Does a Florida training company create New York nexus by sending independent contractors to run free in-state workshops, requiring it to collect use tax on its mail-order home-study program sales to New York students?

Plain-English summary

International Factoring Institute, Inc., a Florida corporation, trains students in the factoring business (evaluating, structuring, and placing accounts receivable at a discount) through both in-person "residency" programs (held in Florida and Nevada) and "nonresidency" home-study programs (a manual, 24 tapes, a calculator, and orientation materials, shipped by common carrier). It doesn't own or lease property, or employ anyone, in New York. But it does hire Florida-based independent contractors to run free three-hour informational workshops in New York -- five in 1993, six in 1994, and nine in 1995 -- inviting potential students by direct mail. No products are sold and no training is conducted at these workshops, but people can enroll in residency programs there, and enrollees receive orientation packages (kept regardless of whether they later attend). During the period at issue (through August 1995), the company sold about 12 nonresidency programs to New York students, mailed directly from Florida. It asked whether these facts create enough of a connection to New York to require it to register and collect New York's compensating use tax on those home-study program sales.

The Department first confirmed that the home-study programs themselves -- as tangible personal property (manuals, tapes, calculators, packages) purchased by New York residents for use in New York -- are subject to the compensating use tax if a New York vendor obligation exists; the real question was whether the company's connection to New York was strong enough to satisfy the Commerce Clause. Under Tax Law § 1101(b)(8)(i)(C), a person becomes a "vendor" if they solicit business through employees, independent contractors, agents, or other representatives, or through advertising distribution with an additional nexus-satisfying connection.

The Department found the independent contractors' New York activity was enough: they made "regular visitations" into the state for the purpose of enrolling people in the company's programs, promoting sales, and maintaining a market presence, and that in-state presence -- combined with the company's own direct-mail workshop invitations to potential students -- together established sufficient nexus. As a result, the company had to register as a vendor and collect New York use tax on its nonresidency program sales to New York residents, at least through the period covered by the request; the opinion doesn't decide whether nexus continued for later periods. The Department also flagged a separate wrinkle: handing out the orientation packages at the New York workshops is itself a taxable "use" of promotional materials in the state under § 1101(b)(7). If Florida (or another state) sales/use tax was already legally paid on those same materials without a right to refund, and that state offers a reciprocal exemption, New York's compensating use tax would only apply to the extent New York's combined rate exceeds the other state's rate under § 1118(7).

What this means for you

Out-of-state mail-order or home-study program providers

Sending independent contractors into New York on a regular basis -- even just to run free promotional workshops that don't themselves sell anything -- can be enough to create Commerce Clause nexus and trigger a use-tax collection obligation on your mail-order sales into the state. The key facts here were the REGULARITY of the in-state visits and their PURPOSE (enrolling students, promoting sales, maintaining a market), combined with direct-mail solicitation aimed at New York residents.

Businesses distributing free promotional materials at in-state events

Giving away orientation packages, brochures, or similar promotional materials at an in-state event is itself a separately taxable "use" of that tangible personal property in New York -- distinct from the nexus question for your main product sales -- though a credit may be available if you already paid another state's tax on the same materials and that state offers reciprocity.

Accountants and tax professionals

This opinion is a useful nexus case study for the specific "occasional trade show demo doesn't create nexus" line of authority (see the same-year ESP Inc./Electron Fusion Devices opinions) -- contrasting facts where REGULAR, purpose-driven independent-contractor visits (not a mere once-every-other-year demo) crossed the line into sufficient nexus. Worth comparing the two fact patterns directly for any client running recurring in-state promotional activity.

Common questions

Q: Does this opinion decide whether the company still has nexus today?
A: No -- the Department expressly limited its opinion to "at least through the period at issue" and said determining nexus for later periods was beyond its scope.

Q: Is giving away free orientation packages at a workshop separately taxable from the mail-order program sales?
A: Yes -- the opinion treats the in-state distribution of promotional orientation packages as its own taxable "use" of promotional materials, distinct from (though supporting) the broader nexus analysis for the mailed home-study programs.

Q: Can another out-of-state company rely on this ruling?
A: No. This advisory opinion binds the Department only with respect to International Factoring Institute, Inc. and the specific facts and time period it described.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(1) (definition of purchase at retail)
• Tax Law § 1101(b)(4) (definition of retail sale)
• Tax Law § 1101(b)(5) (definition of sale, selling or purchase)
• Tax Law § 1101(b)(6) (definition of tangible personal property)
• Tax Law § 1101(b)(7) (definition of use, including distribution of promotional materials)
• Tax Law § 1101(b)(8)(i)(C) (vendor definition; solicitation by employees/independent contractors or advertising with nexus)
• Tax Law § 1101(b)(12) (definition of promotional materials)
• Tax Law § 1110(a) (compensating use tax)
• Tax Law § 1118(7) (credit for tax legally paid to another state)
• Tax Law § 1131 (persons required to collect tax)
• 20 NYCRR Parts 526, 531, 533

Prior rulings and cases referenced:

• None cited in this opinion.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a96_76s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (76) S
Sales Tax
December 13, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S960209A

On February 9, 1996, the Department of Taxation and Finance received a Petition for
Advisory Opinion from International Factoring Institute, Inc., P.O. Box 1511, Orlando, Florida
32802. Petitioner, International Factoring Institute, Inc., provided additional information pertaining
to the Petition on August 27, 1996.
The issue raised by Petitioner is whether a sufficient nexus exists between Petitioner and
New York State to satisfy the Commerce Clause of the United States Constitution to require
Petitioner to collect the State and local sales and compensating use taxes on its shipments of
nonresidency programs to students in New York. Petitioner's inquiry relates specifically to a period
ending August 31, 1995.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner began business in 1993 and is incorporated under the laws of Florida. It maintains
its place of business in Orlando, Florida. Except as described in the facts Petitioner submitted,
Petitioner does not own or lease any property or employ anyone within New York State.
Petitioner offers residency and nonresidency (i.e., home study) training programs in factoring
as an investment and as a broker. Petitioner trains students to evaluate, structure and place accounts
receivable or invoices with companies that purchase or factor these receivables at discounts. Students
use these skills to act as brokers to earn commissions by identifying buyers and sellers or to purchase
these receivables at discounts for their own investment purposes.
All residency training programs are held primarily in Florida and Nevada. Nonresidency
programs are only made available to students who cannot attend residency training programs. If
students are enrolled in residency programs and later determine that they cannot attend these
residency programs, they are, at that time, offered the nonresidency programs. All enrollments are
approved in Florida. There is no solicitation of the nonresidency programs within New York State.
Petitioner does, however, conduct free informational workshops regarding the factoring
industry. Petitioner conducted five of these workshops in New York State in 1993, six in 1994 and
nine in 1995. Other than these introductory workshops, Petitioner does not have any other activities
in New York State. Potential students are invited to the workshops via direct mail. The workshops
are held in hotels and conducted by independent contractors who are hired by Petitioner and
domiciled in Florida. The workshops are approximately three hours in duration.

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Petitioner does not sell any products or perform any training at these workshops. Persons
who wish to attend a residency training program can enroll in such program at the workshops.
Enrollees in residency programs receive orientation packages at the workshops. These packages
contain orientation materials that explain the terminology that will be used in the training programs
as well as preliminary business tips. The potential students keep the orientation packages whether
or not they actually attend the residency programs. Sales tax is paid in the State of Florida on the
promotional materials given out at the workshops in New York. Potential students who enroll in the
residency programs receive no further solicitations, but are invited to contact Petitioner with any
questions that they may have. Enrollees are also contacted to confirm attendance dates and any
special arrangements. Once the students graduate, there is no further contact.
All nonresidency programs are shipped from Florida. These programs are delivered to
students in New York via common carrier (e.g., United Parcel Service, Federal Express, U.S. Mail).
Petitioner sold approximately 12 nonresidency programs to New York students during the period of
February 1, 1993 through January 31, 1995. These nonresidency programs consist of a manual, a
set of 24 tapes, a calculator, an orientation package and an introduction package. There are no
interactions between New York students and instructors as part of the nonresidency programs, for
example by personal computers. The programs are strictly home study programs. Students may,
however, contact Petitioner's instructors for clarification of content or Petitioner's Student Services
Department regarding materials via telephone or the mail. Petitioner's instructors and Student
Services Department are located in Orlando, Florida.
Applicable Law and Regulations
Section ll01(b) of the Tax Law provides, in part:
When used in this article for the purposes of the taxes imposed by
subdivisions (a), (b), (c) and (d) of section eleven hundred five and by section eleven
hundred ten, the following terms shall mean:
(1) Purchase at retail. A purchase by any person for any purpose other than
those set forth in clauses (A) and (B) of subparagraph (i) of paragraph (4) of this
subdivision.
*

*

*

(4) Retail sale. (i) A sale of tangible personal property to any person for
any purpose, other than (A) for resale as such or as a physical component part of
tangible personal property ....
(5) Sale, selling or purchase. Any transfer of title or possession or both,
exchange or barter, rental, lease or license to use or consume .... conditional or
otherwise, in any manner or by any means whatsoever for a consideration, or any
agreement therefor
....

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(6) Tangible personal property. Corporeal personal property of any nature ....
(7) Use. The exercise of any right or power over tangible personal property
by the purchaser thereof and includes, but is not limited to, the receiving, storage or
any keeping or retention for any length of time, withdrawal from storage, any
installation, any affixation to real or personal property, or any consumption of such
property. Without limiting the foregoing, use also shall include the distribution of
only tangible personal property, such as promotional materials.
(8) Vendor. (i) The term "vendor" includes:
*

*

*

(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 ....
*

*

*

(12) Promotional materials. Any advertising literature, other related tangible
personal property (whether or not personalized by the recipient's name or other
information uniquely related to such person) and envelopes used exclusively to
deliver the same ....
Section lll0(a) of the Tax Law imposes the compensating use tax, in part, as follows:
Except to the extent that property or services have already been or will be
subject to the sales tax under this article, there is hereby imposed on every person a
use tax for the use within this state ... except as otherwise exempted under this article,
(A) of any tangible personal property purchased at retail ....
Section 1118 of the Tax Law provides in part:
The following uses of property shall not be subject to the compensating use
tax imposed under this article:
*

*

*

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(7)(a) In respect to the use of property or services to the extent that a retail sales or
use tax was legally due and paid thereon, without any right to a refund or credit
thereof, to any other state or jurisdiction within any other state but only when it is
shown that such other state or jurisdiction allows a corresponding exemption with
respect to the sale or use of tangible personal property or services upon which such
a sales tax or compensating use tax was paid to this state. To the extent that the tax
imposed by this article is at a higher rate than the rate of tax in the first taxing
jurisdiction, this exemption shall be inapplicable and the tax imposed by section
eleven hundred ten of this chapter shall apply to the extent of the difference in such
rates, except as provided in paragraph (b) of this subdivision.
(b) To the extent that the compensating use tax imposed by this article and a
compensating use tax imposed pursuant to article twenty-nine are at a higher
aggregate rate than the rate of tax imposed in the first taxing jurisdiction, the
exemption provided in paragraph (a) of this subdivision shall be inapplicable and the
taxes imposed by this article and pursuant to article twenty-nine shall apply to the
extent of the difference between such aggregate rate and the rate paid in the first
taxing jurisdiction ....
Section 1131(1) of the Tax Law defines "persons required to collect tax," in part, to include
"every vendor of tangible personal property .... " Section 1131(3) defines "tax," in part, to include
"any tax imposed by sections eleven hundred five, or eleven hundred ten .... "
See, also, Parts 526, 531 and 533 of the Sales and Use Tax Regulations. The local sales and
compensating use taxes are imposed pursuant to the authority of Article 29 of the Tax Law.
Opinion
Petitioner's sales of nonresidency programs (consisting of manuals, tapes, calculators,
orientation packages and introduction packages) to students who are residents of New York State
constitute sales to persons within this State of tangible personal property, the use of which is subject
to the compensating use tax under Section lll0(a) of the Tax Law. Students purchase this tangible
personal property at retail for use within New York. Accordingly, tax is due on the consideration
given or contracted to be given for the property at the combined State and local sales tax rate in
effect in the taxing jurisdiction where the property is delivered. However, the question remains
whether the activities of the independent contractors hired by Petitioner to conduct the free
informational workshops concerning factoring are a sufficient connection to this State to satisfy the
Commerce Clauses of the U.S. Constitution to require Petitioner to register as a vendor and to collect
and remit this tax.
The extent of the activities in New York State of the independent contractors on behalf of
Petitioner is sufficient to impose the obligation to collect and remit to this State the compensating
use tax on Petitioner's sales of nonresidency programs to persons in New York.

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Petitioner's representatives have made regular visitations into this State for the intended purpose of
enrolling people in Petitioner's training programs and thereby promoting Petitioner's sales and
maintaining a market for Petitioner in New York. Also, Petitioner's mail distribution of workshop
invitations to potential students in conjunction with the presence in New York of Petitioner's
independent contractors conducting workshops on Petitioner's behalf, buttresses the finding of
sufficient nexus to require Petitioner to register and collect New York State tax, at least through the
period at issue. A determination of whether or not Petitioner has sufficient nexus with New York
for subsequent periods is beyond the scope of this Advisory Opinion.
It is also noted that the distribution of the orientation packages at the informational
workshops in New York constitutes a taxable use of promotional materials in this State. However,
in accordance with Section 1118(7) of the Tax Law, if Florida or another state's sales or use taxes
were legally due and paid on these materials without any right to a refund or credit and if Petitioner
can show that Florida or the other state, respectively, allows a corresponding exemption, the New
York State and local compensating use taxes would apply only to the extent that the New York
aggregate rate of tax exceeded Florida's or the other state's rate. It is further noted that Chapter 309
of the Laws of 1996 amended the Tax Law in relation to the exemption for promotional materials
under Section ll15(n) of the Tax Law. However, such amendments are not pertinent to this Opinion.

DATED: December 13, 1996

/s
John W. Bartlett
Deputy Director
Technical Services Bureau

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