New York sales tax guide

Sales tax is a tax paid to a governing body (state or local) on the sale of certain goods and services. New York first adopted a general state sales tax in 1965, and since that time, the base sales tax rate has risen to 4 percent. On top of the state sales tax, there may be one or more local sales taxes, as well as one or more special district taxes, each of which can range between 0 percent and 4.875 percent. Currently, combined sales tax rates in New York range from 4 percent to 8.875 percent, depending on the location of the sale.

As a business owner selling taxable goods or services, you act as an agent of the state of New York by collecting tax from purchasers and passing it along to the appropriate tax authority. As of March 2019, sales and use tax in New York is administered by the New York Department of Taxation and Finance.

Any sales tax collected from customers belongs to the state of New York, not you. It’s your responsibility to manage the taxes you collect to remain in compliance with state and local laws. Failure to do so can lead to penalties and interest charges.

Use tax is similar to sales tax, but applied where goods are consumed rather then where purchased. As an example, consider materials purchased tax free by a construction company. Should the company choose to consume those materials for their own purposes such as upgrading an office, use tax would be due on the materials used.

To summarize, use tax is due when goods are purchased tax free by a merchant and then converted for use, consumption, or enjoyment by that same merchant.

In New York, sales tax is levied on the sale of tangible goods and some services. The tax is collected by the seller and remitted to state tax authorities. The seller acts as a de facto tax collector.

To help you determine whether you need to collect sales tax in New York, start by answering these three questions:

1. Do you have nexus in New York?
2. Are you selling taxable goods or services to New York residents?
3. Are your buyers required to pay sales tax?

If the answer to all three questions is yes, you’re required to register with the state tax authority, collect the correct amount of sales tax per sale, file returns, and remit to the state.

If you meet the criteria for collecting sales tax and choose not to, you’ll be held responsible for the tax due, plus applicable penalties and interest.

It’s extremely important to set up tax collection at the point of sale — it’s near impossible to collect sales tax from customers after a transaction is complete.

The need to collect sales tax in New York is predicated on having a significant connection with the state. This is a concept known as nexus. Nexus is a Latin word that means "to bind or tie," and it’s the deciding factor for whether the state has the legal authority to require your business to collect, file, and remit sales tax.

Sales tax nexus in New York state used to be limited to physical presence: The state tax authority could require a business to register, collect and remit sales tax only if it had a physical presence in the New York, such as employees or an office, a retail store, or a warehouse.

In June 2018, the Supreme Court of the United States overruled the physical presence rule with its decision in South Dakota v. Wayfair, Inc. All states are now free to tax businesses based on their economic and virtual connections to the state, or economic nexus.

This decision has had an important impact on out-of-state and online sellers as they are no longer required to have a physical presence in New York in order to trigger nexus.

If you have sales tax nexus in New York, you’re required to register with the New York Department of Taxation and Finance and to charge, collect, and remit the appropriate tax to the state. Out-of-state sellers with no physical presence in a state may establish sales tax nexus in the following ways:

• Affiliate nexus: Having ties to businesses or affiliates in New York. This includes, but isn’t limited to, the design and development of tangible personal property (goods) sold by the remote retailer, or solicitation of sales of goods on behalf of the retailer. More details on affiliate nexus in New York.
• Click-through nexus: Having an agreement to reward a person(s) in New York for directly or indirectly referring potential purchasers of goods through an internet link, website, or otherwise, and:
  • The total cumulative sales price from such referrals is more than $10,000 during the preceding four quarterly sales tax periods.
• Economic nexus: As a result of the June 21, 2018 Wayfair ruling, any business that meets the economic nexus threshold criteria listed below during the preceding four sales tax quarters "is required to register as a vendor immediately" and collect, file, and remit sales tax to the New York Department of Revenue:
  • The remote seller's gross receipts from sales of tangible personal property delivered into New York exceeds $300,000; and
  • The remote seller made retail sales for delivery into New York in 100 or more separate transactions.
• Inventory in the state: Storing property for sale in New York. This includes merchandise owned by Fulfillment by Amazon (FBA) merchants and stored in a warehouse located in New York but owned or operated by Amazon. As of November 2018, remote vendors do not have sales tax nexus if their only tie to New York is inventory in a warehouse owned by a third party.
• Trade shows: You may be liable for collecting and remitting New York use tax on orders taken or sales made during conventions or trade shows in the state. If you sell taxable items at an event in New York only once a year, you’re required to collect and remit sales tax. However, mere attendance at a convention or trade show, without making sales or taking orders for taxable goods, generally doesn’t trigger sales tax nexus.

