If you, a freelancer outside New York State, ships goods to New York you may have to register as a sales tax vendor in the state (if you haven’t already) — and collect and pay all applicable sales taxes.
Why the sudden urgency about registering as a vendor in New York State? It all started last summer when the United States Supreme Court ruled in favor of the state of South Dakota in the South Dakota v. Wayfair (138 S.Ct. 2080 ) case.
The ruling effectively eliminated the prohibition on a state imposing sales tax collection responsibilities on businesses without a physical presence in that state. In the case of Wayfair, the company was selling taxable goods online, but not charging customers the appropriate state sales tax. States like South Dakota, of course, had a problem with this since it meant they were losing sales tax revenue.
So why New York?
In New York State, the ruling triggered some existing provisions in the state tax law related to sales tax vendors. These provisions became effective immediately. Broadly, the new provisions mean that if your freelance business qualifies as a “vendor” (see the definition below) and it makes taxable sales in New York State, you are required to collect and remit New York State and local sales tax.
Here are the other details that self-employed and freelance business owners need to know:
What exactly is a vendor?
New York State defines the term vendor to include, “a person who regularly or systematically solicits business in New York State by any means and by reason thereof makes taxable sales of tangible personal property to persons in the state.”
In this case, “regularly or systematically soliciting business in New York State” means that for the immediately preceding four sales tax quarters:
The cumulative total of your company’s gross receipts from sales of tangible personal property delivered into the state exceeded $300,000, and;
There were more than 100 sales of tangible personal property delivered in the state for the preceding four sales tax quarters, which were:
March 1 through May 31, 2018
June 1 through August 31, 2018
September 1 through November 30, 2018 and
December 1, 2018 through February 28/29, 2019.
Therefore, a freelance business that has no physical presence in New York State but meets the requirements outlined above must immediately register as a New York State vendor. A CPA specializing in freelance business taxes can help you to determine if you are required to register as a vendor and file sales tax returns in New York State. However, the general guidelines given above are a good indicator of whether you need to register as a vendor.
Although this new registration requirement is specific to New York State, you can bet that other states will eye the potential tax revenue stream and follow suit. It is important to determine what sales your freelance business has made in each state, and how the local sales tax rules will impact your tax obligations, as well as the specific filing dates when sales tax payments are due.
Jonathan Medows is a New York City-based CPA who specializes in taxes and business issues for freelancers and self-employed individuals across the country. He offers a free consultation to members of Freelancer’s Union and a monthly email newsletter covering tax, accounting and business issues to freelancers on his website, www.cpaforfreelancers.com — which also features a new blog, how-to articles, and a comprehensive freelance tax guide.
Jonathan is happy to provide an initial consultation to freelancers. To qualify for a free consultation you must be a member of the Freelancers Union and mention this article upon contacting him. Please note that this offer is not available March 1 through April 18 and covers a general conversation about tax responsibilities of a freelancer and potential deductions. These meetings do not include review of self-prepared documents, review of self-prepared tax returns, or the review of the work of other preparers. The free meeting does not include the preparation or review of quantitative calculations of any sort. He is happy to provide such services but would need to charge an hourly rate for his time.