United States

New York: Membership Fee Paid to Online Retailer Subject to New York Sales Tax

Jun 22, 2015
From KPMG TaxWatch

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The New York Department of Taxation and Finance recently addressed whether an annual membership fee paid by some of an online retailer’s customers was subject to New York sales and use tax. The taxpayer operated a website that allowed it and certain unrelated sellers to make sales of goods or services. For an annual fee, customers could purchase a membership entitling them to shipping benefits, special pricing on certain goods, access to electronic books, and free streaming of certain movies and television shows. The shipping benefits included free two-day shipping and other discounted shipping on eligible purchases, including a “bulky item” benefit that allowed members to purchase and ship items weighing up to 45 pounds for a flat shipping fee.

In earlier advisory opinions, the Department had concluded that amounts paid to purchase memberships were akin to a prepayment for services when the purchaser is entitled to buy, as a result of the membership, taxable goods at a discounted price. Although e-books are not taxable in New York, and the Department has not opined on the taxability of streaming video services, shipping charges are taxable if they are included in the vendor’s taxable receipts. The membership fee entitled members to discounted delivery charges, which are taxable when related to sales of taxable merchandise. As such, the Department ruled that the membership fee purchase was essentially a prepayment for merchandise presumed to be taxable and was subject to sales and use tax. For more information on New York TSB-A-15(15)S (Mar. 24, 2015), please contact Dennis Prestia at (212) 872-6891 or Judy Cheng at (212) 872-3530.


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.