When out-of-state vendors sell merchandise through airport video-terminal kiosks that ship goods to New York customers, do the vendors have to collect New York sales tax, is the kiosk operator liable as a co-vendor, and do the vendors owe New York income or corporate franchise tax?

Plain-English summary

Mitchell Sorkin asked on behalf of a client about to launch a computerized advertising business at airports (in and outside New York): the client's video terminals would let travelers direct-dial out-of-state vendors' 800 numbers to order merchandise, which the vendors then ship from their out-of-state warehouses directly to the traveler's New York address. Three separate questions were raised, covering sales tax, income tax, and corporate franchise tax.

Sales tax collection by the vendors. This is a landmark early nexus ruling, issued while the U.S. Supreme Court's 1967 National Bellas Hess mail-order standard technically still controlled (that case held mailing catalogs and shipping goods into a state, without more, didn't create nexus -- it wasn't overruled until Quill v. North Dakota in 1992, after this opinion). The Department nonetheless found nexus, tracing a line of later Supreme Court cases (National Geographic, Tyler Pipe, World-Wide Volkswagen, Burger King, D.H. Holmes) signaling the Court was ready to abandon Bellas Hess, and reasoning that a vendor "regularly or systematically soliciting business" in New York through the video terminals -- and by reason of it making sales to New York customers -- is a "vendor" under Tax Law section 1101(b)(8), required to register and collect sales and use tax on those sales.

The kiosk operator's own liability turns entirely on how it's paid. If the client earns a flat fee purely for advertising the vendor's merchandise on the terminal, that fee is an untaxed advertising-service fee (section 1105(c)(1)), and the client has no sales-tax collection duty of its own. But if the client's fee is instead a commission based on the vendor's sales volume, the client and vendor become "co-vendors" under section 1101(b)(8)(ii) and Regulations section 526.10(e) -- both jointly responsible for collecting and remitting the tax.

Income tax and franchise tax: a different, narrower nexus test applies -- and the vendors come out exempt. Article 9-A (and, by the same reasoning, Article 22 income tax) uses the Public Law 86-272 "mere solicitation" safe harbor: since the vendors' New York activity is limited to soliciting orders sent outside the state for approval and filled by shipment from outside the state, they remain exempt from Article 9-A/22 tax -- even if the client itself is treated as the vendors' New York "independent contractor" soliciting orders on their behalf, per the Department's own prior Giftmaster Inc. ruling, TSB-A-88(23)C.

What this means for you

Out-of-state e-commerce, catalog, and remote-order sellers using in-state kiosks, terminals, or local marketing partners

Even indirect solicitation channels -- an in-state kiosk, terminal, or advertising partner that funnels orders to you -- can create New York sales-tax vendor status once your sales volume and frequency establish "regular or systematic" solicitation, independent of whether you have any physical presence, office, or employees in the state. Modern remote-seller economic-nexus thresholds (Tax Law section 1101(b)(8)(iv)'s predecessor to today's rules) build directly on this line of reasoning.

Businesses hosting or operating in-state marketing terminals, kiosks, or referral platforms for out-of-state sellers

Structure your compensation deliberately: a flat advertising/placement fee keeps you out of sales-tax collection duty for the underlying sales, but a sales-based commission makes you a co-vendor jointly liable for collecting and remitting tax on those sales.

Accountants and tax professionals

Note the split outcome here -- the SAME facts can create sales-tax nexus under the broader "solicitation" vendor test while still qualifying for the narrower Public Law 86-272 safe harbor for income/franchise tax purposes, because the two taxes use different nexus standards. Don't assume a sales-tax nexus finding automatically means income/franchise tax exposure too.

Common questions

Q: Does an out-of-state seller need a physical presence in New York to owe sales tax?
A: Not necessarily, even under this pre-Quill ruling -- regular, systematic solicitation of New York sales through an in-state channel (here, airport kiosks) was enough to create vendor status, tracking the Supreme Court's expanding nexus case law of the era.

