NYS Confirms Economic Nexus Applies to Sales Taxes in Wake of Supreme Court's 'Wayfair' Ruling

Chris Gaetano
Published Date:
Feb 20, 2019


The New York State Department of Taxation and Finance has released guidance confirming its intentions to pursue an economic nexus standard when it comes to sales tax liability. This guidance arrives in the wake of a Supreme Court decision that affirmed a state government's ability to tax out-of-state vendors, even if they lack a physical presence within the state. The announcement said that, as a result of the decision, South Dakota v. Wayfair, “certain existing provisions in the New York State Tax Law that define a sales tax vendor immediately became effective.”

New York has technically been an economic nexus state since corporate tax reform measures were approved in 2015. Under those rules, "[b]usinesses that exercise a corporate franchise, do business, employ capital, own or lease property, maintain an office, or derive receipts (of $1 million or more in a tax year) from activity conducted in New York will be subject to tax for that tax year. Franchisors that sell goods and services, or licenses, to franchisees located in New York State are not specifically exempt from tax. Therefore, they are subject to the same tax provisions as any other corporation that conducts activities in New York State." 

The recently issued guidance adds to these rules; it provides that if a business has no physical presence in the state, but has both made more than $300,000 in sales of tangible personal property delivered in the state and conducted more than 100 sales of tangible personal property delivered in the state in the immediately preceding four sales tax quarters, it must register as a sales tax vendor and collect and remit sales taxes. 

The Supreme Court decision, which was issued on June 21, 2018, revisited an earlier decision, Quill Corp. vs. North Dakota, which held that requiring sales tax collection from out-of-state entities violated the Constitution’s commerce clause. In its  5-4 ruling in Wayfair, however, the Supreme Court noted that the Quill decision came down in 1992, well before the e-commerce explosion; a report from the Federal Reserve Bank of St. Louis found that e-commerce has gone from representing 0.6 percent of U.S. retail sales in 1999 to 9.46 percent in 2018. Because the retail economy has changed so much, the court’s majority found that the Quill decision was no longer relevant. The Government Accountability Office estimated in a recent report that if states were able to tax all online sales from remote sellers, then they would collect $8 billion to $13 billion in additional revenues. 

Following the decision, NYSSCPA members raised concerns that the decision could create compliance issues, as remote sellers deal with the multifarious rules and regulations of numerous tax jurisdictions. Lawmakers were also worried about this situation: A bill that was introduced in the House last year, but not enacted during the 115th Congress, would have prevented state governments from collecting sales tax from most out-of-state sellers until such a time as a compact regarding treatment of online sales was developed by the states and approved by Congress. The bill said that "it is the sense of Congress that the States should develop an interstate compact for the collection of sales tax by remote sellers that identify a clearly defined minimum substantial nexus between the remote seller and the taxing State, that simplifies registration, collection, remittance, auditing and other compliance processes to the greatest extent possible." This exemption would have specifically applied to smaller remote sellers, which were defined as those with gross receipts in the U.S. of no more than $10 million.  

Click here to see more of the latest news from the NYSSCPA.