New York State Income Tax for eCommerce Businesses
As an online seller, you have the ability to sell your products all over the country — and with that freedom comes a layer of complexity around state taxes. As eCommerce has grown, so have the questions around multi-state tax obligations. One of the most common questions we get at Tall Oak Advisors: Do I have to pay income tax in New York State if I sell to customers there?
The short answer: it depends on your connection to the state — a concept known as "nexus." Let's break it down.
What Is Nexus?
For a state to require you to pay state income tax or register with their tax authorities, your business must have a significant connection to that state — what tax law calls "nexus." There are two types:
Physical Nexus: A tangible connection, such as a warehouse, office, or employees located in the state.
Economic Nexus: A threshold of transactions or revenue generated from customers in the state, even without any physical presence.
It's important to note that nexus rules can differ between income tax and sales tax purposes — and they vary from state to state.
What Triggers Income Tax Nexus in New York?
New York's corporate franchise tax applies to all corporations — both those formed in New York and those formed outside the state — that conduct certain business activities there. Here are the six key triggers:
1. You Are a NY Corporation
If your corporation was formed in New York, you are required to file and pay NY state taxes — regardless of whether your business actively operates within the state.
2. You 'Do Business' in New York
This is a broad, "big picture" standard — there's no single bright-line definition. Generally, if you or your employees are spending time on business activities in New York with the goal of generating profit, you may qualify. See the section below on what specifically counts as "doing business" in New York.
3. You Use Assets to Maintain a Business Activity in New York
For example, if you store inventory or raw materials in a New York warehouse — even a third-party fulfillment center — this can create nexus.
4. You Own or Lease Property in New York
This includes any property held, stored, or warehoused in the state — even if that property isn't being used in your day-to-day business operations.
5. You Maintain an Office in New York
This includes a home office in New York. It does not, however, include an office used solely by corporate officers or directors who are not employees of your corporation.
6. You Have Economic Nexus in New York
This is the category most relevant for eCommerce sellers with no physical ties to New York. Even without a warehouse, employee, or office in the state, you can still owe NY income tax if either of the following applies:
Your sales to New York customers reach $1 million or more during the tax year (for tax years beginning after January 1, 2022, this threshold is $1.138 million), OR
You have at least 1,000 customers with billing addresses in New York.
Important Exception (Pub. L. No. 86-272): There is a meaningful federal protection for certain eCommerce businesses. If your only connection to New York is that customers purchase products from your online store — and orders are approved and shipped from outside of New York — you generally should not be subject to NY income tax under this exception.
Keep in mind: this exception does not apply to sales tax, which operates under entirely different rules.
What Does 'Doing Business' in New York Actually Mean?
New York tax authorities evaluate "doing business" based on a combination of factors. They'll generally consider:
The nature, frequency, and regularity of your activities in New York;
The purposes for which your corporation was formed;
The location of your offices and other places of business;
Whether you employ officers, employees, or contractors in New York; and
Where the actual seat of management or control of the corporation is located.
On the other hand, if you are a non-NY corporation and your only activities in New York are limited to the following, you generally will not have nexus:
Handling legal disputes;
Holding director or shareholder meetings;
Maintaining bank accounts;
Keeping books and records in New York; or
Using the fulfillment services of an unaffiliated third party, and only owning property stored at that fulfillment center in connection with those services.
At Tall Oak Advisors, we put together this guide as a resource for our eCommerce community. Tax rules vary significantly from state to state, and we want sellers to have the information they need to make informed decisions. More info at talloakadvisors.com
Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal or tax advice. Tax laws change frequently and vary by circumstance. Please consult with a qualified tax advisor or CPA for guidance specific to your business situation.
Sources: New York State Department of Taxation and Finance; Pub. L. No. 86-272; NY Tax Law §209.
