Does a company owe New York sales tax on an information service sold to a New York customer but delivered out of state to a third party the customer designates?

Plain-English summary

Hooper Holmes, Inc., a New Jersey company, receives and processes information for "B", a New York corporation. That processing is an information service that would be taxable under § 1105(c)(1) if delivered in New York. But at B's request, Hooper Holmes delivers its finished work product to "C" in Connecticut; C uses it to prepare C's own work product for B, and C delivers that to B in New York. Hooper Holmes asked whether it must collect New York sales tax.

The Department held no New York tax is due because delivery occurs outside the state.

• New York's sales tax is a "destination tax." Under 20 NYCRR 525.2(a)(3), the point of delivery — where the vendor transfers possession to the purchaser or its designee — controls both whether tax applies and the rate.
• Delivery to the out-of-state designee is out-of-state delivery. Hooper Holmes performs a § 1105(c)(1) information service but delivers it to C in Connecticut. C acts as B's agent for taking delivery, so delivery of the service happens outside New York.
• Result: because delivery of the information service doesn't occur in New York, no tax incident arises, and Hooper Holmes isn't required to collect New York sales tax on this sale.

What this means for you

For services, where you deliver is what determines New York tax — not where your customer is headquartered. New York's destination-tax rule looks to the point of delivery. An otherwise-taxable information service delivered to a location outside New York generally isn't subject to New York sales tax, even if the buyer is a New York company.

A designee taking delivery stands in the customer's shoes. Delivering your work product to a third party the customer names — as the customer's agent for delivery — fixes the place of delivery at that third party's location. Here, delivery to a Connecticut recipient put the transaction outside New York.

Document the delivery point. Because the result turns entirely on where possession passes, keep records showing where you delivered the work product and that the recipient took delivery as the customer's designee. The mirror image is also true: an information service delivered into New York is taxable.

Common questions

Q: My customer is in New York — doesn't that make the service taxable here?
A: Not necessarily. The destination-tax rule looks to where the service is delivered. If you deliver it to a location outside New York (including to the customer's out-of-state designee), no New York tax incident arises.

Q: What if the customer then brings the results back into New York?
A: The taxable event is your delivery of the service. Here C used the product and delivered C's own work to B in New York; that didn't make Hooper Holmes's out-of-state delivery taxable.

Q: Would the answer change if I delivered directly to the New York customer?
A: Yes. Delivery of the information service in New York would be a New York tax incident, and you'd generally have to collect the tax.

Citations and references

Statute and regulation:

• Tax Law § 1105(c)(1) — tax on furnishing an information service
• 20 NYCRR 525.2(a)(3) — sales tax as a "destination tax"; point of delivery controls

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_36s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-81(36)S
Sales Tax
October 20, 1981

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

PETITION NO. S810608B

On June 8, 1981 a Petition for Advisory Opinion was received from Hooper Holmes, Inc.,
170 Mt. Airy Rd., Basking Ridge, New Jersey 07920.
The issue raised is whether Petitioner is required to collect New York State sales tax upon
the sale of an information service to a customer located in New York State, when the service is
delivered out of state to a third party designated by the customer.
Petitioner is located in New Jersey. It receives and processes information for "B", a
corporation located in New York State. The service performed by Petitioner for "B" would be
subject to sales tax under Section 1105(c)(1) of the Tax Law if the service is delivered within
New York State. Upon completion of its service for "B", Petitioner delivers its work product, at
"B"'s request, to "C", a corporation located in Connecticut. "C" uses the information furnished by
Petitioner in preparing its own work product for "B". "C" delivers its product to "B" in New York
State.
The Sales and Use Tax Regulations describe the sales tax as "A 'destination tax' , that is,
the point of delivery or point at which possession is transferred by the vendor to the purchaser or
designee controls both the tax incident and the tax rate." 20 NYCRR 525.2(a)(3).
Petitioner performs an information service within the meaning of section 1105(c)(1) of the
Tax Law. The service is delivered outside New York State to a designee of the purchaser of the
service who acts as the purchaser's agent for purposes of taking delivery. Since delivery of the
information service does not occur within New York State, no tax incident arises. 20 NYCRR
525.2(a)(3). Therefore, information services performed by Petitioner for its New York customer is
not subject to New York State sales tax. Accordingly, Petitioner is not required to collect sales tax
upon the sale of this information service, when delivered outside New York State.

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