For more information, see Registration requirement for businesses with no physical presence in New York State, New York Tax Law § 1101(b)(8),Do I Need to Register for Sales Tax?, and Publication 750, A Guide to Sales Tax in New York State.

Sales tax nexus can linger even after a retailer ceases the activities that caused it to be “engaged in business” in the state. This is known as trailing nexus. As of November 2018, New York does not have an explicitly defined trailing nexus policy. 

If you’re an active Amazon seller and you use Fulfillment by Amazon (FBA), you need to know where your inventory is stored and if its presence in New York will trigger nexus. FBA sellers can also download an Inventory Event Detail Report from Amazon Seller Central to identify inventory stored in New York.

If you sell taxable goods to New York residents and have inventory stored in the state, you likely have nexus and an obligation to collect and remit tax. To begin to understand your unique nexus obligations, check out our free economic nexus tool or consult with a trusted tax advisor.

In some states, sales tax rates, rules, and regulations are based on the location of the seller and the origin of the sale (origin-based sourcing). In others, sales tax is based on the location of the buyer and the destination of the sale (destination-based sourcing).

New York generally uses destination-based sourcing. In New York, the sales tax rate is generally determined by the point of delivery, which is where ownership and/or possession of the item is transferred by the seller to the purchaser. For services, the rate is based on where the service is delivered, or where the property on which the service is performed is delivered.

For additional information, see the New York Department of Taxation and Finance.

After determining you have sales tax nexus in New York, you need to register with the proper state authority and collect, file, and remit sales tax to the state. We get a lot of questions about this and recognize it may be the most difficult hurdle for businesses to overcome. Avalara Licensing can help you obtain your New York business license and sales tax registration.

You can register for a New York Sales Tax Certificate of Authority online through the New York Department of Taxation and Finance. To apply, you’ll need to provide certain information about your business, including but not limited to:

• Business name, address, and contact information
• Federal EIN number
• Date business activities began or will begin
• Projected monthly sales
• Projected monthly taxable sales
• Products to be sold

There is currently no cost to register for a seller's permit in New York.

You must register with the New York Department of Taxation and Finance if you acquire an existing business in New York. The state requires all registered businesses to have the current business owner’s name and contact information on file.

The Streamlined Sales and Use Tax Agreement (SSUTA), or Streamlined Sales Tax (SST), is an effort by multiple states to simplify the administration and cost of sales and use tax for remote sellers. Remote sellers can register in multiple states at the same time through the Streamlined Sales Tax Registration System (SSTRS).

As of November 2018, New York is not an SST member state.

Once you've successfully registered to collect New York sales tax, you'll need to apply the correct rate to all taxable sales, remit sales tax, file timely returns with the New York Department of Taxation and Finance, and keep excellent records. Here’s what you need to know to keep everything organized and in check.

How you collect New York sales tax is influenced by how you sell your goods:

• Brick-and-mortar store: Have a physical store? Brick-and-mortar point-of-sale solutions allow users to set the sales tax rate associated with the store location. New tax groups can then be created to allow for specific product tax rules.
• Hosted store: Hosted store solutions like Shopify and Squarespace offer integrated sales tax rate determination and collection. Hosted stores offer sellers a dashboard environment where New York sales tax collection can be managed.
• Marketplace: Marketplaces like Amazon and Etsy offer integrated sales tax rate determination and collection, usually for a fee. As with hosted stores, you can set things up from your seller dashboard and let your marketplace provider do most of the heavy lifting.
• Mobile point of sale: Mobile point-of-sale systems like Square rely on GPS to determine sale location. The appropriate tax rate is then determined and applied to the order. Specific tax rules can be set within the system to allow for specific product tax rules.

New York sales tax collection can be automated to make your life much easier. Avalara AvaTax seamlessly integrates with the business systems you already use to deliver sales and use tax calculations in real time.

Some goods are exempt from sales tax under New York law. Examples include most non-prepared food items, food stamps, and medical supplies.

We recommend businesses review the laws and rules put forth by the New York Department of Taxation and Finance to stay up to date on which goods are taxable and which are exempt, and under what conditions.

Some customers are exempt from paying sales tax under New York law. Examples include government agencies, some nonprofit organizations, and merchants purchasing goods for resale.

Sellers are required to collect a valid exemption or resale certificate from buyers to validate each exempt transaction.

New York sales tax exemption and resale certificates are worth far more than the paper they’re written on. If you’re audited and cannot validate an exempt transaction, the New York Department of Taxation and Finance may hold you responsible for the uncollected sales tax. In some cases, late fees and interest will be applied and can result in large, unexpected bills.

Sales tax holidays exempt specific products from sales and use tax for a limited period, usually a weekend or a week. Approximately 17 states offer sales tax holidays every year. New York started the sales tax holiday trend back in 1997, but it no longer offers temporary sales tax holidays. Instead, it provides a year-round state sales tax exemption for clothing and footwear sold for less than $110.

You're registered with the New York Department of Taxation and Finance and you've begun collecting sales tax. Remember, those tax dollars don't belong to you. As an agent of the state of New York, your role is that of intermediary to transfer tax dollars from consumers to the tax authorities.

Once you’ve collected sales tax, you’re required to remit it to the New York Department of Taxation and Finance by a certain date. The New York Department of Taxation and Finance will then distribute it appropriately.

Filing a New York sales tax return is a two-step process comprised of submitting the required sales data (filing a return) and remitting the collected tax dollars (if any) to the New York Department of Taxation and Finance. The filing process forces you to detail your total sales in the state, the amount of sales tax collected, and the location of each sale.

Online filing is generally recommended, but paper returns are acceptable.

The New York Department of Taxation and Finance will assign you a filing frequency. Typically, this is determined by the size or sales volume of your business. State governments generally ask larger businesses to file more frequently. See the filing due dates section for more information.

New York sales tax returns and payments must be remitted at the same time; both have the same due date.

You may file directly with the New York Department of Taxation and Finance by visiting their site and entering your transaction data manually. This is a free service, but preparing New York sales tax returns can be time-consuming — especially for larger sellers.

To save time and avoid costly errors, many businesses outsource their sales and use tax filing to an accountant, bookkeeper, or sales tax automation company like Avalara. This is a normal business practice that can save business owners time and help them steer clear of costly mistakes due to inexperience and a lack of deep knowledge about Missouri sales tax code.

Once you have a New York Sales Tax Certificate of Authority, you’re required to file returns at the completion of each assigned collection period regardless of whether any sales tax was collected. When no sales tax was collected, you must file a "zero return.”

Failure to submit a zero return can result in penalties and interest charges.

The New York Department of Taxation and Finance requires all businesses to "close their books" by filing a final sales tax return. This also holds true for business owners selling or otherwise transferring ownership of their business.

Many states encourage the timely or early filing of sales and use tax returns with a timely filing discount. As of March 2019, the New York Department of Taxation and Finance offers a vendor discount (also known as a dealer collection allowance) of 5 percent with a maximum of $200 per quarter and a $0 minimum.

It's important to know the due dates associated with the filing frequency assigned to your business by the New York Department of Taxation and Finance. This way you'll be prepared and can plan accordingly. Failure to file by the assigned date can lead to late fines and interest charges.

