Does a retailer have to collect New York sales tax on the commission a distributor or cellular phone carrier pays it for selling cellular telephones and prepaid calling cards?

Plain-English summary

A retail establishment sells cellular telephones and prepaid calling cards, and monthly or quarterly the distributor or cellular carrier pays the retailer a commission based on the total amount of those sales. The retailer's attorney asked whether that commission itself is subject to New York State and local sales and use tax.

The Department said no. A sales commission a retailer earns from its own supplier isn't a charge for one of the specifically taxable ("enumerated") services under Tax Law § 1105(c), and it isn't a receipt from a retail sale of tangible personal property either — the retailer isn't selling anything to the distributor or carrier by earning the commission; it's just being compensated for its own selling efforts. So the commission itself isn't a taxable receipt, and the retailer doesn't need to collect sales tax on it.

That doesn't change anything about the retailer's original sale, though. The retailer still must collect sales tax on the full price it charges the retail customer for the cellular phone or prepaid calling card — the commission it separately receives from its supplier has no effect on, and doesn't reduce, that taxable amount.

What this means for you

Retailers earning commissions from suppliers, distributors, or carriers

If your supplier pays you a commission, rebate, or similar incentive based on your sales volume, that payment itself is generally not a taxable receipt you need to charge tax on. But don't confuse that with your obligation on the underlying retail sale: you still must collect and remit sales tax on the full price charged to your retail customer, regardless of any commission you separately receive.

Accountants and tax professionals

The reasoning tracks the Department's earlier KPMG Peat Marwick opinion (TSB-A-94(51)S): a sales agent's commission from its supplier is neither a receipt from an enumerated taxable service nor from a retail sale of tangible personal property by the agent to the supplier. Note the separate statutory hook for prepaid calling cards themselves — Tax Law § 1105(b) specifically taxes receipts from "a prepaid telephone calling service" — which is why the retail sale price to the end customer is taxable regardless of how the commission analysis comes out.

Common questions

Q: Does my business owe sales tax on commissions I earn from a supplier or carrier?
A: Generally no, if the commission is simply compensation for your selling efforts and not itself a charge for a taxable service or a sale of tangible personal property to the payer.

Q: Does receiving a commission reduce the sales tax I collect from my customer?
A: No. The retail customer's price is taxed in full; the commission you separately receive from your supplier isn't subtracted from that taxable amount.

Q: Does this ruling cover other kinds of commissions besides cellular phones and prepaid cards?
A: This opinion is limited to the facts described — commissions on retail sales of cellular telephones and prepaid calling cards — though its underlying "commission isn't itself a taxable receipt" reasoning follows the Department's earlier general position in TSB-A-94(51)S. Confirm your own facts before relying on it.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(3) (definition of "receipt")
• Tax Law § 1105(a) (tax on retail sales of tangible personal property)
• Tax Law § 1105(b) (tax on prepaid telephone calling service)
• Tax Law § 1105(c) (tax on enumerated services)
• 20 NYCRR § 526.5(e) (nondeductible vendor expenses)

Prior rulings referenced:

• KPMG Peat Marwick, Adv Op Comm T&F, Dec. 20, 1994, TSB-A-94(51)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2001.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a01_22s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-01(22)S
Sales Tax
July 31, 2001

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S000920A

On September 20, 2000, the Department of Taxation and Finance received a Petition for
Advisory Opinion from William H. Wishinsky, PC, 24 South Drive, Roslyn, NY 11576. Petitioner,
William H. Wishinsky, PC, furnished additional information with respect to the Petition on
November 1, 2000.
The issue raised by Petitioner is whether commissions paid by a distributor or cellular phone
carrier to a retailer for the sale of cellular telephones and prepaid calling cards are subject to State
and local sales and use taxes.
Petitioner submits the following facts as the basis for this Advisory Opinion.
A retail establishment sells cellular telephones and/or prepaid calling cards. Monthly or
quarterly the distributor or cellular phone carrier pays to the retail establishment a commission on
the total amount of such sales.
Applicable Law and Regulations
Section 1101(b)(3) of the Tax Law defines the term “receipt,” in part, as follows:
Receipt. The amount of the sale price of any property and the charge for any
service taxable under this article . . . valued in money, whether received in money or
otherwise, including any amount for which credit is allowed by the vendor to the
purchaser, without any deduction for expenses . . . .
Section 1105 of the Tax Law provides in part:
Imposition of sales tax. On and after June first, nineteen hundred
seventy-one, there is hereby imposed and there shall be paid a tax of four percent
upon:
(a) The receipts from every retail sale of tangible personal property, except
as otherwise provided in this article.
(b) The receipts from every sale, other than sales for resale, of the following:
. . . (D) a prepaid telephone calling service. . . .

-2­
TSB-A-01(22)S
Sales Tax
July 31, 2001

Section 1105(c) of the Tax Law imposes sales tax upon the receipts from every sale, except
for resale, of certain enumerated services.
Section 526.5(e) of the Sales and Use Tax Regulations provides, in part:
Expenses. All expenses, including telephone and telegraph and other service
charges, incurred by a vendor in making a sale, regardless of their taxable status and
regardless of whether they are billed to a customer are not deductible from the
receipts.
Opinion
Sales commissions received by a sales agent from its supplier are not receipts from the sale
of an enumerated taxable service under Section 1105 of the Tax Law by the agent to its supplier.
Moreover, the sales commissions do not constitute receipts from a retail sale of tangible personal
property under Section 1105(a) of the Tax Law by the agent to its supplier. Accordingly, the
commissions paid by a distributor or cellular phone carrier to a retail establishment for its sale of
cellular phones and/or prepaid calling cards are not receipts from a taxable sale, and the retail
establishment is not required to collect State and local sales and use taxes from the distributor or
carrier on such commissions. See KPMG Peat Marwick, Adv Op Comm T&F, December 20, 1994,
TSB-A-94(51)S.
The commission paid by a distributor or cellular phone carrier to a retail establishment for
the sale of cellular phones and/or prepaid calling cards is not considered in determining the amount
of the taxable receipts from the sale of a cellular phone or prepaid calling card by the retail
establishment to a retail customer. The retail establishment must collect tax on the amount charged
to the customer for a cellular phone or prepaid calling card. See Section 1101(b)(3) of the Tax Law
and Section 526.5(e) of the Sales and Use Tax Regulations.

DATED: July 31, 2001

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist III
Technical Services Division

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