New York and the Taxation of E-books
- Feb 6, 2014 | Gail Cole
Just what are digital goods, such as e-books? While we might not dwell on this question when reading a book on our nook, tax professionals around the country are confronted with it frequently. How digital goods are defined and stored impacts how they’re taxed. Luckily (for tax professionals wishing to stay busy), every state handles the taxation of digital goods in its own, unique way.
the New York Department of Taxation and Finance delves into this very issue. The Petitioner for the Advisory Opinion sells products it describes as e-books, and wishes to know if the e-books are subject to New York sales tax.
The Petitioner, who is headquartered in Virginia and has a satellite office in New York City, administers a professional certification program for the financial industry. In addition to administering certification exams in more than 40 states, the Petitioner publishes a variety of books, periodicals, white papers, and other publications pertaining to the financial industry. Recently, electronic versions of these publications became available for purchase “directly from the Petitioner’s website.” These resources are available to the general public in addition to exam candidates.
The electronically downloaded books (e-books) are available for a one-time purchase. It is possible for the customer to add notes to the digitally delivered books, but such notes are lost when an updated version of the e-book is purchased. The electronically downloaded products are available for periods of 30-days or 5-years, depending on the license purchased.
4 products are described in the Advisory Opinion:
- A “Conference Proceedings Quarterly,” available for 30-days after activation to the general public and exam candidates.
- An e-book version of the Petitioner’s Program Curriculum, accessed digitally on personal computers, Apple mobile devices, Android phones or the Kindle Fire. “Purchasers are given a 5-year license to access the content after activation.”
- Materials—such as worksheets and other study materials--related to online courses. “Petitioners are given a 5-year license to access a web-based portal and download [materials] assigned to a particular course.”
- A bi-monthly journal addressing investment industry topics. “Purchasers are given a 30-day license to access the content within these publications and they are available to the general public” as well as exam candidates.
New York imposes sales and use tax on the transfer of tangible personal property, as well as pre-written software and certain services, including information services (New York Tax Law § 1105(a), (c)). The question is, how are the above products defined?
Under TSB-M-11(5)S, the Tax Department's policy on the taxation of e-books, “electronic publications that meet the memorandum’s definition of an e-book do not constitute information services.” An e-book is defined as:
- The purchase of the product does not entitle the customer to additional goods and services and any revisions done to the e-book are for the limited purpose of correcting errors;
- The product is provided as a single download;
- The product is advertised or marketed as an e-book or a similar term;
- If the intended or customary use of the product requires that the product be updated or that a new or revised edition of the product be issued from time to time (e.g., an almanac), the updates or the new or revised editions are not issued more frequently than annually; and
- The product is not designed to work with software other than the software necessary to make the e-book legible on a reading device (e.g., Kindle, Nook, iPad, iPhone or personal computer).
The department determined that only product #2 (described above) meets the definition of an e-book. Product #2 is not tangible personal property or an information service, and is therefore not subject to New York sales tax. The fact that the e-books may be read on multiple devices or e-readers does not “change the nature of” the product or its taxability.
Products #1, #3 and #4, however, do not meet the definition of an e-book. As to whether or not they are subject to sales tax, the department lacks “sufficient information about these products to determine if they otherwise constitute information services.” Too bad for the Petitioner, who is trying to tax what should be taxed and not taxed what should not be taxed.
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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.