The New York Department of Taxation and Finance requires all sales tax filing to be completed by the 20th of the month following the assigned filing period. Below, we've grouped New York sales tax filing due dates by filing frequency for your convenience. Due dates falling on a weekend or holiday are adjusted to the following business day.

It's important to note the state of New York defines annual and quarterly filing due dates based on a calendar year of March 1 through February 28/29.

Source: New York Department of Taxation and Finance

Filing a New York sales tax return late may result in a late filing penalty as well as interest on any outstanding tax due. For more information, refer to our section on penalties and interest.

In the event a New York sales tax filing deadline was missed due to circumstances beyond your control (e.g., weather, accident), the New York Department of Taxation and Finance may grant you an extension. However, you may be asked to provide evidence supporting your claim.

Hopefully you don't need to worry about this section because you're filing and remitting New York sales tax on time and without incident. However, in the real world, mistakes happen.

If you miss a sales tax filing deadline, follow the saying, "better late than never," and file your return as soon as possible. Failure to file returns and remit collected tax on time may result in penalties and interest charges, and the longer you wait to file, the greater the penalty and the greater the interest.

If a registered business has collected no sales tax in New York but fails to file a zero tax return (or missed their assigned due date), the penalty is $50.

A return filed late by 60 days or less is fined as follows:

• 10 percent of the tax due for the first month; and
• 1 percent for each additional month or part of a month not to exceed 30 percent of the tax due

However, the penalty for a New York sales tax return filed late cannot be less than $50.

A return filed late by more than 60 days is fined as follows by the greater of:

• 10 percent of the tax due for the first month, plus 1 percent for each additional month or part of a month, not to exceed 30 percent of the tax due;
• $100, or 100 percent of the amount required to be shown as tax on the return, whichever is less; or
• $50.

If you file a return on time but don’t remit the tax due, the penalty is 10 percent of the tax due for the first month, plus 1 percent for each additional month or part of a month not to exceed 30 percent. If you omit more than 25 percent of the taxes required to be shown on the return, the penalty is 10 percent of the tax you failed to report. If you fraudulently fail to pay any tax due, the penalty is equal to twice the amount of the tax not paid, plus interest on the unpaid tax, paid at the greater of 14.5 percent, or the rate set by the Tax Commissioner.

Note: You may be subject to fines and a jail sentence if you fail to make, render, sign, certify, or file any return or report. You may be subject to fines and a jail sentence if you willfully fail to deposit taxes in a financial institution as required or fail to remit the state and local taxes collected.

If you’re in the process of acquiring a business, it’s strongly recommended that you contact the New York Department of Taxation and Finance and inquire about the current status of the potential acquisition. Once you've purchased the business, you’ll be held responsible for all outstanding New York sales and use tax liability.

Because New York has one of the largest populations in the Union, most businesses have customers in the Empire State. If you’re collecting sales tax from New York residents, you’ll need to consider how to handle taxes on shipping and handling charges.

New York sales tax may apply to charges for shipping, delivery, freight, handling, and postage.

Shipping and handling charges billed by the vendor to the customer are generally taxable in New York if the sale is taxable, whether the charges are combined or separately stated on the invoice. Shipping and handling charges billed by the vendor are generally exempt when the sale is exempt, whether combined or separately stated.

When a vendor charges a single charge for delivery of both taxable and nontaxable property or services, the entire charge is generally subject to tax. However, if taxable and nontaxable charges are separately stated on a bill, and the charge for delivery is separately stated and allocated between taxable and non-taxable sales, the charge to deliver the taxable goods is taxable and the charge to deliver the exempt goods is exempt.

If a customer arranges delivery by a third person and pays that person directly, the third person’s delivery charge is not taxable, even if the item delivered is taxable.

There are exceptions to almost every rule with sales tax, and the same is true for shipping and handling charges. Specific questions on shipping in New York and sales tax should be taken directly to a tax professional familiar with New York tax laws.

For additional information, see the New York State Department of Taxation and Finance, Shipping and Delivery Charges.