New York State Announces Discretionary Authority to Impose Sales Tax Collection Obligations Upon Marketplace Facilitators


    On March 7, 2019, the New York State Department of Taxation and Finance (“Department”) issued an Advisory Opinion (TSB-A-19(1)S) addressing the imposition of sales tax collection obligations upon marketplace facilitators. In a departure from prior policy, the Advisory Opinion concluded that the Department has, under existing law, discretionary authority to impose collection liability upon marketplace facilitators under appropriate circumstances.

    In the wake of the U.S. Supreme Court’s decision in South Dakota v. Wayfair in June 2018, many states have enacted new legislation requiring online marketplaces, rather than third-party sellers, to comply with state sales tax rules. Traditionally, sales tax is imposed upon the customer, but collected by the seller (or “vendor” as defined by New York Tax Law). Marketplace liability rules impose tax collection liabilities upon the marketplace itself, independent from the sellers operating within it. By way of a brick-and-mortar illustration, it’s the equivalent of imposing tax collection responsibilities upon the mall as opposed to the individual retail stores within the mall.

    New York has proposed marketplace legislation in the past, but to date it has not been enacted. With this Advisory Opinion, the Department seems to have stepped in to fill the void.

    Summary of advisory opinion


    The taxpayer who sought the Advisory Opinion (“Petitioner”) develops and markets various software, SaaS, and digital products for sale to customers. In addition, Petitioner also operates an online marketplace through which it facilitates sales of other independent software vendors. These independent vendors use Petitioner’s marketplace to sell software, apps, games, and digital products to their own customers for electronic download over the internet. The independent vendors enter into service agreements with Petitioner, whereby Petitioner agrees to host and facilitate the marketplace sales in exchange for a service fee. Under the arrangement, Petitioner processes customer payments, calculates the New York sales tax due on each transaction, and remits the tax directly to the Department. 

    The software and digital products bought and sold in Petitioner’s marketplace were conceded to be taxable as prewritten (canned) software. Rather, Petitioner queried whether it, as the marketplace, would be liable to collect tax. In response, New York concluded that it has discretionary authority within the Tax Law to treat certain intermediaries performing key acts in facilitating taxable sales as co-vendors subject to New York’s tax collection requirement. Of significance, the Advisory Opinion assumes Petitioner has nexus with New York.


    Under New York law, a “vendor” is required to collect tax. The definition of “vendor” includes the following provision: “when in the opinion of the commissioner it is necessary for the efficient administration of this article to treat any salesman, representative, peddler, or canvasser as the agent of the vendor, distributor, supervisor, or employer . . . for whom he solicits business, the commissioner may, in his discretion, treat such agent as the vendor jointly responsible with his principal, distributor, supervisor, or employer for the collection and payment over of the tax.”

    According to the Advisory Opinion, “[t]his provision permits the Department to treat as vendors intermediaries that perform key acts in facilitating taxable sales by vendors.” The Department considered the following activities as significant: Petitioner’s marketplace brings buyers and sellers together; Petitioner’s website provides information about the independent vendors’ products; Petitioner’s website facilitates sales allowing sales to be offered and accepted; and Petitioner collects the purchase price. As such, the Advisory Opinion concludes the Department would be entitled to treat Petitioner as a co-vendor with regard to all taxable sales it facilitates on behalf of independent vendors that themselves qualify as vendors.

    The Advisory Opinion reasons that this outcome reduces administrative burdens and improves the efficiency of sales tax administration.

    Change in policy

    In effect, the Advisory Opinion announces a significant change in Department policy, which it concedes in a footnote by stating the following: “This conclusion is inconsistent with the outcome in TSB-A-99(49)S. That Advisory Opinion no longer reflects the Department’s policy and should no longer be followed.” This new policy would seem to be effective immediately, as of March 7. Advisory Opinions, however, are not precedential authority and are binding only with respect to the taxpayer to whom it is issued.

    What does CohnReznick think?

    Nationally, the sales tax nexus rules are rapidly changing. Marketplace facilitator legislation is quickly becoming more commonplace. While similar legislation is being considered in New York, the Department’s move to adopt this stance administratively, in particular by Advisory Opinion, is significant. Sellers and marketplace providers should take note. Marketplace providers operating in New York should consider the implications, namely whether they could now be treated as obligated to register, charge, collect, and remit tax on New York sales. Sellers making sales through marketplaces should equally consider the impact, if any, this development may have upon them. The stakes can be high, as sales taxes are “trust fund taxes” carrying personal liability for certain owners and operators.

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    corey rosenthal

    Corey Rosenthal

    JD, Principal, Practice Leader, State and Local Tax (SALT) Services

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