Sales Tax Articles
Sales Tax State Activity Update - May 2008
Referrer Madness â€" New York Creates Associations to Expand Nexus
The New York State legislature, as part of the enacted 2008-09 budget package, has expanded the nexus creating associations of remote sellers.
A new subparagraph was added to Section 1101(b)(8) of the Tax Law that establishes the presumption that a person making sales of taxable tangible personal property or services will be presumed to be soliciting business through an independent contractor or other representative, and therefore becomes a vendor for New York sales and use tax purposes, if the seller enters into an agreement that compensates a New York resident for directly or indirectly referring potential customers, whether by a link or on an Internet website or otherwise, to the seller.
This connection resulting in the seller being classified as a "vendor" for tax collection purposes will only occur if the cumulative gross receipt from sales resulting from such referrals by New York residents is in excess of $10,000 during the preceding four quarterly periods.
This scenario, which is intended to increase the number of registered vendors collecting New York state sales and use tax, and therefore increase tax revenue, may be rebutted by proof that the resident, with whom the seller has an agreement, did not engage in any solicitation in New York on behalf of the seller that would satisfy the nexus requirement of the United States constitution during the four quarterly periods in question.
This new provision became effective immediately upon the signing into law of the Act. However, sellers, that must now register to collect tax as a result of this expansion of the term "vendor", are protected by a limited amnesty which prevents the assessing of tax, penalties and interest for failure to collect sales tax for periods prior to June 1, 2008, as long as they register as vendors and commence collection of taxes by June 1, 2008, and meet certain other conditions.
The full text can be found on the New York State Assembly Website.
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