New York law exempts certain types of organizations (such as nonprofit charitable, educational and religious organizations) from the payment of sales tax on their purchases and from the collection of sales tax on certain sales by such organizations. Recent changes to the New York Tax Law and the regulations promulgated under that law have considerably increased the situations in which such qualifying exempt organizations must collect sales tax on their sales of tangible personal property (such as books, jewelry, clothing and furniture).

Prior to September 1, 2008, retail sales of tangible personal property by qualifying exempt organizations generally were subject to New York sales tax only if the sales were made at a physical shop or store.

Since September 1, 2008, when amendments to the New York Tax Law took effect, sales of tangible personal property by exempt organizations through remote means (such as telephone, mail order, email and the Internet) have been subject to New York sales tax if such sales are made with a degree of regularity, frequency and consistency, regardless of whether the organization also makes taxable sales from a shop or store. (See our prior Alert, Important Changes to New York Sales Tax Law Affecting Exempt Organizations.1)

Effective January 1, 2009, amendments to the Sales and Use Taxes Regulations expand the application of the New York sales tax to additional sales outside an exempt organization's shop or store and to certain auctions conducted by or for the benefit of exempt organizations. These most recent changes are described below.

Sales Outside a Shop or Store

As of January 1, 2009, if an exempt organization operates a shop or store and also makes retail sales of similar items of tangible personal property by any other means (including remote means or at an auction), the sales by such other means are considered to be made from the organization's shop or store and therefore subject to sales tax, regardless of the frequency of such sales.

Auction Sales

Additionally, certain sales of tangible personal property by traditional or remote auction are subject to sales tax if made with a degree of regularity, frequency and continuity. The regulations define a "traditional auction" as an auction where any bidders or their representatives are physically present (regardless of whether bids are also accepted by telephone, over the Internet or otherwise), and each "traditional auction event" is defined as any day or portion of a day during which a traditional auction sale takes place.

A "remote auction" is defined as an auction conducted by remote means where no bidders or their representatives are physically present. Each "remote auction event" is defined as an auction conducted by remote means for a period of time beginning on a common date and closing on a common date during which one or more taxable items of tangible personal property are offered for sale to the highest bidder.

If an exempt organization holds no more than two traditional auction events during a calendar year, sales made at each event will not be subject to sales tax unless (1) the organization makes sales of similar items at a shop or store or (2) the auction event is conducted on the premises of a commercial auction house or on any premises where other auction sales are made. Subject to certain exceptions, if an organization holds more than two traditional auction events during a calendar year, sales at all such events will be subject to sales tax. Similar rules apply to remote auction events, with very precise guidelines on what constitutes "one" remote auction for purposes of determining whether the organization has exceeded the threshold.

Sales Not Subject to These New Regulations

Since the new regulations pertain only to sales of tangible personal property (such as books, jewelry, clothing and furniture), the new regulations do not apply to some items frequently auctioned at fundraising events, such as vacation packages or spa services.

Guidelines and Registration Requirements

Guidelines issued by the New York State Department of Taxation and Finance (the "Department") discussing these changes and providing helpful examples can be found at http://www.tax.state.ny.us/pdf/memos/sales/m08_15s.pdf. As noted on page five of the guidelines, an exempt organization that makes any taxable sales must register with the Department for sales tax purposes if it has not already done so. Once registered, organizations generally will be required to file quarterly sales tax returns, regardless of whether any sales tax is actually collected.

Footnote

1 The August 2008 Alert can be found on our website at: http://www.pbwt.com/files/Publication/041f393b-94b3-4285- 9b0c-02f677d42bb8/Presentation/PublicationAttachment/23fa1ba8-8d5a-4422-89fe- 03fb6cc46a96/EO_Alert_SalesTaxChangesEO_081508.pdf.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.