal credit is textually limited to intra-U.S. jurisdictions (General Construction Law § 47; Boissevain v. Boissevain), regardless of the equities of double taxation.

Common questions

Q: Does simply clearing customs in New York count as "using" property in New York?
A: Combined with arranging further shipment of the goods from New York, yes -- the Department treated that combination as sufficient exercise of control to be a taxable use.

Q: Can I get credit against New York use tax for VAT or sales tax I paid overseas?
A: No -- New York's credit for tax paid "to any other state or jurisdiction" is limited to other U.S. states and jurisdictions and does not extend to foreign countries.

Q: Would the answer differ if the resident had shipped the goods directly overseas to another state without passing through New York?
A: This ruling doesn't address that scenario; it turns specifically on the resident's own act of clearing customs and arranging shipment from within New York.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(7) (definition of "use")
• Tax Law § 1110(a), (b) (imposition and computation of compensating use tax)
• Tax Law § 1118(7)(a) (credit for tax paid to another state or jurisdiction)
• General Construction Law § 47 (definition of "state")

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_2s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-99(2)S
Sales Tax
January 19, 1999

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S980713A

On July 13, 1998, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Walter Helly, 91 Central Park West, New York, New York 10023.
The issue raised by Petitioner, Walter Helly, is whether the compensating use tax applies with
respect to tangible personal property purchased by a New York State resident in a foreign country
under the circumstances described below.
Petitioner submits the following facts as the basis for this Advisory Opinion.
A New York State resident purchased goods in a foreign country. Petitioner states that the
resident paid a "sales/purchase tax" imposed by the foreign country at the time of purchase. The New
York State resident declared the goods to United States customs in an airport located in New York
State. Once the goods were through customs the New York State resident arranged to have the
goods shipped from New York to a resident of another state as a gift.
Applicable Law
Section 1101(b)(7) of the Tax Law defines the term "use", as follows:
Use. The exercise of any right or power over tangible personal property by
the purchaser thereof and includes, but is not limited to, the receiving, storage or any
keeping or retention for any length of time, withdrawal from storage, any installation,
any affixation to real or personal property, or any consumption of such property.
Without limiting the foregoing, use also shall include the distribution of only tangible
personal property, such as promotional materials.
Section 1110 of the Tax Law provides, in part:
(a) Except to the extent that property or services have already been or will be
subject to the sales tax under this article, there is hereby imposed on every person a
use tax for the use within this state on and after June first, nineteen hundred seventy­
one, except as otherwise exempted under this article, (A) of any tangible personal
property purchased at retail, ...
*

*

*

-2­
TSB-A-99(2)S
Sales Tax
January 19, 1999

(b) For purposes of clause (A) of subdivision (a) of this section, the tax shall
be at the rate of four percent of the consideration given or contracted to be given for
such property, or for the use of such property, including any charges for shipping or
delivery as described in paragraph three of subdivision (b) of section eleven hundred
one, but excluding any credit for tangible personal property accepted in part payment
and intended for resale.
Section 1118 of the Tax Law provides, in part:
Exemptions from use tax. The following uses of property shall not be subject
to the compensating use tax imposed under this article:
*

*

*

(7)(a) In respect to the use of property or services to the extent that a retail
sales or use tax was legally due and paid thereon, without any right to a refund or
credit thereof, to any other state or jurisdiction within any other state but only when
it is shown that such other state or jurisdiction allows a corresponding exemption with
respect to the sale or use of tangible personal property or services upon which such
a sales tax or compensating use tax was paid to this state. To the extent that the tax
imposed by this article is at a higher rate than the rate of tax in the first taxing
jurisdiction, this exemption shall be inapplicable and the tax imposed by section eleven
hundred ten of this chapter shall apply to the extent of the difference in such rates,
except as provided in paragraph (b) of this subdivision.
Section 47 of the General Construction Law defines the term "state" as follows:
The term state, when used generally to include every state of the United
States, includes also every territory of the United States and the District of Columbia.
Opinion
Initially, it is noted that the nature of the tax paid in the foreign country is not clear. Many
foreign countries impose value added taxes. Experience indicates that in many instances the tax may
be readily refunded by the foreign country in these circumstances.
In this case the purchaser of tangible personal property, the New York State resident, declared
the goods in United States customs located in New York State and arranged to have them shipped
from New York to a resident of another state as a gift. These actions are indicative of the exercise
of a right or a power over the tangible personal property by the purchaser. Therefore, a use of the
tangible personal property occurred in New York State based on the definition of such term as
provided in Section 1101(b)(7) of the Tax Law.

-3­
TSB-A-99(2)S
Sales Tax
January 19, 1999

As the tangible personal property was purchased at retail in the foreign country, its use in New
York State is subject to use tax in accordance with Section 1110(a)(A) of the Tax Law. The basis
used to compute the use tax is the consideration paid in the foreign country for the tangible personal
property. See Section 1110(b) of the Tax Law. It is noted that, generally, a sales tax imposed directly
upon the consumer would not be included in consideration for purposes of computing the use tax,
while other taxes imposed on a manufacturer or wholesaler and passed through to the consumer
would be included in consideration for purposes of computing the use tax.
Section 1118(7)(a) of the Tax Law provides an exemption from use tax with respect to the
use of tangible personal property to the extent that sales or use tax was paid on such property,
without any right to a refund or credit, to another state or jurisdiction within a state, where such other
state or jurisdiction allows a corresponding exemption for sales or use tax paid to New York. Putting
aside questions of whether the tax paid in the foreign country was a sales or use tax and whether there
was a right to refund or credit, it is clear that the provisions of Section 1118(7)(a) would not apply
since the term "state" as used in such section does not encompass foreign jurisdictions. In Boissevain
v. Boissevain, 224 AD 576, modified on other grounds 252 NY 178, the court stated with respect
to Section 47 of the General Construction Law, "There is no intimation that, even in the case of a
broad use of the word 'State,' it should embrace territory alien and foreign." Therefore, a sales or
use tax was not legally due or paid to any other state or jurisdiction within any other state, within the
meaning and intent of the exemption provided in Section 1118(7)(a), where the tax was imposed by
a foreign country. Accordingly, such exemption from the use tax does not apply in the situation
described in the Petition.

DATED: January 19, 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.