SALT Report 3067 – The New York Department of Taxation and Finance released a sales and use tax bulletin that discusses co-vendor agreements. A co-vendor agreement is one in which a seller, generally a manufacturer, wholesaler, or supplier, uses independent distributors to sell its products, usually through party plans, catalogs, door-to-door sales, or multi-level marketing.
In a co-vendor situation, the supplier can request to enter into a co-vendor agreement with the Department that would allow the supplier to assume the sales tax responsibilities of its independent distributors. The supplier will be required to register for New York state sales tax purposes and collect and remit any sales taxes due.
For example, the independent distributor processes a customer’s order and submits it directly to the supplier. The supplier then sends the items ordered to the independent distributor for delivery to the customers or sends the items directly to the customers. The supplier would be required to collect sales tax from the independent distributor based on the retail selling price of the items purchased at the tax rate in effect where the items are delivered, either to the independent distributor or to the customer.
In this type of arrangement, the independent distributor whose supplier is registered as a New York co-vendor would not be required to register as a vendor. However, both the supplier and its independent distributors would remain jointly liable for any sales tax due, even though the supplier is one who is registered and files the sales and use tax returns.
When collecting sales tax from an independent distributor, the supplier must base the amount collected on the catalog or suggested retail price of the taxable product. However, if the independent distributor sells a product to a customer at a price lower than the catalog or suggested retail price, the supplier may:
- Provide a refund to the independent distributor for the difference in sales tax between the amount collected based on the catalog or suggested retail price and the amount due based on the price at which the product was sold, and
- Use Form AU-11 – Application for Credit or Refund of Sales or Use Tax, to claim a refund or credit of the sales tax refunded to the independent distributor
To enter into a co-vender agreement, the Department has a standard agreement form that it makes available upon request. The supplier must complete the agreement and return it to the Department along with the following:
- A detailed description of its New York business operations
- Copies of catalogs, or brochures, that verify the suggested retail prices of its products, and
- Copies of any contracts or agreements between the supplier and its independent distributors
A co-vendor agreement may be canceled or terminated by either party so long as a minimum of 90 days written notice is given to the other party. However, the cancellation will only be effective on the last day of February, May, August, or November.
Suppliers and their independent distributors are required to keep records of:
- Every sale,
- The amount of the sale, and
- The sales tax collected
In addition, suppliers must keep the names, addresses, and sales tax identification numbers, if applicable, of their independent distributors, in their records.
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