Does an out-of-state bathrobe and towel manufacturer have to register as a New York sales tax vendor and collect tax on all its New York sales — including Internet sales — just because one independent commission-only salesman shows its children's clothing line to a few New York retail stores?

Plain-English summary

Monarch Towel Company is a New Jersey manufacturer and distributor of bathrobes and towels with no New York offices. During 1993-1999, about 74% of its New York sales went to adult and children's retail stores, 20% to wholesale distributors, and 6% to spas and hotels; a small slice (under 6%, starting in 1999) came from direct Internet sales. Separately, an independent New York City salesman — who also represents at least three other children's clothing lines and is paid a commission only on orders he personally solicits — shows Monarch's children's bathrobes and coverups to New York retail stores. He performs no other function for Monarch, doesn't report his activities to the company, and doesn't participate in the trade shows that generate most of Monarch's actual business. Monarch asked whether this arrangement gives it enough connection ("nexus") with New York to require it to register as a vendor and collect sales tax on its New York sales.

The Department said yes. Citing U.S. Supreme Court precedent (Scripto v. Carson, International Shoe Co. v. Washington) and New York's statutory "vendor" definition, the presence of even an independent commission-based sales representative soliciting business in the state is sufficient nexus — the salesman doesn't need to be an employee, and doesn't need to do anything beyond showing the product line to local stores. Once nexus exists, it applies to the whole business, not just the transactions the salesman personally touched: Monarch must collect tax on all its New York sales delivered into the state, including the unrelated Internet sales the salesman had nothing to do with (citing National Geographic Society v. California Board of Equalization).

That collection duty is then narrowed by ordinary resale rules: sales to Monarch's wholesale distributors and retail stores are presumed made for resale and stay exempt if Monarch has a proper resale certificate; but sales to spas and hotels are treated as taxable retail sales, because those buyers generally consume the towels/robes in running their business rather than reselling them to guests as such (citing Helmsley Enterprises and a prior TSB-A). Monarch is protected from liability if it accepts a resale certificate in good faith within 90 days of a sale, unless it actually knows the certificate is false. The opinion also flags, almost as an aside, that bathrobes sold for under $110 can separately qualify for whatever clothing exemption from state/local sales tax is in effect in the delivery locality.

What this means for you

Out-of-state manufacturers and wholesalers using independent reps

A single, part-time, commission-only independent salesman soliciting orders in New York — even one who does nothing else on your behalf and doesn't even report to you — is enough to create sales-tax nexus with the state. And once you have nexus, it isn't limited to the sales that salesman personally generated: you must collect tax on all New York deliveries, including sales made through entirely different channels like your website.

Businesses selling to spas, hotels, and similar service providers

Don't assume sales to spas or hotels are automatically resale-exempt just because the items technically end up in a guest's hands. If the buyer is deemed to be consuming the product in running its business (rather than genuinely reselling it to the guest as tangible property), the sale is taxable retail, and you should collect tax absent some other exemption.

Accountants and tax professionals

This is a clean, citation-rich nexus opinion worth keeping on hand for any client with even minimal independent sales-rep presence in New York — note especially that nexus from one channel (an in-state rep) extends to unrelated sales channels (e-commerce) once established.

Common questions

Q: Does an independent contractor (not an employee) create sales tax nexus?
A: Yes. New York's vendor definition and regulations expressly include solicitation "by employees, independent contractors, agents or other representatives" — the legal relationship doesn't matter, only that solicitation is happening in-state on the seller's behalf.

Q: If my in-state rep only sells one product line, do I have to collect tax on my other, unrelated sales into New York too?
A: Yes — once nexus is established, it extends to all of the seller's sales delivered into the state, including sales channels (like direct Internet sales) the in-state rep had no involvement in.

Q: Are sales to hotels and spas exempt as sales for resale?
A: Generally no — items consumed by the hotel or spa in the course of its own operations (rather than genuinely resold to the guest as tangible property) are treated as taxable retail sales to the hotel/spa itself.

