My organization is a certified tax-exempt fraternal insurance company, but I sell discounted books and gifts to members by phone/Internet through a 2008 law change targeting 'remote sales' — do I now have to collect New York sales tax on those sales?

Plain-English summary

A New York fraternal insurance company, licensed under Article 45 of the Insurance Law, sells annuity products; buyers become members and gain access to member benefits, including a discount (35% off) on Christian books, music, videos, and gifts. Members order these items by calling a phone number listed on the company's website; the items ship directly from the publisher or distributor (not the company, which carries no inventory and operates no store). The company holds a §1116(a)(4) certification as a tax-exempt organization and hadn't collected sales tax on these transactions before a 2008 law change.

The Department held the company must now collect and remit New York sales tax on these sales. A 2008 amendment (effective September 1, 2008) to Tax Law §1116(b) specifically strips exempt-organization protection from retail sales of tangible personal property made "with a degree of regularity, frequency, and continuity by remote means, such as by telephone, the internet, mail order or otherwise." The Department found that operating a continuously-available website advertising these member discounts, taking phone orders, satisfies that regularity/frequency/continuity standard — and that it doesn't matter that the company has no store, carries no inventory, or has the items drop-shipped by a third party. Remote sales through a website or by phone are squarely within the statute regardless of whether there's a traditional storefront behind them.

The company also argued that a separate Insurance Law provision (§4524), which declares fraternal societies "charitable and benevolent" institutions and exempts "all of its funds" from state and local taxes, should override the sales tax obligation. The Department rejected this: sales tax isn't a tax on the organization's own funds — it's legally the purchaser's tax, which the vendor is merely required to collect and remit as a trustee for the state (and remains personally liable for doing so). Because the money being collected was never "the organization's funds" in the relevant sense, the Insurance Law fund exemption doesn't reach it.

What this means for you

Fraternal organizations, membership associations, and other exempt organizations

Being a certified §1116(a)(4) tax-exempt organization does NOT exempt you from collecting sales tax on retail sales of tangible personal property you make regularly by phone, mail order, or the Internet — the 2008 remote-sales carve-out applies regardless of your overall exempt status, and regardless of whether you run a physical store or carry inventory.

Organizations relying on a separate state-law tax exemption (insurance, charitable, or otherwise)

A broad statutory exemption for an organization's "funds" from state and local taxation typically doesn't reach sales tax, because sales tax is legally imposed on the purchaser, with the organization acting only as a collection trustee. Don't assume a fund-level tax exemption protects your sales-tax collection obligations — check whether the exemption actually addresses transaction taxes like sales tax specifically.

Accountants and tax professionals

This opinion is a clean, direct application of the 2008 §1116(b) remote-sales amendment and a useful template for the "funds exemption doesn't reach a trustee-collected transaction tax" argument whenever a client cites an organization-specific statutory tax exemption to try to avoid sales tax collection duties.

Common questions

Q: We're a certified tax-exempt organization — doesn't that cover all our sales?
A: Not remote sales made with regularity, frequency, and continuity (by phone, mail order, Internet, or similar means) — a 2008 Tax Law amendment specifically carves these out of exempt-organization protection, regardless of your organization's overall exempt status.

Q: We don't operate a store or carry any inventory — does that keep our phone/Internet sales exempt?
A: No. The Department held this is irrelevant; what matters is whether the sales are made by remote means with regularity, frequency, and continuity, not whether there's a physical storefront or on-hand inventory.

Q: Our organization's enabling statute exempts "all of our funds" from state taxes — doesn't that cover sales tax?
A: Not according to this opinion. Sales tax is legally the purchaser's tax; the vendor only collects and remits it as a trustee for the state, and is personally liable for doing so. Money collected this way was never "the organization's funds" in the sense the fund exemption addresses.

Q: What do we need to do if this applies to us?
A: Register for sales tax purposes and obtain a Certificate of Authority, then collect and remit tax on the covered remote sales going forward.

Q: Can any exempt organization rely on this exact opinion?
A: No. An advisory opinion binds the Department only as to the taxpayer who requested it and the facts described — here, a fraternal insurer with a continuously-operating website advertising member discounts. A truly occasional or infrequent remote sale might not meet the same regularity/frequency/continuity threshold.

