Does an out-of-state promotional-products company have New York sales tax nexus, and are its baseball caps and cameras shipped to New York recipients exempt promotional materials?

Plain-English summary

The Sourcing Business, a Seattle company with no physical presence in New York, sells promotional items (like logo-imprinted baseball caps) to business clients. It contracts with third-party manufacturers who ship the finished goods directly to the client or to the client's own customers — for example, one client offers a logo camera as a free sign-up gift, and the Sourcing Business arranges for a third party to mail the camera straight to the client's customers in New York, New Jersey, and Connecticut.

Two separate questions were at stake. First: nexus. Under the U.S. Supreme Court's physical-presence rule (Quill, National Bellas Hess), a state can't force an out-of-state seller to collect its sales tax unless the seller has more than a "slightest presence" there. Because the Sourcing Business has no property, employees, or solicitation activity of its own in New York — everything is drop-shipped by third parties via common carrier or mail — it has no nexus and cannot be required to register or collect New York tax.

Second: even without nexus, are the promotional items themselves tax-exempt? New York exempts "promotional materials" shipped from within the state to out-of-state customers, and separately exempts printed promotional materials (like brochures, catalogs, and cover letters) mailed to customers anywhere, including in New York. But baseball caps and cameras — even with a logo attached — are NOT "printed" promotional materials in the sense the exemption requires; that narrower exemption is limited to traditionally printed items. So items delivered to recipients IN New York remain taxable, and because the seller has no nexus to collect that tax itself, the burden shifts to the New York client (or its customers, if registered) to self-assess and remit use tax.

What this means for you

Promotional-products companies

Physical presence is what triggers nexus — pure drop-shipping through independent carriers, with no in-state employees, property, or solicitation, typically won't create it. But don't assume that gets your customers off the hook: non-printed promotional items (caps, cameras, mugs, and similar tangible goods) generally don't qualify for the promotional-materials exemption even when a logo is imprinted, so your New York clients likely owe use tax on anything delivered here.

Businesses that buy promotional giveaways for New York customers

If your out-of-state vendor doesn't charge you New York sales tax because it has no nexus, that doesn't make the purchase tax-free — you're responsible for self-assessing and remitting use tax on items delivered to your New York recipients, unless the items are genuinely printed materials (catalogs, brochures, cover letters) mailed at no charge.

Accountants and tax professionals

This is a useful two-part nexus/exemption template: the nexus analysis under Quill/§ 1101(b)(8)(i) and the separate, narrower "printed" promotional-materials exemption under § 1115(n)(4) — a tangible item with a logo doesn't automatically qualify just because it's marketed as promotional.

Common questions

Q: Does drop-shipping to New York customers create sales tax nexus for an out-of-state seller?
A: Not by itself — nexus generally requires the seller's own physical presence (property, employees, or solicitation) in the state, more than the "slightest presence."

Q: Are promotional baseball caps and cameras exempt from sales tax?
A: No. The printed-promotional-materials exemption is limited to items printed in the traditional sense (brochures, catalogs, letters); tangible goods like caps and cameras don't qualify even with a logo imprinted.

Q: If the out-of-state seller has no nexus, does anyone owe tax on items delivered to New York?
A: Yes — the New York client (or its registered customers) is responsible for self-assessing and remitting use tax on the taxable portion.

Q: Can another promotional-products company rely on this Advisory Opinion?
A: No. It binds the Department only for the petitioner and facts described; another company's presence and distribution model should be checked independently.

Citations and references

Statutes, regulations, and cases:

• Tax Law §§ 1101(b)(4)(i), (8)(i), (12); 1105(a), (c)(2); 1115(n)(1), (n)(4); 1134(a)(1)(i)
• National Geographic Society v California Bd. of Equalization, 430 US 551
• National Bellas Hess, Inc. v Illinois, 386 US 753
• Quill Corp. v North Dakota, 504 US 298
• Orvis Company, Inc. v Tax Appeals Tribunal, 86 NY2d 165

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2006.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a06_14s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-06(14)S
Sales Tax
May 5, 2006

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S040507A

On May 7, 2004, the Department of Taxation and Finance received a Petition for
Advisory Opinion from The Sourcing Business (US), Inc, 1938 NW 96th Street, Seattle,
Washington, 98117.
The issues raised by Petitioner, The Sourcing Business (US), Inc., are:

