Do You Charge NYS Sales Tax to Out-of-State Customers?

Sales tax is a consumption tax imposed by state and local governments on the sale of goods and services. This tax is collected by the seller at the point of sale and then remitted to the appropriate tax authority. Sales tax revenue funds various state and local government services. Rules and regulations vary significantly across different states, requiring businesses to understand specific requirements where they operate.

Establishing a Sales Tax Obligation

A business generally incurs an obligation to collect sales tax in New York State if it has a “nexus” or a sufficient connection with the state. This connection can arise as physical nexus or economic nexus.

Physical nexus is established when a business has a tangible presence within New York State. This includes maintaining an office, a retail store, or a warehouse. Physical nexus also arises if a business has employees, agents, or other representatives working in New York, even if they are conducting activities like soliciting sales or providing services. Storing inventory within New York, such as in a third-party fulfillment center, can also create a physical nexus.

New York enforces economic nexus rules for remote sellers. A remote seller establishes economic nexus in New York if, during the immediately preceding four sales tax quarters, their gross receipts from sales of tangible personal property delivered into New York exceed $500,000, and they make 100 or more separate transactions into the state. If both thresholds are met, the business must register and collect New York sales tax.

New York’s sales tax framework also includes specific provisions for marketplace facilitators. A marketplace facilitator is an entity that owns or operates a marketplace and facilitates sales for third-party sellers. New York law generally requires marketplace facilitators to collect and remit sales tax on all sales made through their platform and delivered into New York, regardless of the individual seller’s nexus status. For sales facilitated by a marketplace, the marketplace facilitator typically assumes responsibility for sales tax collection. However, if a seller also makes direct sales outside of a marketplace or has a physical presence in New York, they remain responsible for collecting and remitting sales tax on those sales.

Taxable Items and Services in New York

Once a business determines it has a sales tax obligation in New York, it must identify which goods and services are subject to sales tax. New York’s sales tax applies to a broad range of items and certain services, though specific exemptions exist. The statewide sales tax rate in New York is 4%, but local sales taxes can increase the combined rate, which can range from 4% to 8.875% depending on the locality.

Most sales of tangible personal property are taxable in New York unless specifically exempted by law. This includes manufactured goods, raw materials, and pre-written computer software. Examples include clothing and footwear priced at $110 or more per item, as well as prepared food and beverages sold by restaurants.

New York also taxes specific categories of services. Taxable services include utility services, telecommunication services, and certain information services provided by telephone or telegraph. Services such as installing, maintaining, servicing, and repairing tangible personal property are generally subject to sales tax. Some services, like beautician and barbering services, tanning, manicures, pedicures, and massage services, are taxable only in New York City.

Several common exemptions apply to New York sales tax. Sales of certain food products for home consumption, such as groceries, are generally exempt. Prescription and over-the-counter drugs and medicines are also exempt. Other exemptions include certain medical equipment and supplies, and sales made for resale, provided the purchaser furnishes a valid resale certificate. Clothing and footwear items priced under $110 per item are exempt from the state sales tax and, in some cases, local taxes.

Collecting and Remitting Sales Tax

Businesses with a sales tax obligation in New York must understand the steps for collecting and remitting sales tax. This includes registration, applying correct tax rates, collecting the tax, and filing returns to remit funds to the state.

Any business required to collect sales tax in New York must first register with the New York State Department of Taxation and Finance to obtain a Certificate of Authority. This certificate permits the business to collect sales tax on its taxable sales. The registration process can be completed online through the New York Business Express portal and should be done at least 20 days before making taxable sales.

New York employs a destination-based sourcing rule for sales tax. This means the sales tax rate applied to a transaction is determined by the location where the customer receives the goods or services, not the seller’s location. Businesses must accurately identify the customer’s delivery address to apply the correct combined state and local sales tax rate, which can vary significantly across different counties and cities.

Once the correct rate is determined, businesses are responsible for collecting the sales tax from the customer at the time of sale. Businesses then need to file sales tax returns with the New York State Department of Taxation and Finance, typically through their online services portal.

Filing frequency for sales tax returns in New York depends on the business’s sales volume or annual tax liability. Businesses may be required to file monthly, quarterly, or annually. For example, high-volume businesses with annual sales tax liability over $500,000 may be required to make monthly prepayments through the PrompTax program. Returns are generally due on the 20th day of the month following the end of the reporting period. After filing, the collected sales tax must be remitted to the state by the due date. Maintaining accurate records of all sales, collected taxes, and any exemption certificates is a requirement for audit purposes and to ensure ongoing compliance.