I manufacture goods and sell them for resale to retailers under resale certificates, but sometimes the retailer's own customer pays part of the price directly to me instead of to the retailer — does that direct payment turn into a taxable sale by me?

Plain-English summary

A window-treatment manufacturer sells its products to independent retail firms that separately provide interior decorating and design services to their own customers. The manufacturer has resale certificates on file for every retailer it sells to, bills the retailer (not the retailer's customer) as the purchaser, and may ship the window treatments either to the retailer or directly to the retailer's customer. The manufacturer and retailers are unrelated and keep separate books. On occasion, a retailer requires its own customer to pay the manufacturer directly — a deposit or the balance owed — for the window treatments the retailer bought from the manufacturer.

The manufacturer asked whether accepting these direct customer payments makes it liable for sales tax, as if it were making a new retail sale to the customer.

The Department said no new sale occurs. New York's resale exclusion (Tax Law §1101(b)(4)(i)(A)) keeps a manufacturer's sale to a retailer untaxed when the retailer buys exclusively for resale and gives the manufacturer a properly completed resale certificate — the tax presumption is that every sale is taxable unless rebutted by that certificate. Assuming the certificates here are proper, the manufacturer's sale to the retailer stays untaxed, and the real taxable event is the separate retail sale between the retailer and its customer.

When the customer pays the manufacturer directly, the Department reasoned that the customer isn't entering into a brand-new sales transaction with the manufacturer — the customer is simply assuming the retailer's existing debt to the manufacturer, as part of paying the retailer for the goods. Because a taxable "sale" requires independent consideration flowing for a new transfer of title or possession, and there's no new transfer here (the retailer already bought and (typically) took or directed delivery of the goods), the direct payment doesn't create a second taxable sale by the manufacturer. The customer's payment to the manufacturer must still be included in the retailer's taxable receipts from its sale to the customer — the tax obligation just doesn't move to the manufacturer.

The opinion flags two important caveats. First, if the manufacturer ever actually receives money that a customer intended as New York sales tax, the manufacturer must remit it to the Department and becomes jointly and severally liable with the retailer for that tax. Second, if the facts were different — if the manufacturer were really contracting directly with the end customer and the retailer were merely acting as the manufacturer's sales agent rather than an independent reseller — then the manufacturer itself would be making the retail sale and would owe the tax.

What this means for you

Manufacturers who drop-ship or allow direct customer payments

Letting a retailer's customer pay you directly for goods the retailer already bought from you (on resale certificate) doesn't automatically expose you to sales tax collection duty, as long as you're truly selling to the retailer and the retailer is truly reselling to its own customer — not acting as your sales agent. But keep your resale certificates current, and be careful never to collect money a customer represents as sales tax without properly remitting it.

Retailers who route customer payments through their manufacturer/supplier

You remain the party responsible for collecting and remitting sales tax on your retail sale to the customer, even when the customer's payment physically goes to your supplier first. Make sure your own books capture that receipt as part of your taxable sale.

Accountants and tax professionals

The dispositive question in these fact patterns is always: is the retailer genuinely an independent reseller (protected by the resale certificate and exclusion), or is it functionally the manufacturer's sales agent? This opinion is a clean illustration of the "debt assumption is not a new sale" principle, but flags that the analysis flips entirely if the retailer is really just a conduit for the manufacturer's own retail sale.

Common questions

Q: If my customer pays my supplier directly for goods I already bought for resale, does that create a new taxable sale by the supplier?
A: Not under this opinion's facts — the customer is treated as assuming the retailer's existing debt to the supplier, not entering a new transaction with the supplier, as long as the supplier's sale to the retailer was a genuine resale (backed by a proper resale certificate) and the retailer is genuinely reselling to its own customer.

Q: Does the retailer still owe sales tax on that sale?
A: Yes. The customer's direct payment to the manufacturer must still be included in the retailer's taxable receipts from its sale to the customer.

Q: What if my "retailer" is really just acting as my sales agent?
A: Then this analysis doesn't apply — the manufacturer would be making the retail sale directly to the end customer and would be liable for the sales tax on it.

Q: What if a customer's payment to the manufacturer includes money the customer thought was sales tax?
A: The manufacturer must remit any such tax money it actually receives to the Department, and becomes jointly and severally liable with the retailer for that tax.

Q: Does this ruling apply to my drop-ship or resale arrangement?
A: Not automatically. This is an Advisory Opinion binding only on the petitioner and only as to the facts it described — the independence of the retailer, the paper trail of resale certificates, and the billing arrangement all matter, and your facts may differ.

Citations and references

Statutes and regulations:

• Tax Law §1101(b)(4)(i)(A) (resale exclusion)
• Tax Law §1101(b)(5) (definition of "sale, selling or purchase")
• Tax Law §1132(a) (vendor's duty to collect tax)
• Tax Law §1132(c) (form of resale certificate)
• Tax Law §1133(a) (liability where a party acts as a sales agent/representative)
• 20 NYCRR §526.6(c)(1)-(2) (resale exclusion; resale certificate requirement)
• 20 NYCRR §526.7(a)(1) (definition of sale/selling/purchase)

Cases and prior opinions referenced:

• Savemart, Inc. v. State Tax Commission, 105 A.D.2d 1001, 482 N.Y.S.2d 150 (3d Dept. 1984)
• City of New York v. Advance Trading Corp., 202 Misc 208 (1952)
• E. Parker Brown, II, TSB-A-00(13)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2008.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a08_65s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-08(65)S
Sales Tax
December 30, 2008

