New York Announces Economic Nexus Threshold

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In June, the US Supreme Court overruled its own precedents and opened the door for states to apply economic nexus to impose sales tax requirements on out-of-state businesses - most notably, internet retailers. The South Dakota v. Wayfair, Inc. decision allowed South Dakota to levy sales taxes on the sale of goods and services regardless of whether the seller had a physical presence in the state (LMC State Tax Alert 6/26/18). That opinion opened the door for other states to impose sales tax and require sellers to collect and remit tax to their state.


Over 40 more states have since established or proposed economic nexus provisions to collect tax from remote sellers. Some mirrored the thresholds that the Supreme Court decision established for South Dakota in Wayfair - either $100,000 of revenue or more than 200 transactions delivered to state customers. Other states established their own thresholds. But New York, traditionally one of the most aggressive states in tax matters, did not enter the fray until this week.


On Tuesday, January 15, New York issued a Notice requiring an out-of-state vendor with no physical presence in New York to register, collect, and remit sales tax to New York if both of the following thresholds were met during the immediately preceding four sales tax quarters:

  • more than $300,000 in sales of goods (both taxable and exempt) delivered to New York, AND
  • more than 100 sales of goods delivered to New York.


The four quarters used to test the thresholds are the preceding three-month sales tax return filing periods, which end in May, August, September, and February.


One aspect of New York's rule is different from those in South Dakota and most other states. New York's requirement is only met by satisfying both the revenue test and the transaction test. Most other states create economic nexus with either test. For example, an out-of-state art dealer delivering 60 works of art to New York buyers by common carrier in the applicable period would not be responsible to collect sales tax, even though those transactions may represent millions of dollars of revenue.


The notice does not change the rules for a business with a physical presence in New York. A company with any owned or rented New York property, or any New York employees, has always been required to collect sales tax from its customers. The change affects businesses that have no physical presence in New York, but sell goods that exceed the thresholds to New York customers. Software vendors should remember that New York treats pre-written software as tangible personal property subject to sales tax - even products accessed remotely over the internet.


The Notice states these requirements became effective in New York on June 21, 2018 - the day Wayfair was decided. Although the Notice was just issued this week, the state could theoretically try to enforce tax collection on earlier transactions. The Department of Taxation and Finance did not announce whether the rules would be applied retroactively.


Contact your LMC professional for information about how the New York economic nexus rules affect your situation.  All our prior tax alerts are available on the Updates page of our website.



Late on Friday, January 18, the IRS released eagerly awaited final regulations on section 199A - the 20% pass-through deduction. The 274-page document and two accompanying Revenue Procedures provide much of the clarity taxpayers and practitioners have been seeking. For example, the IRS says rental owners will qualify for the deduction if they perform at least 250 hours of rental services during the year. We will provide more details on the new final regulations in our next Alert.

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