New York and the Taxation of Digital Information Services
- Feb 7, 2014 | Gail Cole
New York State taxes the transfer of tangible personal property; but what about digital goods and services? Certain information services—the kind that didn’t exist prior to widespread use of the Internet—are subject to sales tax. Other digital services are not.
It can be challenging for taxpayers to determine the taxability of digital goods and services. Petitioning for an Advisory Opinion* can sometimes uncover an answer.
Recently, a taxpayer (henceforth “Petitioner”) asked the New York State Department of Taxation and Finance to offer an opinion on the taxability of a product, (henceforth “Product X”). As described in the Advisory Opinion, “Product X provides financial professionals with single sign-on access to premium content that they have purchased from third-parties and would otherwise have to access via multiple password-protected websites.”
Product X is currently sold to banks and other third party content and data providers (collectively, “Providers”). The Providers pay the Petitioner for the right for their own clients (“Clients”) to access and use Product X, which facilitates access to multiple website portals.
No software is transferred to either the Provider or the Client. According to the Opinion, the Petitioner in the past “licensed search capability software from an unrelated third party and paid sales tax thereon, but now it uses search software that it has developed.” That search software allows Providers and their Clients access to information that they would not otherwise have. Clients may also save content and searches, “for later use and to organize the saved items.”
The service offered is, according to the Advisory Opinion, “subject to sales and use tax as the sale of a taxable information service to the Providers and delivered to the Providers’ designees, their Clients.” Unless the Providers and Clients are located outside of New York and receiving the service outside of New York, the Petitioner is required to collect and remit sales tax on the service.
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* New York Department of Taxation and Finance Advisory Opinions are in response to specific situations and are issued upon request. They are “binding on the Department only with respect to the person or entity to whom” they are issued, and only if all the facts supplied are complete and accurate. However, Advisory Opinions are based on laws, regulations, and Department policies in effect on the date issued or set forth in the Opinion.