Are you an e-commerce entrepreneur with dreams of making it big in the bustling business hub of the world? To succeed in New York, the business capital of the world, it’s essential to understand and navigate NY sales tax regulations.
This guide breaks down everything you need to know about the Empire State’s sales tax, from determining the right sales tax rates to understanding exemptions and filing processes. By the end of this comprehensive guide, you’ll be equipped to handle New York’s sales tax with confidence and ease.
Sales Tax Nexus in New York
When a business creates either a physical or economic nexus, it is required to collect sales tax in New York.Physical Nexus
A physical nexus means having a significant physical presence or engaging in enough activities within a state to require the collection and payment of sales tax. The factors that determine a physical nexus in New York include:- Physical Location: This includes having an office, a place for distribution, sales, or showcasing products, a warehouse or storage facility, or any other place where you conduct business
- Inventory in the State: This covers situations where you store your products within the state, even if it’s done through a third-party fulfillment center or 3PL (like Amazon FBA) or an online marketplace.
- Employees, independent contractors, agents, or other representatives operating on your behalf.
- If a business actively promotes and sells things in New York through advertising or solicitation and makes taxable sales to New York residents.
- Delivery of taxable items to New York customers through your own vehicle at least 12 times a year.
- Affiliate Nexus or Click-through Nexus: You could trigger a physical nexus if you have affiliates, whether they operate online or in-person, who have collectively sold more than $10,000 worth of products for delivery in New York during the preceding four quarterly sales tax periods.
Economic Nexus
States have established regulations to collect sales tax from out-of-state sellers who meet certain revenue and/or transaction thresholds. This rule is known as economic nexus. Beginning June 24, 2019, the threshold for economic nexus in New York is $500,000 in gross revenue and 100 transactions in the previous or current calendar year’s sales. This is different from most states as you meet economic nexus if you meet the dollar threshold and the order threshold. While the nexus criteria mentioned above generally apply to most businesses, additional methods exist for establishing sales tax nexus. To access a comprehensive list of these rules, please refer to the governing laws for economic sales tax nexus requirements in New York.
New York Sales Tax on Goods and Services
One of the first things you need to know is whether the goods you’re selling or services you’re offering are taxable in New York.Tangible Products
Almost all goods are taxable in New York, including:- Cosmetics
- Electronics
- Furniture
- Jewelry
- Automobiles
- Home Goods
- Groceries – Food products, dietary foods, certain beverages, and health supplements sold by food markets are tax-exempt, while prepared food and beverages such as candy, soft drinks, alcoholic beverages, sandwiches, and heated foods are taxable.
- Clothing and Footwear – Purchases below $110 are not subject to sales tax from New York State, New York City, and certain other local jurisdictions.
- Feminine hygiene products – This includes feminine hygiene products (i.e.sanitary napkins, tampons, menstrual sponges and cups, pantyliners)
- Prescription Medications
- Newspapers, magazines, and other periodicals
- Medical Devices and Equipment
- Prosthetic aids and devices, hearing aids, and eyeglasses
Services
In New York, the majority of service-based transactions, such as professional services, advertising, and laundry and dry cleaning services are not subject to sales tax. However, there are specific situations where certain services are taxable:- Utility services
- Cleaning, maintenance, and repair services
- Telecommunication (phone and mobile) services
- Information services
- Interior decorating and design services
- Protective and detective services
- Hotel occupancy
- Admission to places of amusement
- Social and athletic club dues
- Certain cabaret services
Software-As-A-Service (SaaS)/Digital Products
SaaS is taxable in the state of New York. Digital products (i.e., ebooks, downloadable video content, mobile apps) are not taxable.Shipping/Handling
Shipping and handling charges in the state of New York are taxable.Sales Tax Permits and Licenses in New York
Now that you’ve got a handle on when sales tax nexus applies and which products are taxable in New York, the next important step is getting your New York Seller’s Permit, also known as a sales tax permit.Seller’s Permit
You can register for a New York sales tax permit, also known as a Sales Tax Certificate of Authority, online at the New York Business Express. Ensure you have specific information on hand when registering for a seller’s permit, including, but not limited to:- Business Identification Information (name, address, phone number, email address)
- Business Entity Structure (sole proprietorship, partnership, corporation, LLC, etc.)
