If out-of-state companies hire New York-based, homebased independent contractors to take inbound customer calls and orders by phone, does that alone make the out-of-state companies responsible for collecting New York sales tax on their New York sales?

Plain-English summary

National Telecommuting Institute, a nonprofit that works with New York's Department of Vocational Rehabilitation Services to train and place people with disabilities into homebased jobs, had interest from several out-of-state companies (a mail-order catalog company and a TV home-shopping channel) in hiring its homebased workforce as independent contractors. These contractors would only take inbound calls -- receiving orders or providing customer service -- with no outbound solicitation. They'd input credit card numbers into a computer field during the call, but the actual payment processing happens at the out-of-state company's own location, and no merchandise is ever stored at or shipped from the contractors' homes. The Institute asked whether using these New York-based contractors this way would require the out-of-state companies to collect New York sales tax on their New York sales.

New York's "vendor" definition sweeps in out-of-state companies that solicit business through independent contractors or otherwise establish enough of a connection with the state to satisfy constitutional nexus requirements. But the statute separately defines specific "fulfillment services" -- including accepting orders by phone, mail, fax, or internet, and responding to customer inquiries -- and expressly excludes a company from vendor status based solely on purchasing fulfillment services carried on in New York by an unaffiliated person. Because taking inbound orders and providing customer service over the phone is exactly the kind of "fulfillment service" the statute describes, and because the independent contractors here are unaffiliated with the out-of-state companies, using them for this purpose alone doesn't make those companies vendors required to collect New York tax.

The Department was careful to note the limits of this conclusion: whether a particular out-of-state company actually is a vendor required to collect tax remains a fact-specific inquiry based on ALL of that company's activities and connections to New York -- this ruling only confirms that the specific fulfillment-service activity described (inbound call-taking through unaffiliated homebased contractors) doesn't, by itself, create that obligation.

What this means for you

Out-of-state retailers and catalog/e-commerce companies

Outsourcing inbound order-taking and customer service to independent, unaffiliated contractors (including homebased workers) located in New York doesn't by itself create a sales tax collection obligation, as long as the arrangement fits the statutory fulfillment-services description -- no outbound solicitation, no local storage or shipment of merchandise, and genuine independent-contractor status. But this is just one piece of a larger nexus analysis; other New York activities or connections could still create vendor status.

Staffing and remote-work platforms serving out-of-state retailers

This ruling is useful reassurance for platforms placing homebased/remote customer-service and order-taking workers with out-of-state clients -- but confirm the contractor relationship is genuinely unaffiliated (no more than 5% cross-ownership) and that the work stays within the fulfillment-services description (no outbound solicitation, no local inventory).

Accountants and tax professionals

The controlling provision is Tax Law § 1101(b)(8)(v), added specifically to shelter fulfillment-service arrangements from creating vendor nexus -- but remember it's a narrow safe harbor tied to the § 1101(b)(18) fulfillment-services definition (order acceptance, customer correspondence, billing/collection, or shipment from inventory) and doesn't provide blanket nexus protection for other New York activities a client might have.

Common questions

Q: Does hiring New York-based contractors to answer customer calls automatically create sales tax nexus?
A: No -- if the work fits the statutory "fulfillment services" description and the contractors are unaffiliated with the out-of-state company, that specific activity alone doesn't create vendor status.

Q: Does this mean an out-of-state company using this arrangement never has to collect New York sales tax?
A: Not necessarily -- the company could still be a vendor for other reasons (other New York activities, other nexus-creating connections). This ruling only addresses the fulfillment-service activity in isolation.

Q: Does it matter that the contractors are people with disabilities working from home?
A: No -- the legal analysis turns on the nature of the activity (fulfillment services) and the unaffiliated-contractor structure, not on the workers' personal characteristics or the sponsoring nonprofit's mission.

Q: Can another company rely on this ruling?
A: No. It binds the Department only as to this petitioner's described arrangement. Other companies should confirm their own facts match (no outbound solicitation, no local storage/shipment, genuinely unaffiliated contractors) before assuming the same result.

Citations and references

Statutes:

• Tax Law § 1101(b)(8)(i) (definition of "vendor," including solicitation-based nexus)
• Tax Law § 1101(b)(8)(v) (fulfillment-services exclusion from vendor status)
• Tax Law § 1101(b)(18) (definition of "fulfillment services")
• Tax Law § 1131(1) (persons required to collect tax)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2000.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a00_1s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-00(1)S
Sales Tax
January 21, 2000