Citations and references

Statutes and regulations:

• Tax Law §1116(a)(4) (exempt organization certification)
• Tax Law §1116(b)(iii) (2008 amendment carving remote sales out of exempt-organization protection)
• Tax Law §1132(a)(1) (sales tax collected as trustee for the state); §1133 (personal liability of tax collectors)
• 20 NYCRR §525.2(a)(4)
• Insurance Law §4524 (fraternal benefit society "funds" exemption — held not to reach sales tax)

Source

• Landing page: NY Sales Tax Advisory Opinions, 2009
• Original opinion: TSB-A-09(1)S

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-09(1)S
Sales Tax
January 2, 2009

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S081002B

On October 2, 2008, the Department of Taxation and Finance received a Petition for Advisory Opinion from
name and address information redacted.
The petition asks whether amendments to Section 1116 of the New York State Tax Law, which took effect on
September 1, 2008, relating to the collection of State and local sales and compensating use tax on retail sales of
tangible personal property made by remote means, are applicable to name redacted (“Petitioner”), a New York
fraternal insurance company.
It is concluded that the amendments to §1116 of the Tax Law apply to Petitioner, and that Petitioner is
required to collect and remit sales and compensating use tax on retail sales of tangible personal property made by
remote means.
Facts
Petitioner is a fraternal insurance company licensed under Article 45 of the Insurance Law of the State of
New York. Petitioner sells annuity products in New York State. Individuals who purchase those annuity products
become members of Petitioner’s organization and then qualify for various benefits provided by Petitioner, including
the ability to purchase various books and publications at a member discount. These materials are purchased by
members from Petitioner by remote means and shipped directly to them by the publisher or distributor, not by
Petitioner. Petitioner does not operate a store, carries no inventory of these materials, and before September 1, 2008,
did not collect sales tax on any of these sales transactions. Petitioner operates a Web site through which various
products are offered for purchase at discounted prices by calling a telephone number. The Web site states in part:
[Petitioner] offers Christian materials at discounted prices. [Petitioner’s] members can order Bibles,
Christian music, videos, books, gifts and more at an advantage of 35% off of the retail price and with free
shipping. To place an order, call [telephone number] with the title and author or ISBN number of the book, or
with the description or product code for other items.
Petitioner is certified by the Tax Department as an exempt organization under §1116(a)(4) of the Tax Law.
Opinion
Issue 1: Are the sales subject to Tax Law Section 1116(b)?
Section 1116(b) of the Tax Law, as amended by Chapter 57 of the Laws of 2008, provides, in part:
Nothing in this section shall exempt:
(iii) retail sales of tangible personal property and sales, other than for resale, of those services by that
organization, made with a degree of regularity, frequency, and continuity by remote means, such as by
telephone, the internet, mail order or otherwise; . . .
Section 1116(b) applies to any sales of tangible personal property where the sale is made by remote means,
such as by telephone, mail order (including email), over the Internet, or by other similar methods, provided the exempt

TSB-A-09(1)S
Sales Tax
January 2, 2009

-2-

organization makes such sales with a degree of regularity, frequency, and continuity. Internet sales include any sales
effected via the Internet. These could be sales made from an exempt organization’s online or virtual store, or through
the organization’s Web site.
The fact that Petitioner does not operate a store or carry inventory is irrelevant. The sales described are subject
to tax under Tax Law §1116(b) whether or not they are made from a shop or store, provided that the sales are made
with any degree of regularity, frequency, or continuity. If Petitioner operates its Web site on a continuous basis, it
appears that sales of tangible personal property made through Petitioner’s Web site are made with a degree of
regularity, frequency, or continuity, and thus are subject to tax.
Issue 2: Does Insurance Law Section 4524 exempt Petitioner from New York Sales Taxes?
Section 4524 of the Insurance Law provides:
Every society organized or licensed under this article is hereby declared to be a charitable and
benevolent institution, and all of its funds shall be exempt from all and every state, county, district, municipal
and school tax, other than taxes on real estate and office equipment.
Petitioner contends that Tax Law §1116(b), to the extent it requires Petitioner to collect and remit certain sales
taxes, is in direct conflict with Insurance Law §4524, which exempts fraternal insurance companies licensed under
Article 45 of the Insurance Law from State and local taxes. However, a careful reading of Insurance Law §4524
reveals that it is not the organization itself, but rather, “all of its funds” that are exempt from “all and every…tax…”
New York State and local sales taxes are not taxes imposed on an organization’s funds. It is the purchaser who is
required to pay the sales tax and who bears the legal liability for doing so. The vendor’s only obligation is to collect
and remit the tax. Any person who is required to collect sales tax is also personally liable for the tax imposed,
collected, or required to be collected under the Sales Tax Law. See Tax Law §1133 and 20 NYCRR 525.2(a)(4). The
sales taxes collected by Petitioner from its customers are not Petitioner’s funds. Rather, sales tax is paid to the person
required to collect it as trustee for and on account of the State. See Tax Law §1132(a)(1).
Accordingly, Petitioner must collect and remit tax on any retail sales of tangible personal property made to its
members by remote means, provided the sales are made with a degree of regularity, frequency, and continuity in
accordance with Tax Law §1116(b). If it has not already done so, Petitioner must also register for sales tax purposes
and obtain a Certificate of Authority, which authorizes the organization to collect State and local sales and use taxes on
its taxable sales.

DATED: January 2, 2009

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.