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S081021A

On October 21, 2008, the Department received a petition for an advisory opinion from name and
address information redacted. Petitioner asks if the acceptance of payments directly from the customers of
retailers to whom it has sold window treatments constitute retail sales subject to sales tax. No new sale
occurs upon a customer’s assumption of the debt between Petitioner, as manufacturer, and the retailer from
whom the customer bargained for the product, nor does such assumption alter the locus of the taxable event,
which occurs between the retailer and the customer. Therefore, the acceptance of such payment by
Petitioner is not a receipt from a taxable sale by Petitioner, and Petitioner is not required to collect tax on
such payment under section 1132(a) of the Tax Law.
Facts
Petitioner manufactures window treatments that it sells to retail firms (“retailers”) engaged in
providing interior decorating and designing services to third party customers. Petitioner has resale
certificates on file for all retailers to whom it sells window treatments. Petitioner’s bill for the window
treatments names the retailer as the purchaser. Petitioner may deliver the window treatments to the retailer
or the retailer’s customer. Petitioner is unrelated to the retailers, and Petitioner and the retailers separately
account for their sales. Some retailers have on occasion required their customers to make payments directly
to Petitioner of the deposit or balance owed by the retailer to Petitioner for the window treatments. Such
payments may be for a portion or the entire amount of the price charged by Petitioner to the retailer for the
window treatments.
Issue
Petitioner asks if the acceptance of direct payments from third party customers constitute retail sales
subject to sales tax.
Analysis
Pursuant to Section 1105 (a) of the Tax Law, “(t)he receipts from every retail sale of tangible
personal property, except as otherwise provided” are subject to sales tax. However, Section 1101
(b)(4)(i)(A) of the Tax Law excludes from the definition of “retail sale” those sales made to any person
exclusively “for resale as such or as a physical part of tangible personal property.”
20 NYCRR 526.6(c)(1) further explains this “resale exclusion.” This regulation provides that
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

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TSB-A-08(65)S
Sales Tax
December 30, 2008

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.
The exclusion will not be recognized, however, unless, “the vendor receives a properly completed resale
certificate,” 20 NYCRR 526.6(c)(2). To reduce the possibility of fraud or tax evasion, the presumption is
that a sale is a taxable retail sale unless rebutted by a resale certificate in the form established by Section
1132(c) of the Tax Law. See Savemart, Inc. v. State Tax Commission, 105 A.D. 2d 1001, 1003, 482
N.Y.S.2d 150, 152 (3rd Dept. 1984), app. dism. 64 N.Y.2d 1039, 478 N.E.2d 212, 489 N.Y.S.2d 1029 (1985);
lv. den. 65N.Y.2d 604, 482 N.E.2d 926, 493 N.Y.S.2d 105 (1985).
It appears, from the facts recited in this Opinion that Petitioner is selling window treatments to the
retailers, rather than to the retailers’ customers. Assuming that Petitioner is contracting with the retailers for
the sale of window treatments, and that the retailers are entering into separate sales contracts with their
customers for the transfer of the window treatments for consideration, then the retailers may purchase the
window treatments exempt from sales tax for resale. When properly documented by the filing of a resale
certificate, the transaction between Petitioner and the retailer is not taxed. The taxable event is the retail sale
of the window treatments by the retailer to the customer. In circumstances in which the customer pays
Petitioner directly, the customer is assuming the retailer’s duty to Petitioner by providing a portion of the
consideration owed to Petitioner for the excluded sale. The customer is not entering into a separate sales
transaction with Petitioner.
This analysis is supported by 20 NYCRR 526.7(a)(1), which provides that “(t)he words sale, selling
or purchase mean any transaction in which there is a transfer of title or possession, or both, of tangible
personal property for a consideration.” See also Tax Law section 1101(b)(5).
For a sale to exist there must be independent consideration. In the instant case, Petitioner appears to
sell its window treatments to retailers for consideration. Because resale certificates are issued to Petitioner,
if those certificates are properly completed and accepted by Petitioner in good faith, Petitioner is not required
to collect sales tax on such sales. The retailer then resells the window treatments to customers for
consideration, which may consist, in part, of payments by the customers directly to Petitioner of any deposit
or balance owed to Petitioner by the retailer. These payments to Petitioner do not constitute a new sale by
Petitioner; they are instead part of the consideration for the initial transaction between Petitioner and the
retailer, which was untaxed due to the resale exclusion. Even though payment comes directly from the
customer, it does not represent consideration for a new sale by Petitioner to the customer. Therefore, such
payment is not a receipt from a taxable sale by Petitioner, and Petitioner is not required to collect tax on such
payment under section 1132(a) of the Tax Law. The customer’s payment to Petitioner, however, must be
included in the retailer’s taxable receipts from the sale of window treatments to the customer. It should be
noted that if Petitioner receives money constituting State sales tax from a customer petitioner would be
obligated to remit such money to the Tax Department. Petitioner, in that case, would become jointly and

TSB-A-08(65)S
Sales Tax
December 30, 2008

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severally liable with the retailer for remittance of the tax collected. See City of New York v Advance Trading
Corp., 202 Misc 208 (1952); E. Parker Brown, II, Adv Op Comm T&F; February 29, 2000, TSB-A-00(13)S.
If it appeared in a particular instance that Petitioner was contracting directly with an end user for the
sale of window treatments, and the retailer was merely acting as the selling agent or representative of
Petitioner, then Petitioner would be making a retail sale of the window treatments and would be liable for the
sales tax due on that sale. See Tax Law section 1133(a).

DATED: December 30, 2008

NOTE:

/S/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel

An Advisory Opinion is issued at the request of a person or entity. It is limited to the
facts set forth therein and is binding on the Department only with respect to the person
or entity to whom it is issued and only if the person or entity fully and accurately
describes all relevant facts. An Advisory Opinion is based on the law, regulations, and
Department policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.