Q: If I operate a marketing terminal or platform that generates sales for third-party vendors, am I automatically liable for their sales tax?
A: No -- only if you're paid a commission tied to the vendor's sales (making you a co-vendor). A flat advertising fee for placement doesn't trigger collection liability.

Q: If a business has sales-tax nexus in New York, does it automatically have income or franchise tax nexus too?
A: No. As here, a business can have sales-tax vendor status while still qualifying for the Public Law 86-272 safe harbor from Article 9-A/22 tax, because sales tax and franchise/income tax apply different nexus tests.

Citations and references

Statutes and regulations:

• Tax Law section 1101(b)(8) (vendor definition, including solicitation-based nexus and the presumption threshold)
• Tax Law section 1131(1), (4) (persons required to collect tax; property/services subject to use tax)
• Tax Law section 1134(a)(1) (vendor registration)
• Tax Law section 1105(c)(1); Sales and Use Tax Regulations section 527.3(b)(5) (advertising-service fee exclusion)
• Tax Law section 1101(b)(8)(ii); Sales and Use Tax Regulations section 526.10(e) (co-vendor liability)
• Business Corporation Franchise Tax Regulations section 1-3.2(a)(3), section 1-3.4(b)(9) (Public Law 86-272 solicitation exemption)

Cases and prior opinions cited:

• National Bellas Hess v. Department of Revenue, 386 US 753 (1967)
• Felt and Tarrant Manufacturing Co. v. Gallagher, 292 US 86 (1934); Nelson v. Sears, Roebuck & Co., 312 US 359 (1941); General Trading Co. v. State Tax Commission, 322 US 335 (1944); Scripto, Inc. v. Carson, 362 US 207 (1960); Miller Bros. v. Maryland, 347 US 340 (1954)
• International Shoe Co. v. Washington, 326 US 310 (1945)
• National Geographic Society v. California Board of Equalization, 430 US 551 (1977)
• Tyler Pipe Industries v. Washington Department of Revenue, 483 US 232 (1987)
• World-Wide Volkswagen Corp. v. Woodson, 444 US 286 (1980)
• Burger King v. Rudzewicz, 471 US 462 (1985)
• D.H. Holmes Company, Ltd. v. McNamara, 486 US 24 (1988)
• Giftmaster Inc., Adv Op, Comm T&F, October 13, 1988, TSB-A-88(23)C

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a91_7s_1i_1c.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-91 (7) S
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January 17, 1991

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. Z901002B

On October 2, 1990, a Petition for Advisory Opinion was received from
Mitchell Sorkin, 100 Jericho Quadrangle, Jericho, New York 11753.
The issues raised by Petitioner, Mitchell Sorkin, are:
1)

Whether out-of-state vendors who sell merchandise through video
terminals owned and operated by Petitioner's client located at
airports within and without New York State and subsequently ship the
merchandise to customers located in New York State are required to
collect sales tax on such sales.

2)

Whether Petitioner's client is liable for the collection of sales
tax on sales made by out-of-state vendors referred to in issue "1"
by virtue of the fact that it is receiving fees from the vendors who
solicit sales through its video terminals.

3)

Whether the out-of-state vendors referred to in issue "1" are
subject to income tax pursuant to Article 22 of the Tax Law or
business corporation franchise tax pursuant to Article 9-A of the
Tax Law by virtue of the fact that they sell merchandise through the
video terminals referred to in issue "1".

Petitioner's client (hereinafter the "client") is about to begin doing
business in New York State.
The client will be conducting a computerized
advertising business at metropolitan airports within and without New York State.
Travelers will be able to order a consortium of goods via the computerized video
terminal owned by the client. When the goods are to be ordered, the customer
will be able to direct dial an out of state vendor (hereinafter the "vendor")
using the vendor's 800 number to place his order. The goods will then be shipped
from the vendor's warehouse which is located outside of New York directly to the
New York customer, located in New York State.
Under Article 28 of the Tax Law every person who makes retail sales of
tangible personal property in New York (which includes sales where the property
is delivered to the customer in New York) is required to register with the Tax
Commission and to collect the sales tax due with respect to such sales.
Section l101(b)(8) of the Tax Law provides in part:
(i) The term "vendor" includes:
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(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;
*

*

*

(E) A person who regularly or systematically solicits business in
this state by the distribution, without regard to the location from
which such distribution originated, of catalogs, advertising flyers
or letters, or by any other means of solicitation of business, to
persons in this state and by reason thereof makes sales to persons
within the state of tangible personal property, the use of which is
taxed by this article, if such solicitation satisfies the nexus
requirement of the United States constitution;
Section ll01(b)(8)(iv) of the Tax Law provides: "For purposes of clause (E)
of subparagraph (i) of this paragraph, a person shall be presumed to be regularly
or systematically soliciting business in this state if, for the immediately
preceding four quarterly periods ending on the last day of February, May, August
and November, the cumulative total of such person's gross receipts from sales of
property delivered in this state exceeds three hundred thousand dollars and such
person made more than one hundred sales of property delivered in this state,
unless such person can demonstrate, to the satisfaction of the commissioner, that
he cannot reasonably be expected to have gross receipts in excess of three
hundred thousand dollars or more than one hundred sales of property delivered in
this state for the next succeeding four quarterly periods ending on the last day
of February, May, August and November."

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Section 1131(1) of the Tax Law provides in part that "person required to
collect any tax imposed by this article" shall include: every vendor of tangible
personal property or services;
Section 1131(4) of the Tax Law provides in part that "Property and services
the use of which is subject to tax" shall include: (a) all property sold to a
person within the state, whether or not the sale is made within the state,. . ."
Section 1134(a)(1) of the Tax Law further provides in part that "Every
person required to collect any tax imposed by this article commencing business,
or opening a new place of business,..shall file with the Tax Commission a
Certificate of Registration, in a formprescribed by it, at least twenty days
prior to commencing business. . ."
In 1967, the U.S. Supreme Court held in National Bellas Hess v. Department
of Revenue (386 US 753), that a mail order company whose only contacts with
Illinois were the mailing into the State of its biannual catalogs and its
occasional advertising flyers, and the delivery into the State of its goods by
mail or common carrier, did not have sufficient nexus with the State to allow
Illinois to require the mail order company to collect the use tax owed on the use
of its goods by customers in Illinois.
Prior to the National Bellas Hess decision, the Supreme Court had found
nexus for use tax purposes where the out-of-state company had in the state both
agents and offices for soliciting sales (Felt and Tarrant Manufacturing Co. v.
Gallagher, 292 US 86, 1934); where the company had a division operating in the
state which was separate from the mail order division (Nelson v. Sears, Roebuck
& Co., 312 US 359, 1941); where the company had traveling salesmen present in the
state (General Trading Co. v. State Tax Commission, 322 US 335, 1944); and where
the company used independent contractors or jobbers to solicit sales in the state
(Scripto, Inc. v. Carson, 362 US 207, 1960). There was one case decided earlier
than National Bellas Hess where the Court found an absence of nexus. In that
case, Miller Bros. v. Maryland (347 US 340, 1954), the Court held that the
infrequent delivery into Maryland by a Delaware company in its own trucks and the
incidental effects of general advertising in Delaware newspapers that had
circulation in Maryland were not sufficient to provide nexus with Maryland.
As part of the fall-out of the National Bellas Hess decision, the mail
order industry has been able, in the past 20 years, to grow tremendously and to
enjoy a competitive advantage over local businesses. Although technically a use
tax is owed by the customers on mail order purchases,under National Bellas Hess
the mail order companies have not been compelled tocollect that tax, while local
companies selling similar goods to similarlysituated customers have been
compelled to collect the sales tax. Further,since the rate of voluntary
compliance by individuals with the use tax is very low and the tax is difficult
to enforce against individual customers, mail order purchases are commonly viewed
as tax free transactions.

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In recent years, however, while the direct marketing industry has grown
markedly, the U.S. Supreme Court has given indications that if a situation
similar to that presented in National Bellas Hess came before it again, it would
find sufficient nexus to compel the collection of tax. The Court in the years
since National Bellas Hess was decided has expanded its interpretation of nexus
for both tax and civil jurisdiction purposes. Pursuant to the U.S. Supreme
Court's decision in International Shoe Co. v. Washington, (356 U.S. 310, 1955),
the standards for nexus for judicial jurisdiction purposes and tax jurisdiction
purposes should be considered to be the same. In that case the Court was called
upon to decide whether International Shoe had sufficient contacts with Washington
to allow the State to subject it to personal jurisdiction in a suit to recover
unpaid unemployment insurance taxes and subject the corporation to the
unemployment insurance tax. In finding nexus, the Court stated: "The activities
which establish [International Shoe's] 'presence' subject it alike to taxation
by the state and to suit to recover the tax" (326 US at 321).
In National Geographic Society v. California Board of Equalization (430
US 551), decided in 1977, the Supreme Court expanded its interpretation of nexus
for use tax purposes.
This case involved California's efforts to require
National Geographic to collect use tax on its mail order sales. The mail order
business was conducted entirely outside or California. However, National
Geographic had offices in the State which solicited advertising for its magazine.
The Court found that National Geographic's California offices provided sufficient
contacts with California for the State to compel it to collect use tax, noting
that
"the relevant constitutional test to establish the
requisite nexus for requiring an out-of-state seller to
collect and pay the use tax is not whether the duty to
collect the use tax relates to the seller's activities
carried on within the state, but simply whether the
facts demonstrate 'some definite link, some minimum
connection, between [the state and] the person. . .it
seeks to. . ." require to collect the tax. (430 US at
561).
In Tyler Pipe Industries v. Washington Department of Revenue (483 US 232,
107 S Ct 2810, 1987), the Supreme Court noted the importance played by a
company's activities related to establishing a market for its goods in
determining whether that company has nexus with a state, when it quoted the
following language from the Washington Supreme Court's decision in this case:
". . .'the crucial factor governing nexus is whether the
activities performed in this state on behalf of the
taxpayer
are
significantly
associated
with
the
taxpayer's ability to establish and maintain a market in
this state for the sales'" (107 S Ct at 2821)

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Further, the Court has expanded the concept of nexus for civil jurisdiction
purposes to cover instances where the defendant, although not physically present
in the State, has purposefully directed his activities toward persons in the
State. In World,Vide Volkswagen Corp. v. Woodson (444 US 286, 1980), the Court
denied Oklahoma personal jurisdiction over a nonresident defendant, noting a
total absence of "affiliating circumstances" that were required for an exercise
of state court jurisdiction.
Included in its list of such affiliating
circumstances was the solicitation of business either through salespersons or
through advertising reasonably calculated to reach the State (444 US at 295). The
Court stated that the
"forum state does not exceed its powers under the Due
Process Clause if it asserts personal jurisdiction over
a corporation that delivers its products into the stream
of commerce with the expectation that they will be
purchased by consumers in the forum state" (444 US at
297-298).
The Court reaffirmed these principles in another judicial jurisdiction case,
Burger King v. Rudzewicz (471 US 462, 1985). Here the Court noted that
". . .it is an inescapable fact of modern commercial
life that a substantial amount of business is transacted
solely by mail and wire communications across state
lines, thus obviating the need for physical presence
within a state in which business is conducted. So long
as a commercial actor's efforts are 'purposefully
directed' toward residents of another state, we have
consistently rejected the notion that an absence of
physical contactscan defeat personal jurisdiction there"
(471 US at 476).
Finally, the Supreme Court gave a strong indication that National Bellas
Hess may fall in the most recently decided tax jurisdiction case, D.H. Holmes
Company, Ltd. v. McNamara (486 US 24, 100 LEd2d 21, 1988). The issue in that case
was whether the Holmes Company had to pay Louisiana use tax on catalogs printed
outside the State and directly mailed to customers within the State. In
discussing the significance of the catalogs and their distribution by the Holmes
Company, the Supreme Court used the following language:
"Finally, we believe that Holmes' distribution of its
catalogs reflects a substantial nexus with Louisiana.
The distribution of catalogs to approximately 400,000
Louisiana customers was directly aimed at expanding and
enhancing its Louisiana business.
There is 'nexus'
aplenty here." (100 LEd2d at 28-29)
It should be noted that because of Holmes' significant economic presence
in the State (i.e., it had stores located in Louisiana), the Court distinguished
this case from National Bellas Hess rather than overruling it. However, this
does not diminish the significance of the Court's dictum quoted above.
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appears that the U.S. Supreme Court is ready to recognize that a company making
sales in a state through the distribution of catalogs has sufficient contacts
with the state to allow the state, through legislation, to require a mail order
company to collect its use tax. To date, other than New York, at least eighteen
states, including California, Florida and Massachusetts, have enacted such
legislation.
In the instant case the prospective customer of the Petitioner would be
regularly or systematically soliciting business in New York through the use of
Petitioner's video terminals, and as a result thereof would bemaking sales of
tangible personal property to persons in New York State. Therefore the
prospective customer would be a "vendor" pursuant to, either section
ll01(b)(S)(i)(C)(I) or sections ll01(b)(8)(i)(C)(II) and ll01(b)(8)(i)(E) of the
Tax Law since there would be sufficient nexus under the case law discussed above.
Since the prospective customer is a "vendor" pursuant to the aforesaid sections
it would be required to register as a vendor for New York State sales tax
purposes and to collect sales and use taxes on its mail order sales to New York
residents in accordance with the provisions of Sections l101(b)(8), 1131(1) and
1134(a)(1) of the Tax Law.
Section 1105(c)(1) of the Tax Law provides in part that:
On and after June first, nineteen hundred seventy one, there
is hereby imposed and there shall be paid a tax of four percent
upon:
*

*

*

(c) The receipts from every sale, except for resale, of the following
services:
(1)

The furnishing of information by printed,
mimeographed or multigraphed matter or by
duplicating written or printed matter in any
other
manner,
including
the
services
of
collecting,
compiling or analyzing information
of any kind or nature and furnishing reports
thereof to other persons, excluding the services
of advertising or other agents, or other persons
acting in a representative capacity,

Section 527.3(b)(5) of the Sales and Use Tax Regulations provides in part
that:
Fees for the services of advertising agencies or other persons
acting in a representative capacity are excluded from the tax.
Advertising services
consist of consultation and development of
advertising campaigns, and placement of advertisements with the
media without the transfer of tangible personal property.
Section ll01(b)(8)(ii) of the Tax Law provides that:
In addition, when in the opinion of the tax commission it is
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any salesman, representative, peddler or canvasser as the agent of
the vendor, distributor, supervisor or employer under whom he
operates or from whom he obtains tangible personal property sold by
him, or for whom he solicits business, the tax commissioner may, in
its discretion, treat such agent as the vendor jointly responsible
with his principal, distributor, supervisor or employer for the
collection and payment over of the tax.
Section 526.10(e) (formerly Section 526.10(f)) of the Sales and Use Tax
Regulations provides that:
Co-vendor.
(1)
Every person operating a club or similar
merchandising plan, or operating as an independent contractor
representing a particular supplier selling tangible personal
property is a vendor for sales tax purposes and must collect tax on
merchandise sold by him.
(2)
(i)
Such person shall undertake all of the
responsibilities of a vendor, as listed in subdivision
(b) of this section. The person supplying the
merchandise to him is also deemed to be a vendor, and
shall undertake all of the responsibilities, as listed
in subdivision (b) of this section.
(ii) Both the representative and his supplier
shall be jointly responsible for the collection and
remitting of the taxes and filing of returns.
(3)
(i)
A person supplying merchandise to a club
plan secretary or independent vendor shall collect in
advance from the club plan secretary or independent
contractor a tax based on the retail selling price of
the property at the tax rate in effect where possession
of the property is taken by the club secretary or
independent contractor.
(ii) A club plan secretary or independent
contractor whose supplier has registered and is
complying with the responsibilities of a vendor shall
not be required to register as a vendor. (emphasis
added)
Therefore where the client receives a fee strictly for the advertising of
a vendor's merchandise through a video terminal, such fee for the advertising
services is not subject to sales tax pursuant to Section 1105(c)(1) of the Tax
Law and Section 527.3(b)(5) of the Sales and Use Tax Regulations. However, where
the client's fee is a commission based on a vendor's sales, the client and the
vendor will be deemed to be co-vendors, and the client will be liable for the

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collection of sales tax on the vendor's sales to its customers pursuant to
Section ll01(b)(8)(ii) of the Tax Law and Section 526.10(e) of the Sales and Use
Tax Regulations.
Section 1-3.2(a)(3) of the Business Corporation Franchise Tax Regulations
provides that:
Pursuant to Public Law 86-272 (15 U.S.C.A. sections 381-384),
a foreign corporation is not subject to the tax imposed by article
9-A if its activities are limited to those described in that law.
That is, the solicitation of orders by corporation's representatives
or independent contractors for sales of tangible personal property,
which orders are sent outside New York State for approval or
rejection, and, which if approved, are filled by shipment or
delivery from a point outside New York State.
Section 1-3.4(b)(9) of the Business Corporation Franchise Tax Regulations
provides in part that:
The following corporations are exempt from taxation under article 9-A:
(9) corporations which are exempt pursuant to the provisions
of Public Law 86-272 (15 U.S.C.A. §§ 381-384).
(i) A foreign corporation whose income is derived
from interstate commerce is not subject to tax under
article 9-A if the activities of the corporation in New
York State are limited to either, or both of the
following:
(a) the solicitation of orders by
employees or representatives in New York
State for sales of tangible personal
property and the orders are sent outside
New York State for approval or rejection;
and, if approved, are filled by shipment or
delivery from a point outside New York
State, and
(b) the solicitation of orders by
employees or representatives in New York
State in the name of or for the benefit of
a prospective customer of such corporation
if the customer's orders to the corporation
are sent outside the State for approval or
rejection; and, if approved, are filled by
shipment or delivery from a point outside
New York State.
(ii) For purposes of this exemption, a corporation
will not be considered to have engaged in taxable
activities in New York State during the taxable year
merely by reason of sales in New York State or the
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of tangible personal property on behalf of the
corporation by one or more independent contractors. A
corporation will not be considered to have engaged
intaxable activities in New York State by reason of
maintaining an office in New York State by one or more
independent contractors whose activities on behalf of
the corporation in New York State consist solely of
making sales, or soliciting orders for sales, of
tangible personal property.

(iii)
The term independent contractor means a
commission
agent,
broker,
or
other
independent
contractor who is engaged in selling, or in soliciting
orders for the sale of tangible personal property for
more than one principal and who holds himself out as
such in the regular course of his business activities.
The term representative does not include an independent
contractor.
Therefore in the instant case the activities of the out-of-state vendors
in soliciting orders in New York State through the client's video terminals where
such orders are sent outside the State for approval or rejection; and, if
approved, are filled by shipment or delivery from a point outside New York State,
are exempt from taxation under Article 9-A, assuming they have no other contact
with the State, in accordance with the meaning and intent of Sections 1-3.2(a)(3)
and 1-3.4(b)(9) of the Business Corporation Franchise Tax Regulations and Public
Law 86-272.
Further, in accordance with said Sections, the out-of-state vendors would
be exempt from taxation even if the client is considered to be an independent
contractor engaged in selling or soliciting orders for the sale of tangible
personal property for the out-of-state vendors. Giftmaster Inc., Adv 0p, Comm T
& F, October 13, 1988, TSB-A-88(23)C.
It is noted that the same rules would apply to an out-of-state vendor who
would otherwise be taxable under Article 22 of the Tax Law.

DATED: January 17, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.