1. Whether Petitioner has nexus with New York State for sales tax purposes and is
   therefore required to register for sales tax purposes and collect tax on its retail sales.
2. Whether Petitioner=s sales of promotional items to its client delivered by common
   carrier are exempt from sales and use tax.
   Petitioner submits the following facts as the basis for this Advisory Opinion.
   Petitioner is located and registered to do business in Seattle, Washington and asserts that
   it has no physical presence in New York State. Petitioner sells promotional materials to
   businesses. Petitioner contracts with third parties to produce the promotional materials and the
   third parties deliver the materials directly to Petitioner's clients or to the client's customers or
   prospective customers. For example, Business A purchases 50,000 baseball caps imprinted with
   Business A's logo from Petitioner. Petitioner will contract with a third party to produce the
   baseball caps and the third party will ship them directly to Business A or Business A's customers
   or prospective customers via common carrier.
   Currently, Petitioner has a client located in New York State. The client offers a camera
   free of charge as a promotional gift to customers who sign up for the client=s online service. The
   client purchases the cameras from Petitioner who has a third party ship the cameras directly to
   the client's customers in New York, New Jersey and Connecticut. Petitioner indicates that the
   client=s logo may be permanently attached to the camera or, alternatively, may be placed on the
   camera without being permanently attached.
   Petitioner contracts with a third party located outside New York State to package and
   ship the camera, along with a cover letter, to the client's customers. The camera package is
   shipped, at no charge to the customers, via U.S. Postal Service directly to the client=s customers
   located in New York, New Jersey and Connecticut. The letter to the customer states that the
   camera is delivered to the customer by the client to thank the customer for signing up for the
   client=s online service.

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It is presumed in all cases that the above-mentioned items are promotional items or free
gifts and that the ultimate recipient has not purchased such items from the client.
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:
*

*

*

(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

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property or services in this state by means other than the United States mail or common
carrier;
*

*

*

(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;
(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;
*

*

*

(12) Promotional materials. Any advertising literature, other related tangible
personal property (whether or not personalized by the recipient's name or other
information uniquely related to such person) and envelopes used exclusively to deliver
the same. Such other related tangible personal property includes, but is not limited to,
free gifts, complimentary maps or other items given to travel club members, applications,
order forms and return envelopes with respect to such advertising literature, annual
reports, prospectuses, promotional displays and Cheshire labels but does not include
invoices, statements and the like. Promotional materials shall also include paper or ink
furnished to a printer for use in providing the services of producing, printing or
imprinting promotional materials or in producing, printing or imprinting promotional
materials, where such paper and ink become a physical component part of the
promotional materials and such printer sells such services or such promotional materials
to the person who furnished the paper and ink to such printer.
*

*

*

(15) Clothing and footwear. (i) Clothing and footwear to be worn by human
beings, but not including costumes or rented formal wear, and (ii) fabric, thread, yarn,
buttons, snaps, hooks, zippers and like items which are used or consumed to make or
repair such clothing (other than such costumes or rented formal wear) and which become
a physical component part of such clothing, but not including such items made from
pearls, precious or semi-precious stones, jewels or metals, or imitations thereof.
Section 1105 of the Tax Law provides, in part:

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Imposition of sales tax On and after June first, nineteen hundred seventy-one,
there is hereby imposed and there shall be paid a tax . . . upon:
(a) The receipts from every retail sale of tangible personal property, except as
otherwise provided in this article.
*

*

*

(c) The receipts from every sale, except for resale, of the following services:
*

*

*

(2) Producing, fabricating, processing, printing or imprinting tangible personal
property, performed for a person who directly or indirectly furnishes the tangible
personal property, not purchased by him for resale, upon which services are performed.
Section 1115 of the Tax Law provides, in part:
(a) Receipts from the following shall be exempt from the tax on retail sales
imposed under subdivision (a) of section eleven hundred five and the compensating use
tax imposed under section eleven hundred ten:
*

*

*

(30) Clothing and footwear for which the receipt or consideration given or
contracted to be given is less than one hundred ten dollars per article of clothing, per pair
of shoes or other articles of footwear or per item used or consumed to make or repair
such clothing and which becomes a physical component part of such clothing.
*

*

*

(n) (1) Except as otherwise provided in this subdivision, promotional materials
mailed, shipped or otherwise distributed from a point within the state, by or on behalf of
vendors or other persons to their customers or prospective customers located outside this
state for use outside this state shall be exempt from the tax on retail sales imposed under
subdivision (a) of section eleven hundred five and the compensating use tax imposed
under section eleven hundred ten of this article.
*