Q: How does a vendor protect itself when accepting a resale certificate?
A: By accepting a properly completed certificate in good faith within 90 days of the sale — this shifts the burden of proving non-taxability and relieves the vendor of collection responsibility, unless the vendor actually knew the certificate was false.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4)(i) (retail sale; resale exclusion), § 1101(b)(8)(i) (vendor definition)
• Tax Law § 1131(1) (persons required to collect tax)
• Tax Law § 1134(a)(1) (vendor registration)
• 20 NYCRR § 526.6(c) (resale exclusion)
• 20 NYCRR § 526.10(a)(3) (solicitation by representatives; Example 5)
• 20 NYCRR § 532.4 (presumption of taxability; resale/exemption certificate good-faith rule)

Cases and prior rulings referenced:

• Scripto, Inc. v. Carson, 362 US 207
• International Shoe Co. v. Washington, 326 US 310
• The Ohio Table Pad Co., Inc., TSB-D-99(7)S
• National Geographic Society v. California Board of Equalization, 430 US 551
• Matter of Helmsley Enterprises, Inc. v. Tax Appeals Tribunal, 187 AD2d 64
• Jim Axford, TSB-A-99(54)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2003.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a03_41s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-03(41)S
Sales Tax
November 19, 2003

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S030523A

On May 23, 2003, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Monarch Towel Company, Inc., 737 Cortlandt Street, Perth Amboy, NJ 08861.
Petitioner, Monarch Towel Company, furnished additional information with respect to the Petition
on June 30, 2003.
The issue raised by Petitioner is whether there is sufficient nexus between Petitioner and the
state of New York to require Petitioner to register as a vendor and collect sales and use tax on sales
to New York customers.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner is located in Perth Amboy, NJ. Petitioner has no offices in New York State.
Petitioner manufactures and distributes bathrobes and towels. During the tax period of 1993-1999,
Petitioner’s New York sales were as follows: 74% of Petitioner’s products were sold to adult and
children’s retail stores; 20% of Petitioner’s products were sold to wholesale distributors; and 6% of
Petitioner’s products were sold to spas and hotels.
Other than direct Internet sales, which started in 1999, and account for less than 6% of total
sales volume, Petitioner does not market goods directly to consumers. In New York City, an
independent salesman for children’s bathrobes and coverups shows at least four children’s clothing
lines including the children’s bathrobes and coverups manufactured by Petitioner. The salesman
shows the clothing lines to children’s retail stores in New York. The salesman is paid a commission
for orders from these stores. Other than showing the products to these stores, the salesman performs
no other functions with regard to Petitioner’s products for children. Furthermore, the salesman does
not report his business activities to Petitioner, nor does Petitioner request such reports. The
salesman is only paid a commission on orders placed by stores that he visits or that have visited him.
The salesman does not receive a commission from sales to other children’s retail stores in New York
that he has not contacted or have not contacted him. The majority of Petitioner’s business comes
from displaying products at various trade shows located throughout the country. The salesman does
not participate in these trade shows or any other trade shows on behalf of Petitioner.
Applicable law and regulations
Section 1101(b) of the Tax Law provides, in part:
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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*

*

*

(4) Retail sale. (i) A sale of tangible personal property to any person for any purpose,
other than (A) for resale as such or as a physical component part of tangible personal
property. . . .
*

*

*

(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;
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. . . .
Section 1134(a)(1) of the Tax Law provides, in part:
(i) Every person required to collect any tax imposed by this article . . . commencing
business or opening a new place of business, (ii) every person purchasing or selling tangible
personal property for resale commencing business or opening a new place of business . . .

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shall file with the commissioner a certificate of registration, in a form prescribed by the
commissioner, at least twenty days prior to commencing business or opening a new place
of business. . . .
Section 526.6(c) of the Sales and Use Tax Regulations provides, in part:
Resale exclusion. (1) Where a person, in the course of his business operations,
purchases tangible personal property or services which he intends to sell, either in the form
in which purchased, or as a component part of other property or services, the property or
services which he has purchased will be considered as purchased for resale, and therefore
not subject to tax until he has transferred the property to his customer.
Section 526.10(a)(3) of the Sales and Use Tax Regulations provides:
A person who solicits business by employees, independent contractors, agents or
other representatives and by reason thereof makes sales to persons within the State of
tangible personal property or services, the use of which is subject to tax, is a vendor.
(emphasis added)
Example 5:

A California based company uses independent manufacturers'
representatives, who are residents of New York State, to sell its
product in New York. The California company is a vendor.

