When an out-of-state seller registered in New York ships goods to a New York customer of its out-of-state buyer (a drop shipment), and no exemption certificate is given, is New York sales tax due?

Plain-English summary

Banner Metals Division of Intercole Automation, Inc. (Stroudsburg, Pennsylvania) is a Pennsylvania company registered to collect New York sales tax. It sold goods to a customer in New Jersey but, at that customer's request, shipped the goods by common carrier to a destination in Nassau County, New York — the New Jersey buyer's own customer. Banner billed the New Jersey buyer, added sales tax (no exemption certificate was given), and the buyer never paid the tax. Banner asked whether tax was due.

The answer: yes — New York State and local sales tax is due.

• § 1105(a) taxes receipts from every retail sale of tangible personal property.
• 20 NYCRR 526.7(e) fixes the place of the sale: a sale is taxable where the property is delivered or where possession is transferred to the purchaser or the purchaser's designee. A sale where title passes in New York but delivery occurs outside New York is not taxed — and, by the same rule, a sale delivered in New York is taxable, wherever title passes.
• Here, the goods were delivered in Nassau County, New York, so the sale is a New York sale.
• § 1132(c) presumes all such receipts are taxable until the contrary is shown — and the way a seller overcomes that presumption is by taking a resale or exemption certificate from the purchaser. Banner's buyer never furnished one.
• So both State sales tax (Article 28) and local sales tax (Article 29) are due on the receipts from the sale.

What this means for you

Delivery location controls, not where you or your buyer sit. A drop shipment into New York is a New York sale even when the seller and the buyer are both out of state. If the goods land in New York, New York tax is in play.

Collect a certificate or collect the tax. The § 1132(c) presumption means every in-state delivery is treated as taxable unless you hold a valid resale or exemption certificate from your buyer. Without that paperwork, the sale is deemed a taxable retail sale — and the registered seller is on the hook.

Your buyer's non-payment doesn't erase your duty. Banner's New Jersey customer refusing to pay the billed tax didn't make the tax go away; as the registered vendor delivering into New York, Banner owed it.

Common questions

Q: I'm out of state and my buyer is out of state — why is New York tax due?
A: Because the goods were delivered in New York. Under 20 NYCRR 526.7(e), the sale is taxed where delivery/possession occurs, not where the parties are located or where title passes.

Q: How do I avoid collecting tax on a legitimate resale drop shipment?
A: Take a valid resale or exemption certificate from your purchaser. Section 1132(c) presumes the receipt is taxable until you have that certificate in hand.

Q: What if my customer never pays the tax I billed?
A: You, the registered vendor who delivered the goods in New York, still owe the State and local tax on the sale. Non-payment by the buyer doesn't relieve you.

Citations and references

Statutes, regulations and authority:

• Tax Law § 1105(a) — imposes sales tax on receipts from every retail sale of tangible personal property
• 20 NYCRR 526.7(e) — a sale is taxable where the property is delivered or possession is transferred; a sale delivered outside New York (even if title passes in New York) is not taxed
• Tax Law § 1132(c) — presumes receipts are taxable until the contrary is established, unless the vendor takes a resale or exemption certificate from the purchaser
• Tax Law Article 29 — authorizes the local sales tax that applies along with the State tax

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1980.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/h80_257s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-H-80(257)S
Sales Tax
December 26, 1980

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S800925B

On September 25, 1980, a Petition for Advisory Opinion was received from
Banner Metals Division of Intercole Automation, Inc., P.O. Box 431, West Main
Street, Stroudsburg, Pennsylvania 18360.
The issue raised is whether sales tax is due on the receipts from a sale
of tangible personal property to a business located outside New York where the
property sold is shipped by the seller directly to a customer of the purchaser's
located in New York.
Petitioner, a company located in the State of Pennsylvania and registered
to collect New York State sales tax, sold tangible personal property to a
customer located in the State of New Jersey and, at the customer's request,
shipped the tangible personal property by common carrier to a destination in
Nassau County, New York. Petitioner invoiced its New Jersey customer for the
material and, in the absence of a tax exemption certificate, added applicable
sales tax to the invoice. Petitioner's customer did not pay the tax.
Section 1105(a) of the Tax Law imposes a tax upon "The receipts from every
retail sale of tangible personal property..."
The Sales and Use tax Regulations provide, in relevant part, as follows:
"Transfer of possession. (1) A sale is taxable at the place where the
tangible personal property or service is delivered or the point at which
possession is transferred by the vendor to the purchaser or his designee.
...
Example 3: A New York State vendor ships tangible personal property not
for resale, to its customer in New York F.O.B. Chicago, Illinois. Delivery occurs
in New York. The receipt from the sale is taxable.
...
Example 5: A New Jersey resident purchases woolens from a New York State
supplier and requests that the woolens be shipped to a New York State dressmaker
to produce wearing apparel not intended for resale. The dressmaker will ship the
completed apparel to New Jersey. Since the delivery of the woolens occurred in
New York State the woolens are subject to tax. However, the charge for producing
the wearing apparel is not subject to tax because delivery of the wearing apparel
takes place in New Jersey.
(2) A sale of tangible personal property, in which the title to the
property passes in New York, but in which delivery occurs outside of New York,
is not subject to tax". 20 NYCRR 526.7(e).
Section 1132(c) of the Tax Law provides, in relevant part, that "...it
shall be presumed that all receipts for property or services of any type
mentioned in [section 1105(a) of the Tax Law]. . .are subject to tax until the
contrary is established....Unless...a vendor shall have taken from the purchaser
a certificate in such form as the tax commission may prescribe...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...[or to the effect that] the purchaser is
an exempt organization...the sale shall be deemed a taxable sale at retail.
JAMES H. TULLY, JR., COMMISSIONER
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

2
TSB-H-80(257)S
Sales Tax
December 26, 1980

Accordingly, inasmuch as Petitioner has made a sale of tangible personal
property delivered in Nassau County, New York, and inasmuch as the purchaser has
not tendered to the seller a certificate described in section 1132(c) of the Tax
Law, State sales tax imposed under Article 28 of the Tax Law and local sales tax
imposed under the authority of Article 29 of the Tax Law are due on the receipts
arising from the sale.
DATED: December 10,1980

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau