Does a tax-exempt educational organization have to charge sales tax on its overwhelming majority of book sales that come through mail, phone, and fax orders, when it also makes some taxable on-site sales at its own conference center and seminar locations?

Plain-English summary

Practising Law Institute (PLI) is a nonprofit continuing-legal-education organization, tax-exempt under both federal law (IRC § 501(c)(3)) and New York's § 1116(a)(4). Beyond its seminar programs, PLI is a major legal publisher -- 560 titles in inventory in 1997, 178 new titles that year alone, generating $8.1 million of its $23.3 million total revenue. The overwhelming majority of that -- more than 97.5% of total sales -- comes from mail, phone, fax, and e-mail orders routed to an independent Michigan fulfillment house that ships directly to customers. A small slice (less than 2.5%, under $200,000) comes from "on-site" sales at PLI's seminar/program locations nationwide and at its own New York City Conference Center; PLI has already been treating and taxing those on-site sales as sales from a "shop or store."

New York's exemption for charitable/educational organizations has a built-in limit: retail sales made through a "shop or store" operated by the exempt organization stay taxable even though the organization itself is otherwise exempt. A "shop or store" means a place where goods are sold from display with real regularity, frequency, and continuity. PLI's Conference Center and seminar sales tables clearly fit that description, and PLI was already correctly collecting tax on them. But the Department confirmed something PLI wanted settled: its mail-order channel is legally distinct. Following its own prior rulings for the National Wildlife Federation and the Point-O-Woods Historical Society, the Department held that mail order sales simply aren't sales "by a shop or store" -- there's no physical display, no walk-in retail location, nothing that fits the regulatory definition -- regardless of how large that sales channel is in dollar terms. So even though PLI's mail-order book business dwarfs its on-site sales by a wide margin, that channel keeps its exempt-organization status and PLI doesn't have to collect sales tax on it.

What this means for you

Nonprofit publishers, associations, and membership organizations selling books/materials

Operating both a small physical retail presence (a gift shop, conference bookstore, on-site sales table) and a much larger mail/phone/online order business doesn't force you to tax the whole operation just because part of it is a "shop or store." The two channels get analyzed separately -- collect tax on genuine shop-or-store sales, but mail/phone/fax/e-mail orders can remain exempt as long as your organization otherwise qualifies under § 1116(a).

Continuing-education providers and professional associations

If your revenue mix looks like PLI's -- program fees, membership dues, and substantial publication sales split between on-site and remote ordering -- this ruling is closely on point for how to allocate sales tax collection responsibility across those channels.

Accountants and tax professionals

This is a useful precedent-chain example: the Department applied its own prior National Wildlife Federation and Point-O-Woods Historical Society holdings (mail order ≠ shop-or-store sale) to a much larger-scale operation without any adjustment, confirming the rule doesn't scale down (or up) based on the relative size of the mail-order channel versus the taxable on-site channel.

Common questions

Q: If most of an exempt organization's book sales come through mail order, does that convert the whole operation into a taxable "shop or store"?
A: No -- the shop-or-store exception applies channel by channel. Genuine on-site retail sales are taxable; separately conducted mail, phone, fax, and e-mail orders are not, regardless of their relative share of total sales.

Q: Does using an independent fulfillment house to ship mail orders change the analysis?
A: No -- the ruling treats the orders as mail order sales regardless of whether PLI or a third-party fulfillment house physically ships the product.

Q: What makes a sales location a taxable "shop or store"?
A: A place where goods are sold from display with a degree of regularity, frequency, and continuity -- PLI's own Conference Center and seminar-location sales tables met that test and were already being taxed accordingly.

Citations and references

Statutes, regulations, and prior rulings:

• Tax Law § 1116(a)(4) (exemption for religious/charitable/educational organizations)
• Tax Law § 1116(b)(1) (exemption doesn't cover retail sales by a shop or store operated by an exempt organization)
• 20 NYCRR § 529.7(i)(1), (2) (sales by exempt organizations; definition of shop or store)
• National Wildlife Federation, TSB-A-86(11)S (mail order sales by exempt organization not shop-or-store sales)
• Point-O-Woods Historical Society, TSB-A-97(36)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1999.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a99_17s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-99(17)S
Sales Tax
April 7, 1999

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S981221C

On December 21, 1998, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Practising Law Institute, 810 Seventh Avenue, New York, New York 10019.
The issue raised by Petitioner, Practising Law Institute, is whether mail order sales of books
and materials by a tax exempt organization become subject to sales tax where the organization
operates a "shop or store" from which taxable sales of books and materials are carried out.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner is a nonprofit educational organization chartered by the Board of Regents of the
University of the State of New York on June 17, 1938. Petitioner provides the legal community with
continuing professional education through lecture programs and publications. Petitioner is exempt
from Federal income tax under Section 501(c)(3) of the Internal Revenue Code and from sales and
compensating use tax under Section 1116(a)(4) of the Tax Law. Petitioner is headquartered in New
York City with offices in California.
Petitioner derives most of its income from membership dues, program fees and the sale of
publications. In 1997, Petitioner received approximately $23.3 million from these sources. Of that
amount, program fees accounted for $13.7 million, dues $1.5 million and $8.1 million was from the
sale of Petitioner’s various books and materials. Participation in Petitioner’s programs as well as
its sales of books and other materials primarily result from solicitation through direct mail
advertising in the form of brochures and catalogues. In 1997, Petitioner distributed more than 7
million pieces of direct mail advertisements throughout the world.
Last year, Petitioner conducted over 200 educational seminars and programs throughout the
country for the legal community and allied professionals, attracting over 21,000 participants. Prior
to 1990, these seminars and programs were held at various hotels and conference facilities within
and without the State. In 1990, Petitioner opened its Conference Center in New York City. About
one-half of Petitioner’s programs, workshops and seminars now take place at the Center each year.
The rest continue to be held at various hotels and conference facilities within and without New York
State, as well as "on-line" through Petitioner’s Internet Web site.
Petitioner publishes numerous books, authored by experts in their respective fields,
audio/visual cassettes, CD-ROM materials and other publications. In 1997, Petitioner introduced
178 new titles and currently maintains an inventory of 560 titles available for sale. Petitioner’s

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TSB-A-99(17)S
Sales Tax
April 7, 1999

books and materials may be ordered by mail (including e-mail), phone or fax. Orders submitted by
such means, which account for over 97.5% of its total sales, are routed to an independent fulfillment
house in Michigan, which ships the order by U.S. mail or by common carrier directly to the
customer.
Petitioner’s books and materials are also offered for sale "on-site" at the various
seminar/program locations held throughout the country as well as at Petitioner’s headquarters in New
York City. Less than 2.5% of its total sales, or less than $200,000, were derived from "on-site"
purchases. Of that number, approximately $102,000 was derived from "on-site" sales at the
Conference Center in New York City and at other locations in the State. All sales made "on-site"
at program locations and at Petitioner’s Conference Center have been considered as sales from a
"shop or store" and New York State and local sales tax have been collected for all such sales made
within the State.
Applicable Law and Regulations
Section 1116(b) of the Tax Law provides, in part:
Nothing in this section shall exempt:
(1) retail sales of tangible personal property by any shop or store operated by
an organization described in paragraph (4), paragraph (5) or paragraph (6) of
subdivision (a) of this section.
Section 529.7(i) of the Sales and Use Tax Regulations provides, in part:
Sales by exempt organizations. (1) Except as provided in paragraphs (2)
through (4) of this subdivision, sales of tangible personal property and services by
exempt organizations are exempt from the sales and use tax.
(2) Retail sales of tangible personal property made by any shop or store
operated by an exempt organization described in section 1116(a)(4), (5) or (6) are
subject to the sales and use tax. A shop or store as used in this section includes any
place or establishment where goods are sold from display with a degree of
regularity, frequency and continuity as well as any place where sales are made
through a temporary shop or store located on the same premises as persons required
to collect tax. Vending machines alone do not constitute a shop or store. However,
where vending machines are located in a defined area devoted to selling
tangible personal property, then sales from such vending machines constitute sales
from a shop or store.

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TSB-A-99(17)S
Sales Tax
April 7, 1999

Opinion
National Wildlife Federation, Adv Op St Tx Comm, March 26, 1986, TSB-A-86(11)S
concluded that an organization qualifying for exemption under Section 1116(a)(4) of the Tax Law
would not be required to collect sales tax on its mail order sales since such sales are not considered
sales by a shop or store.
Point-O-Woods Historical Society, Adv Op Comm T&F, June 25, 1997, TSB-A-97(36)S
concluded that sales by an exempt organization were only taxable if made by a shop or store.
In this case, Petitioner is an exempt organization as described in Section 1116(a)(4) of the
Tax Law. Petitioners offers books and materials for sale "on-site" at the various seminar/program
locations held throughout the country as well as at Petitioner’s headquarters in New York City.
Such sales account for less than 2.5% of Petitioner’s total sales. All sales made "on-site" at program
locations and at Petitioner’s Conference Center have been considered as sales from a "shop or store"
and New York State and local sales taxes have been collected for all such sales made within the
State. In addition, Petitioner’s books and materials may be ordered by mail (including e-mail),
phone or fax. Mail order sales account for over 97.5% of Petitioner’s total sales. Orders submitted
by such means, are routed to an independent fulfillment house in Michigan, which ships the order
by U.S. mail or by common carrier directly to the customer.
Petitioner is making sales at a shop or store within the meaning and intent of Section
1116(b)(1) of the Tax Law and Section 529.7(i) of the Sales and Use Tax Regulations when making
"on-site" sales at program locations in New York and at its Conference Center. Petitioner is
therefore required to collect and remit sales tax on its "on-site" sales. However, Petitioner’s mail
order sales are not sales by a shop or store. Accordingly, Petitioner is not required to collect and
remit sales tax on its mail order sales. See National Wildlife Federation, supra, and Point-O-Woods
Historical Society, supra.

DATED: April 7, 1999

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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