Does a manufacturer have to collect New York sales tax when it fills an out-of-state company's order by shipping the goods to that company's customer in New York?

Plain-English summary

Ketchum Manufacturing Co., Inc. receives a purchase order from an out-of-state company, fills it, and ships the merchandise directly to that company's customer in New York, shipping in the out-of-state company's name. Ketchum then bills the out-of-state company and receives payment from it. It asked whether it must collect New York sales tax on this drop-shipment.

The Department held Ketchum must collect the tax.

• The sale is taxed where the goods are delivered. Under 20 NYCRR 526.7(e), a sale is taxable at the place where the property is delivered or possession is transferred to the purchaser or its designee. Ketchum delivered the goods in New York.
• Receipts are presumed taxable without a certificate. Section § 1132(c) presumes all such receipts taxable until shown otherwise, and relieves a vendor of collecting only if it takes a resale or exemption certificate from its purchaser.
• No certificate → collect. Ketchum's purchaser (the out-of-state company) furnished no certificate. So, having made a sale of tangible personal property delivered in New York, Ketchum must collect the State (Article 28) and local (Article 29) sales tax (§§ 1105(a), 1210).

What this means for you

Drop-shipping into New York can make you the tax collector. If you deliver goods to a New York location, you've made a New York sale — regardless of where your customer or the shipping instructions originate. The destination controls.

Protect yourself with a certificate from your buyer. In a drop-shipment your customer is the party that ordered from you (here, the out-of-state company), not the end recipient. If that buyer is purchasing for resale, get a properly completed resale certificate; without it, § 1132(c) presumes the sale taxable and you must collect.

Shipping in someone else's name doesn't shift the duty. Ketchum shipped in the out-of-state company's name and billed that company, and still had to collect — because it delivered into New York without a certificate.

Common questions

Q: I only dealt with an out-of-state company — why do I owe New York tax?
A: Because you delivered the goods to a customer in New York, and delivery location controls (20 NYCRR 526.7(e)). As a New York vendor making a taxable New York sale, you must collect unless you hold a certificate.

Q: How do I avoid collecting on a legitimate resale drop-shipment?
A: Take a properly completed resale or exemption certificate from your purchaser — the party that ordered from you. Under § 1132(c) that's what relieves you of the collection duty.

Q: Does billing and being paid by the out-of-state company matter?
A: No. That identifies your customer, but the taxable event is delivery of the goods in New York without a certificate, so you must collect.

Citations and references

Statutes and regulations:

• Tax Law § 1105(a) — tax on receipts from every retail sale of tangible personal property
• Tax Law § 1132(c) — presumption of taxability; resale/exemption certificate
• Tax Law §§ 1210, Article 29 — local sales tax
• 20 NYCRR 526.7(e) — sale taxable where property is delivered / possession transferred

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a81_35s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-81(35)S
Sales Tax
October 20, 1981

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S810710A

On July 10, 1981 a Petition for Advisory Opinion was received from Ketchum
Manufacturing Co., Inc., 1928 East River Drive, P.O. Box 10, Lake Luzerne, New York 12846.
The issue raised is whether Petitioner is obligated to collect sales tax upon delivery of
tangible personal property within New York State in the type of transaction described below.
Petitioner receives a purchase order from an out-of-state company. Petitioner fills the
order and, in turn, ships the merchandise to the company's customer in New York State. The
shipment is made in the name of the out-of-state company. Petitioner then bills the out-of-state
company and receives payment f rom it.
Section 1105(a) of the Tax Law imposes a tax on the following:
"The receipts from every retail sale of tangible personal property, except as
otherwise provided in this article."
The Sales and Use Tax Regulations provide, in relevant part, as follows:
"(1) A sale is taxable at the place where the tangible personal property or service is
delivered or the point at which possession is transferred by the vendor to the purchaser or
his designee." 20 NYCRR 526.7(e).
Section 1132(c) of the Tax Law provides, in relevant part, that it shall be presumed that all
receipts for property . . . of any type mentioned in [section 1105(a) of the Tax Law] . . . are subject
to tax until the contrary is established . . . . Unless . . . a vendor shall have taken from the
purchaser a certificate in such form as the tax commission may prescribe . . . to the effect that the
property . . . was purchased for resale or for some use by reason of which the sale is exempt from
tax . . . [or to the effect that] the purchaser is an exempt organization . . . the sale shall be deemed
a taxable sale at retail.
Accordingly, inasmuch as Petitioner has made a sale of tangible personal property
delivered within New York State and inasmuch as the purchaser has not tendered to the seller a
certificate described in Section 1132(c) of the Tax Law, State sales tax imposed under Article 28
of the Tax Law and local sales tax imposed under the authority of Article 29 of the Tax Law are
due on the receipts arising from the sale. Tax Law 99 1105(a) and 1210.
DATED: October 5, 1981

JAMES H. TULLY, JR., COMMISSIONER
TP-8 (4/80)

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR