The New York State Department of Taxation and Finance has issued a tax bulletin explaining how sales and use tax applies to sales of computer software and related services in New York.
Prewritten computer software
Prewritten computer software refers to “any computer software that is not designed and developed to the specifications of a particular purchaser.” It is considered tangible personal property in New York and is therefore subject to sales and use tax. This is true whether it is sold individually or as part of a package, and no matter how it is transferred: electronically, by remote access, or via physical medium such as a disk.
However, when prewritten computer software “is modified or enhanced to the specifications of a particular purchaser” and the charges for the modification/enhancement are separately stated on an invoice, then those charges are exempt from sales tax.
Custom computer software
Custom computer software—software that has been designed and developed to meet specifications requested by a particular purchaser—is exempt from New York sales tax when sold to the purchaser who requested it.
However, custom computer software is subject to sales tax when it is “sold or otherwise transferred to someone other than the person for whom it was originally designed and developed.”
Computer software services
Sometimes sales of computer software services are exempt from New York sales tax and sometimes they’re subject to tax. Exempt services include:
- Consultation
- Installation
- Instruction and training
- Maintenance and servicing
- Programming
- Repairing
- Systems analysis
However, the above services may be subject to sales tax when “provided in conjunction with the sale of prewritten software.” In order to remain exempt, the charge for the service must be “reasonably and separately stated on the invoice or billing statement given to the customer.”
Additional information, such as how sales tax applies to sales of software upgrades, software maintenance agreements, and remotely accessed software, is outlined in New York Tax Bulletin ST-128.
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