Section 532.4 of the Sales and Use Tax Regulations provides, in part:
(a) General.
(1) It is presumed that all receipts for property or service of any type mentioned in
subdivisions (a), (b), (c) and (d) of section 1105 of the Tax Law, . . . are subject to tax until
the contrary is established.
*

*

*

(b) Burden of proof.
(1) The burden of proving that any receipt, . . . is not taxable shall be upon the person
required to collect the tax and the customer.
(2) A vendor who in good faith accepts from a purchaser a properly completed
exemption certificate or, as authorized by the Department, other documentation evidencing
exemption from tax not later than 90 days after delivery of the property or the rendition of
the service is relieved of liability for failure to collect the sales tax with respect to that
transaction. The timely receipt of the certificate or documentation itself will satisfy the

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vendor's burden of proving the nontaxability of the transaction and relieve the vendor of
responsibility for collecting tax from the customer.
(i) A certificate or other document is "accepted in good faith" when a vendor
has no knowledge that the exemption certificate or other document issued by the
purchaser is false or is fraudulently presented. If reasonable ordinary due care is
exercised, knowledge will not be imputed to the seller required to collect the tax.
Opinion
Petitioner is located in New Jersey and has no office in New York State. Petitioner
manufactures and distributes bathrobes and towels. An independent salesman in New York City
shows some of Petitioner’s clothing lines for children to retail stores in New York. The salesman
is paid a commission for orders from these stores. Other than showing the products to these stores,
the salesman performs no other functions with regard to Petitioner’s products for children.
The presence of independent contractors or agents of an out-of-state corporation in the state
is sufficient nexus to require the corporation to collect tax on its sales shipped and delivered into the
state. See Scripto, Inc. v. Carson, 362 US 207; International Shoe Co. v. Washington, 326 US 310;
The Ohio Table Pad Co., Inc., Dec Tax App Trib, April 22, 1999, TSB-D-99(7)S.
Under section 1101(b)(8)(i)(C)(I) of the Tax Law and section 526.10 of the Sales and Use
Tax Regulations, since Petitioner, an out-of-state corporation, is soliciting business in New York
by means of an independent salesman, Petitioner has nexus with New York State and is a vendor
required to register under section 1134 of the Tax Law. Therefore, Petitioner will be required to
collect and remit the applicable State and local sales and use taxes on all sales, including sales that
were not solicited by its salesman such as sales via the Internet, which are delivered to customers
in New York. See National Geographic Society v. California Board of Equalization, 430 US 551.
However, where Petitioner’s customers are purchasing products exclusively for the purpose
of being resold, these purchases are for resale and are exempt from tax. See section 1101(b)(4)(i)
of the Tax Law and section 526.6(c) of the Sales and Use Tax Regulations. Purchases by
wholesalers and retail stores would appear to be made for resale. Purchases by spas and hotels
would appear to be retail purchases subject to tax. Generally, such purchases by spas and hotels are
not purchases for resale since such items are deemed to be consumed in the course of the operation
of the spa or hotel and are not considered to be sold to the spa patron or the hotel occupant. See
Matter of Helmsley Enterprises, Inc. v. Tax Appeals Tribunal, 187 AD2d 64; Jim Axford, Adv Op
Comm T&F, November 30, 1999, TSB-A-99(54)S.
Petitioner is not required to collect sales and use tax where it accepts in good faith a properly
completed resale certificate within 90 days of the date of sale. A vendor could not accept a resale
certificate in good faith, and would be required to collect tax on the sale of tangible personal
property or services, if the vendor had “actual knowledge” that such purchases were not for resale,

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even though a resale or exemption certificate had been timely furnished by the purchaser. See
section 532.4(b)(2)(i) of the Sales And Use Tax Regulations.
It should be noted that bathrobes are articles of clothing, and, if sold for less than $110, a
bathrobe would qualify for the applicable clothing exemption, if any, from state and/or local sales
and use taxes, in effect at the time of the sale in the locality where it is delivered.

DATED: November 19, 2003

NOTE:

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

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