*

*

(4) Notwithstanding any contrary provisions of paragraph one of this subdivision,
promotional materials which are printed materials and promotional materials upon which
services described in paragraph two of subdivision (c) of section eleven hundred five

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have been directly performed shall be exempt from tax under this article where the
purchaser of such promotional materials mails or ships such promotional materials, or
causes such promotional materials to be mailed or shipped, to its customers or
prospective customers, without charge to such customers or prospective customers, by
means of a common carrier, United States postal service or like delivery service.
Section 1134(a)(1)(i) of the Tax Law provides, in part:
Every person required to collect any tax imposed by this article, other than a
person who is a vendor solely by reason of clause (D), (E) or (F) of subparagraph (i) of
paragraph eight of subdivision (b) of section eleven hundred one of this article,
commencing business or opening a new place of business . . . 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 or
such purchasing, selling or taking of possession or payment, whichever comes first. . . .
Opinion
Petitioner is located and registered to do business in Seattle, Washington, and asserts that
it has no physical presence in New York State. A state can require an out-of-state seller to
collect the state's sales or use tax only when there is a sufficient nexus between the seller and the
taxing state. See National Geographic Society v California Bd. of Equalization, 430 US 551;
National Bellas Hess, Inc. v Illinois, 386 US 753; Quill Corp. v North Dakota, 504 US 298.
While a physical presence of the vendor is required, it need not be substantial. Rather, it must be
demonstrably more than a "slightest presence." Such presence may be manifested by the vendor's
property in the taxing state or the conduct of economic activities in the taxing state performed by
the vendor's personnel or on its behalf. See Orvis Company, Inc. v Tax Appeals Tribunal, 86
NY2d 165, 178, cert den 630 US 989.
Under section 1101(b)(8)(i) of the Tax Law, an out-of-state business making sales of
tangible personal property or services subject to sales or use tax to persons within New York
State is a vendor required to register and collect New York's sales and use tax if it:
$

maintains a place of business in the State;

$

solicits business in the State either by employees, independent contractors, agents or
other representatives;

$

regularly or systematically delivers its property or services in the State by means other
than the United States mail or common carrier;

$

makes sales of tangible personal property, the use of which is subject to sales tax, where
the seller retains an ownership interest in the property and where the property is brought

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into the State by the purchaser and the purchaser becomes or is a resident or uses such
property in any manner in carrying on in this State any employment, trade, business or
profession; or
$

solicits business by distribution of catalogs or other advertising matter, and otherwise has
an additional connection with the State that establishes more than the slightest physical
presence in the State.
(Section 1101[b][8][i] of the Tax Law sets forth other criteria for qualifying as a vendor
that are not relevant to the present case.)

Accordingly, Petitioner cannot be required to register in New York State for sales tax
purposes or be held liable for collecting sales tax if Petitioner does not engage in any of the
activities described above in New York State or otherwise have more than the slightest presence
in the State.
Petitioner purchases tangible personal property, such as baseball caps and cameras, from
a third party supplier with the intent of reselling such property to its clients. Sales of tangible
personal property exclusively for resale are not retail sales subject to sales or use tax. See
sections 1101(b)(4)(i) and 1110 of the Tax Law. If Petitioner purchases such property for resale
from a vendor who is registered in New York State for sales and use tax purposes and who
delivers the property on behalf of Petitioner to locations in the State, Petitioner may issue such
vendor a properly completed New York State Resale Certificate (Form ST-120) in order to
purchase such property without the payment of sales tax. See Kahn, Hoffman, Nonenmacher &
Hochman, LLP, Adv Op Comm T & F, April 25, 2000, TSB-A-00(20)S; and Technical Services
Bureau Memorandum entitled Nonregistered Out-of-State Purchaser’s Use of Resale Certificate,
Form ST-120, June 5, 1998, TSB-M-98(3)S.
Petitioner further inquires as to whether sales to its clients of promotional items, such as
baseball caps and cameras, that are delivered by common carrier directly to the client or the
client=s customers or prospective customers are exempt from sales and compensating use taxes.
Such sales of tangible personal property will be subject to tax under section 1105(a) of the Tax
Law if delivery occurs in New York State and the property is not otherwise exempt. Section
1115(n)(1) of the Tax Law provides an exemption from sales and use taxes for the sale of
promotional materials as defined in section 1101(b)(12) of the Tax Law that are mailed, shipped
or otherwise distributed from a point within New York State by or on behalf of vendors or other
persons to their customers or prospective customers located outside New York State for use
outside this State. Section 1115(n)(4) provides an exemption from sales and use taxes for sales
of promotional materials that are printed materials and promotional materials upon which
services described in section 1105(c)(2) of the Tax Law have been directly performed where the
purchaser of such promotional materials mails or ships such promotional materials, or causes
such promotional materials to be mailed or shipped, to its customers or prospective customers
without charge to such customers or prospective customers by means of a common carrier,

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United States postal service or like delivery service. The exemption under section 1115(n)(4)
applies to printed promotional materials mailed or shipped to customers or prospective customers
in New York.
Tangible personal property such as baseball caps and cameras may qualify as
promotional materials under section 1101(b)(12) of the Tax Law. However, such tangible
personal property does not qualify as printed promotional materials as contemplated by section
1115(n)(4) of the Tax Law. Rather, section 1115(n)(4) applies to items printed in the traditional
sense, such as printed annual reports, brochures, paper, and envelopes. See AdvantEdge
Television Advertising, Inc., Adv Op Comm T & F, January 23, 2003, TSB-A-03(1)S.
Accordingly, baseball caps, cameras and similar items, whether a logo is permanently or
temporarily affixed, do not qualify as printed promotional materials pursuant to section
1115(n)(4) of the Tax Law. Therefore, the sales and use tax exemption provided by such section
1115(n)(4) does not apply to the sale or use of such items.
If Petitioner delivers promotional items, such as baseball caps, cameras and similar items,
in bulk directly to its client in New York State, the client is liable for tax on the portion of
Petitioner=s charge for items intended for delivery to the client's customers or prospective
customers in New York. The client will not be liable for tax on the charge for those promotional
items intended to be shipped to its customers or potential customers at locations outside New
York State provided that such items are ultimately shipped outside the State. See section
1115(n)(1) of the Tax Law. If Petitioner is a vendor required to register and collect tax, the
client should give Petitioner a properly completed Certificate of Exemption for Purchases of
Promotional Materials (Form ST-121.2) indicating the portion of promotional items to be
shipped outside New York State. The sale of such promotional items by Petitioner to its client
where such property is delivered directly to the client's customers or prospective customers
within New York State is subject to sales tax under section 1105(a) of the Tax Law.
If Petitioner also sells traditional printed promotional materials as contemplated by
section 1115(n)(4) of the Tax Law (e.g., coupons, catalogs, etc.), separate charges to its client for
such printed matter may be exempt from the sales and use tax provided that the client will mail
or ship such printed promotional materials, or cause such printed promotional materials to be
mailed or shipped by Petitioner, to the client=s customers or prospective customers without
charge by means of a common carrier, United States postal service or like delivery service.
When purchasing exempt printed promotional materials, the client should give Petitioner a
properly completed Certificate of Exemption for Purchases of Promotional Materials.
Petitioner's provision of cover letters shipped with the cameras, baseball caps, etc., may
be the sale of either tangible personal property or printing services subject to tax pursuant to the
provisions of section 1105(a) or 1105(c) of the Tax Law unless delivered to a location outside
New York State or such sale is otherwise exempt. A separate charge by Petitioner for the cover
letter is not subject to tax if the letter itself is promotional advertising literature as defined in

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section 1101(b)(12) of the Tax Law and otherwise qualifies for exemption pursuant to section
1115(n)(4) of the Tax Law.
Presuming that Petitioner does not have a physical presence in New York sufficient to
require it to register for sales tax purposes, it cannot be required to collect the sales or use tax on
its taxable sales of promotional materials to its clients. Therefore, its clients will be liable for
any tax Petitioner fails to collect, and the clients will be required to file the appropriate tax return
and remit any tax due. If Petitioner=s client is registered for New York State sales and use tax
purposes, the client will be required to remit any tax due on its next periodic sales tax return.
In the alternative, Petitioner may voluntarily register to collect New York State sales and
use tax pursuant to section 1134 of the Tax Law and collect and remit the applicable sales and
use tax on its sales of promotional materials for use inside New York.
It is noted that effective April 1, 2006, certain articles of clothing and footwear are
exempt from the statewide portion of the sales and use tax and, where the locality has so elected,
from the local portion of the sales tax. See Technical Services Bureau Memoranda entitled YearRound Sales and Use Tax Exemption of Clothing, Footwear, and Items Used to Make or Repair
Exempt Clothing (Effective April 1, 2006), March 29, 2006, TSB-M-06(6), (6.1)S for additional
information regarding this exemption.

DATED: May 5, 2006

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.