Reproduced with the permission of the Canadian Tax Foundation from, Timothy P. Noonan, "New York Nexus" (2003) vol. 10, no. 12 Canadian Tax Highlights.

Canadian Tax Highlights
December, 2002

by Timothy P. Noonan

Like most states, New York requires companies with nexus--a physical presence in New York--to comply with sales tax filing and collection responsibilities. Two recent advisory opinions (AOs) from New York State's Department of Taxation and Finance highlight that even the most trivial physical presence can trigger New York sales tax obligations for Canadian companies.

In the Yvonne Greenberg AO, the issue was whether a Canadian company's activities in New York required it to collect sales tax on sales of its product to New York customers (TSB-A-02(49)S, September 24, 2002). The company's New York activities were limited to transportation of equipment through the state, two trade shows a year, and one or two visits by sales representatives per year; on one occasion it hired a third-party contractor to deliver to and install its product for a customer in New York. The tax department ruled that interstate transportation and trade show activities were not sufficient to constitute nexus and trigger a collection responsibility, but sales tax nexus was established simply because its employees visited New York once or twice a year.

The New York connections were less tenuous in the Luisa Frate AO (TSB-A-02(48)S, September 18, 2002). The National Film Board of Canada (NFB), which has an office in New York City, queried whether it must collect sales tax on sales of films and videotapes over the Internet. The tax department concluded that the office constituted nexus with New York and gave rise to a responsibility to collect sales tax on sales to New York customers, even for sales conducted over the Internet.

The use of separate but affiliated entities to engage in US and New York activities is one significant means of minimizing or possibly eliminating New York sales tax exposure. The company in the Greenberg AO could have reduced or altogether eliminated its New York tax responsibilities by using a separate affiliated entity operated and legally respected as such.

Both AOs underscore a few salient points. The NFB AO illustrates that the Internet provides no special tax protection for sales to New York businesses: companies that sell products over the Internet are subject to the same sales tax nexus rules as those that sell through the mail or retail stores. Both opinions emphasize that minimal activity may create New York sales tax nexus: one visit a year may be enough.