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The New York Department of Taxation and Finance (the Department) recently issued Advisory Opinion TSB-A-13(35)S (the Opinion). In the Opinion, the Department was asked by a catalog and online seller of wine located in California (Petitioner) whether it must collect sales tax on its sales of bottled wine in the state. New York tax law provides that such a seller must collect sales tax on wine. However, for other (nonalcoholic) tangible property sales sold in such a manner, requiring the seller to collect New York sales tax would be unconstitutional. The real question is—what makes wine so special? To fully appreciate this Opinion, it is important to understand where this Opinion departs from what would commonly occur with sales of other tangible goods, as well as the facts and circumstances surrounding the Petitioner.


Petitioner facts



The Petitioner is a California corporation that is a retailer of bottled wine. It sells this bottled wine through its website and online catalogs. Petitioner has an out-of-state direct shipper’s license under New York Alcoholic Beverage Control Law, authorizing it to sell bottled wine directly to residents of New York who are of legal age if certain conditions are met. Delivery of the bottles of wine is exclusively handled through common carriers. Petitioner has no employees, agents or physical place of business or property in New York. In sum, Petitioner’s only contact with the State of New York is its remote wine bottle sales and Petitioner has no physical presence in the state.


General law applicable to remote sellers



Without going through a lengthy and detailed analysis of the limitations on a state’s ability to tax remote sellers, such as the Petitioner in this case, the general rule regarding a state’s ability to tax a remote seller is as follows: physical presence in a state is required before a state can require a business to collect sales taxes. See Quill Corp. v. North Dakota, 504 U.S. 298 (1992).

What physical presence is required has been a topic of recent debate. Nonetheless, the Department does not argue that the Petitioner in this case has physical presence—it argues that New York’s law is applicable regardless of physical presence. Note that the use of common carriers for delivery of products in a given state has been held not to establish a physical presence in such state.


Department’s analysis under the Opinion





Under New York tax law, sales tax is imposed on the customer but is to be collected by persons required to collect sales tax. Section 2 of the Twenty-first Amendment to the U.S. Constitution provides that “[t]he transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.”


Using the authority granted to the states under the Twenty-first Amendment, the state has conditioned a vendor’s permission under the Alcoholic Beverage Control Law to make such sales of alcohol shipped directly to a resident in New York on collecting sales tax (among other duties).


“The Twenty-first Amendment grants the States virtually complete control over whether to permit importation or sale of liquor and how to structure the liquor distribution system,” the Department reasons, quoting the U.S. Supreme Court’s decision in California Retail Liquor Dealers Association v. Midcal Aluminum, Inc., 445 U.S. 97, 110 (1980). Accordingly, the Department concluded that “[c]onditioning the right of an out-of-state wine seller to directly ship wine to New York residents on the seller accepting the duty to collect the State’s sales and use tax is constitutional, regardless of whether the seller has a physical presence in the State.”


Click here to read Advisory Opinion TSB-A-13(35)S.