Since the U.S. Supreme Court issued its decision in South Dakota v. Wayfair, 138 S.Ct. 2080 (2018), this past summer reversing its long-standing “physical presence” nexus test under Quill Corp. v. North Dakota, 504 U.S. 298 (1992), businesses with contacts in New York have not had guidance on New York’s sales tax requirements going forward.

Pre-Wayfair ambiguity existed as to whether New York could enforce the collection of sales tax purely based on “economic nexus” against non-resident businesses despite a statute it already had on its books for 28 years because that statute arguably violated the U.S. Constitution under Quill.  Post-Wayfair, New York has now issued clear guidance that it will start enforcing this existing statute immediately and, based on its reputation of having the most advanced audit programs in the county, New York means business.

As discussed in our prior article analyzing Wayfair, for 25 years Quill had required physical presence by an out-of-state business for a state to impose an obligation to charge and collect sales tax from residents of that state.  In recent decades, pressure began to mount because of perceived unfairness to brick-and-mortar businesses and the proliferation of the online marketplace depriving states of much-needed revenue.  This culminated in several state campaigns to “Kill Quill.”

To challenge the Quill physical presence test in the Supreme Court, South Dakota and other states intentionally passed an “economic nexus” law requiring out-of-state sellers to collect sales tax if they derive revenue over a certain dollar threshold, or conduct a certain number of transactions in the state, without the requirement of having any physical presence in the state.  In South Dakota’s case, it was more than $100,000 of gross revenue derived from the state or more than 200 transactions conducted in the state in the prior or current calendar year.

While some states like New York passed similar laws before the decision in Wayfair, New Jersey did not pass one until after Wayfair was decided.  In fact, New Jersey was the first state post-Wayfair to pass its own statute on November 1, 2018 that exactly mimicked the requirements of the South Dakota statute.  In total, more than half of the U.S. states have now adopted similar economic nexus statutes.

New York enacted an economic nexus statute back in 1990 in Tax Law § 1101(b)(8)(iv) and regulations under NYCRR 20 §526.10(a)(6), requiring a vendor to remit sales tax if it: (a) conducts more than $300,000 of sales of tangible personal property delivered to New York, and (b) conducts more than 100 sales of tangible personal property in the state during the immediately preceding four sales tax quarters.  However, because the Quill constitutional physical presence test conflicted with this economic nexus law, New York sat quietly waiting to enforce it for the past almost 30 years.

Now post-Wayfair, while states like New Jersey passed new economic nexus legislation, practitioners started wondering what will New York do?  Will it enforce its long-standing but dormant economic nexus law, albeit not completely mirroring the thresholds in the South Dakota law expressly blessed by the Supreme Court?  Alternatively, will it, like other states, pass new legislation identical to South Dakota’s?

This week, on January 15, 2019, New York issued Notice N-19-1 and resolved these questions.  The Notice states, “Due to [Wayfair], certain existing provisions in the New York State Tax Law that define a sales tax vendor immediately became effective.”  As a result, it is anticipated that New York will begin to aggressively audit out-of-state businesses, similar to the wide nets cast by Washington and California to pull in substantial revenue from out-of-state sellers.

Note that the economic nexus thresholds supplement the physical nexus requirement that will continue to apply to New York businesses that fall under those thresholds.

It is not clear whether enforcement will be retroactive back to June 21, 2018 (the date of the Wayfair decision), some other date that New York may determine, or only effective as of the date of Notice N-19-1, or January 15, 2019.  There will also be nuances of calculating the amount of receipts and transactions to determine if an out-of-state business falls below or above the thresholds during the 4-quarter look-back period.  For example, is a monthly subscription to the “Book of the Month Club” by a New York resident one transaction or twelve?  The Notice indicated additional guidance will be forthcoming.

What is clear is that any businesses that did not believe they faced sales tax obligations in New York because they did not have physical nexus cannot operate under that illusion anymore.  If an out-of-state business has exposure, it can take preemptive action and seek a limited look-back period and avoid penalties by participating in New York’s voluntary disclosure program.

If you operate a business and are concerned about past or prospective compliance with laws in New York or other states, you should not hesitate to contact a competent tax professional to seek advice on how to best address these issues.


There have been important new developments for New York taxpayers over the past two months, some of which may require your immediate attention.

Increase in estate tax exemption.  Governor Cuomo’s January budget bill proposes significant changes to the New York estate tax.  The first change would increase the New York applicable exclusion amount from $1 million to $5.25 million over a four year period, and be indexed for inflation thereafter.  Beginning April 1, 2014, the exclusion would be:

  • $2.0625 million for decedents dying between April 1, 2014 through March 31, 2015;
  • $3.125 million for decedents dying between April 1, 2015 through March 31, 2016;
  • $4.1875 million for decedents dying between April 1, 2016 through March 31, 2017;
  • $5.25 million for decedents dying between April 1, 2017 through December 31, 2019.  Beginning in 2020, the exclusion would be indexed for inflation.

The top tax rate also would be reduced from 16% to 10% beginning April 1, 2017.

Lifetime gifts added back to estate.  Another significant change proposed in the budget bill is that all taxable gifts made by a New York resident after March 31, 2014 will be included as part of the New York gross estate for purposes of calculating the New York estate tax.  Currently, New York taxpayers will pay less New York estate tax if they make lifetime gifts, and the Governor’s proposal is designed to close this perceived loophole.  New York taxpayers who have an estate in excess of the federal applicable exclusion amounts and who are inclined to gift should consider doing so prior to April 1.

QDOTs.  For New York residents who are not US citizens, there is a new, favorable law regarding “qualified domestic trusts” or “QDOTs.”  These trusts can be required under federal law in order for a decedent’s assets passing to or for the benefit of a non-citizen spouse to qualify for the estate tax marital deduction.

The new law amends §951 of the New York Tax Law, and provides that, where a federal estate tax return is not required to be filed, it is not necessary to create a New York QDOT in order to obtain the New York State estate tax marital deduction, if the transfer would otherwise qualify for the federal estate tax marital deduction.  This is helpful in cases involving non-citizen spouses where the estate does not exceed the federal exemption amount (currently $5.34 million).  Thus, a New York individual who has less than $5.34 million in 2014 would now be able to leave assets to his or her non-citizen spouse outright and not trigger any New York estate tax.

Residency audits.  Finally, the New York Court of Appeals (New York’s highest court) issued a favorable decision regarding New York residency.

In Gaied v New York State, the taxpayer lived in New Jersey but maintained a home for his elderly parents in Staten Island and sometimes stayed there.  New York law provides that a statutory resident is someone who is not domiciled in New York but maintains a permanent place of abode in New York and spends more than 183 days of the taxable year in New York.  The issue therefore was whether the taxpayer’s home for his parents constituted a “permanent place of abode” as to him.

The Court of Appeals reversed the Appellate Division (and lower tribunals) and held that the taxpayer did not satisfy the permanent place of abode test and thus was not a statutory resident.  The court found that the taxpayer himself must have a residential interest in the property in order for it to be his place of abode.

This ruling provides more clarity for non-New York domiciliaries who maintain property in New York but do not reside in said property.