- Federal Employer Identification Number (EIN or FEIN)
- Owner/Partner/Officer Information
- Business Activity Details (description of products or services sold, sales volume, date of the first sale or the expected date to start dates)
Resale Certificate
A resale certificate is a document that allows businesses to buy products without paying sales tax on them, as long as they plan to resell those items to customers, who will then pay the tax. As a seller, you can also accept resale certificates from others looking to buy for resale. In New York, sellers use resale certificates to buy goods from their suppliers that they intend to resell. The issuance of the certificates is always done in good faith that the seller would report tax on the final sale of the items. You can fill out the ST-120:6/18 Form: New York State and Local Sales and Use Tax Resale Certificate. In most cases, this form needs either a sales and use tax registration number or an exemption number to be valid. If you don’t want the hassle of registering, sign up for our all-inclusive service that includes sales tax registration.Streamlined Sales Tax (SST)
The Streamlined Sales Tax (SST) is an initiative to simplify and standardize sales tax regulations across multiple states. However, New York is not a party to this program, meaning it does not follow the uniform rules and definitions established by SST but has its own sales tax regulations. Check with the New York State Department of Taxation and Finance for the most current information on New York’s participation in the Streamlined Sales Tax initiative.Calculating and Collecting Sales Tax in New York
Sales Tax Computation
In New York, sales tax isn’t just one simple rate; it’s a combination of state and local taxes and an additional surcharge of 0.375% if the location is within the Metropolitan Commuter Transportation District. To figure out the total sales tax for your calculation, you’ll need to add up the rates for the state, county, and city (if applicable) where your transaction occurs. Use TaxHero’s New York Sales Tax Calculator to compute for sales tax. Here’s an example. Suppose an out-of-state seller satisfies the economic nexus criteria in Florida and sells to a customer in New York City, NY, with a ZIP code of 10018. In that case, the seller has to charge the customer a total sales tax, which can be broken down as follows:
|
|||||||||||||||||||
Origin-based vs. Destination-based
When making in-state sales, it is important to determine if you are located in an origin-based or destination-based state to figure out what rate to charge for sales tax. New York is a destination-based state, meaning sales tax is determined based on the buyer’s location. That means for a New York-based seller, sales tax is generally based on the location of the buyer when selling within the state. For out-of-state or remote sellers, the sales tax rate is always determined by the buyer’s location. For instance, if you’re selling a product from Florida to a customer in New York City, New York, where you have nexus, you’d apply NYC’s sales tax rate to that sale. To make life easier, consider using sales tax software or consulting a tax professional, like TaxHero, to ensure accurate tax calculations and collections. Understanding these tax rules helps you stay compliant, whether you’re in-state or out-of-state.Filing and Remitting Sales Tax Returns in New York
The next step after collection is filing and remitting your New York sales tax returns. Filing and remittance can vary in frequency, typically monthly, quarterly, or annually. If your quarterly sales tax collections exceed $300,000, you’ll need to file monthly. If your sales tax collections are under $300,000 during the previous quarter, you’ll file quarterly. For businesses owing $3,000 or less in sales tax annually, an annual filing requirement applies. It’s crucial to keep accurate records of your sales and tax collections and adhere to the filing schedule set by the state to remain compliant with New York sales tax regulations.Due Dates
Unlike many states that adhere to a uniform filing date, the state of New York has distinct due dates based on the frequency of filing. For monthly filers, all sales tax collected in a given month is due by the 20th day of the following month. For example, sales tax from January should be filed by February 20th. For quarterly filers:- First quarter (March 1 – May 31): Due by June 20
- Second quarter (June 1 – August 31): Due by September 20
- Third quarter (September 1 – November 30): Due by December 20
- Fourth quarter (December 1 – February 28/29): Due by March 20
Filing Sales Tax Returns
To file your sales tax return for New York, a few options are available:- File online through New York’s website portal.
- File by mail – fill out the eforms provided by the New York State Department of Taxation and Finance if you don’t have access to the internet.
- File with TaxHero – Let TaxHero take care of it so you don’t have to worry about missing a payment or return.
Timely Filing Discount
Some states offer a discount to businesses for collecting, filing, and remitting sales tax on time as an incentive to process sales taxes promptly. New York’s timely filing discount offers a 5% discount for quarterly and annual filers with a maximum of $200 per reporting period and a minimum of $0. No filing discount is available for monthly filers.Sales Tax Holiday
- Currently, for 2023-2024, there are no planned sales tax holidays in New York.
New York Sales Tax Penalties
Like in most states, sales tax is a big part of how New York generates revenue. Thus, maintaining compliance with sales tax regulations is of utmost importance. Failure to do so can lead to consequences and sales tax penalties. Therefore, it is crucial always to ensure you are up-to-date in filing, collecting, and remitting sales tax to the state. Here are the specific penalties for non-compliance with sales tax regulations in New York:- Civil penalties amounting to 10% of the total sales tax due for the first month, in addition to 1% for every month or fraction (maximum of 30% and minimum of $50);
- On the criminal side, offenses can be classified as either misdemeanors or felonies, depending on the severity and specific circumstances.