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S991019A

On October 19, 1999, the Department of Taxation and Finance received a Petition for
Advisory Opinion from National Telecommuting Institute, 1505 Commonwealth Avenue, Boston,
MA 02135. Petitioner, National Telecommuting Institute, provided additional information with
respect to the Petition on November 17, 1999.
The issue raised by Petitioner is whether use by out- of-state companies of homebased, New
York independent contractors to perform order taking and customer service work over the telephone
will require such companies to collect New York State sales and use taxes on their New York sales.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner is a nonprofit disability organization working with the New York State Department
of Vocational Rehabilitation Services to train and place selected individuals with disabilities into
homebased jobs. Several companies, including a mail order catalog company and a television home
shopping network channel, have indicated an interest in hiring Petitioner’s homebased population
of independent contractors to perform work that involves taking orders over the telephone or in some
cases, providing customer service to callers over the telephone.
The independent contractors will only take inbound telephone calls. They do no outbound
solicitation. The independent contractors accept no checks or money on their premises, although
they do accept credit card numbers over the telephone which they input into the appropriate field on
their computer. All credit card transactions are actually processed at the location of the home
company selling the merchandise. None of the merchandise sold by these companies is ever stored
at, or shipped from, the homes of the independent contractors. The independent contractors just take
the order information on behalf of the companies.
Applicable Laws
Section 1101(b) of the Tax Law provides, in part:
(b) 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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Sales Tax
January 21, 2000

(8) Vendor. (i) The term “vendor” includes:
(A) A person making sales of tangible personal property or services, the
receipts from which are taxed by this article;
(B) A person maintaining a place of business in the state and making sales,
whether at such place of business or elsewhere, to persons within the state of tangible
personal property or services, the use of which is taxed by this article;
(C) A person who solicits business either:
(I) by employees, independent contractors, agents or other representatives; or
(II) by distribution of catalogs or other advertising matter, without regard to
whether such distribution is the result of regular or systematic solicitation, if such
person has some additional connection with the state which satisfies the nexus
requirement of the United States constitution; and by reason thereof makes sales to
persons within the state of tangible personal property or services, the use of which
is taxed by this article;
(D) A person who makes sales of tangible personal property or services, the
use of which is taxed by this article, and who regularly or systematically delivers
such property or services in this state by means other than the United States mail or
common carrier;
(E) A person who regularly or systematically solicits business in this state by
the distribution, without regard to the location from which such distribution
originated, of catalogs, advertising flyers or letters, or by any other means of
solicitation of business, to persons in this state and by reason thereof makes sales to
persons within the state of tangible personal property, the use of which is taxed by
this article, if such solicitation satisfies the nexus requirement of the United States
constitution;
(F) A person making sales of tangible personal property, the use of which is
taxed by this article, where such person retains an ownership interest in such property
and where such property is brought into this state by the person to whom such
property is sold and the person to whom such property is sold becomes or is a
resident or uses such property in any manner in carrying on in this state any
employment, trade, business or profession;

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Sales Tax
January 21, 2000

(G) Any other person making sales to persons within the state of tangible
personal property or services, the use of which is taxed by this article, who may be
authorized by the commissioner of taxation and finance to collect such tax by part IV
of this article; and
(H) The state of New York, any of its agencies, instrumentalities, public
corporations (including a public corporation created pursuant to agreement or
compact with another state or Canada) or political subdivisions when such entity sells
services or property of a kind ordinary sold by private persons.
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(v) Notwithstanding any other provision of law, the term vendor shall not
include:
(A) a person who is not otherwise a vendor who purchases fulfillment
services carried on in New York by a person other than an affiliated person; or
(B) a person who is not otherwise a vendor who owns tangible personal
property located on the premises of an unaffiliated person performing fulfillment
services for such person.
For purposes of this subparagraph, persons are affiliated persons with respect to each
other where one of such persons has an ownership interest of more than five percent,
whether direct or indirect, in the other, or where an ownership interest of more than
five percent, whether direct or indirect, is held in each of such persons by another
person or by a group of other persons which are affiliated persons with respect to
each other.
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(18) Fulfillment services. Any of the following services performed by an
entity on its premises on behalf of a purchaser:
(i) the acceptance of orders electronically or by mail, telephone, telefax or
internet;
(ii) responses to consumer correspondence and inquiries electronically or by
mail, telephone, telefax or internet;
(iii) billing and collection activities; or

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Sales Tax
January 21, 2000

(iv) the shipment of orders from an inventory of products offered for sale by
the purchaser.
Section 1131(1) of the Tax Law provides, in part:
"Persons required to collect tax" or "person required to collect any tax
imposed by this article" shall include: every vendor of tangible personal property or
services; every recipient of amusement charges; and every operator of a hotel. . . .
Opinion
Pursuant to Section 1101(b)(8) of the Tax Law, an out-of-state company could be considered
to be a vendor in New York and required to collect sales and compensating use tax on sales to
persons within New York if it meets the requirements of such section. The use of independent
contractors by an out-of-state company to receive inbound telephone calls and take orders or provide
customer service at the independent contractor’s home on behalf of the out-of-state company is the
purchase of a fulfillment service under Section 1101(b)(18) of the Tax Law. The use of such
fulfillment services by an out-of-state company is not sufficient, by itself, to make the company a
vendor in New York required to collect tax on its New York sales. See Section 1101(b)(8)(v) of the
Tax Law. It should be noted, however, that a determination as to whether an out-of-state company
qualifies as a vendor required to collect tax is a question of fact based on all the factors and
circumstances in each instance and cannot be made in this Advisory Opinion solely on the basis of
the use of the aforementioned independent contractors.

DATED: January 21, 2000

NOTE:

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

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