If I run a web-based platform that homecare agencies and subcontractors log into to schedule care and track visits, is access to my software taxable, and is training or customization also taxed?

Plain-English summary

Homecare Software Solutions LLC built "HHA Exchange," a web platform that lets home health agencies find licensed subcontractor agencies to cover visits they can't staff themselves, securely share patient care notes between the two agencies, and let subcontractors bill agencies electronically. A companion phone-based time-and-attendance system lets caregivers clock in and out of patient visits by calling in a PIN. Petitioner charges agencies and subcontractors flat per-transaction fees for using these systems, plus separate charges for training and custom modifications. It asked how sales tax applies. The Department's answer follows the now-familiar Internet-software framework.

Access to both HHA Exchange and the time-and-attendance system is a taxable sale of prewritten software. New York taxes prewritten software "regardless of the medium" by which it's conveyed, and a "sale" includes a license or right to use. Even though Petitioner never installs anything on the agencies' computers and never touches the medical data they exchange, logging into the web platform still gives each customer constructive possession and the right to control or direct the use of the software — that's enough to make each access-based transaction fee taxable. The situs (location) for sales tax purposes is the location of the actual users — the homecare agencies and subcontractors — not Petitioner's own location; if a customer's users are inside and outside New York, only the New York-user share of the receipt is taxed.

Separately stated training and custom modification charges are not taxed. If Petitioner reasonably and separately states a charge for training customers on the system, or for custom modifications made at a specific agency's request, those charges escape tax even though the underlying software access itself is taxable. The opinion also explicitly disavows an earlier, contrary Department opinion (Dataline, Inc., TSB-A-04(17)S) to the extent it suggested otherwise — this opinion states the Department's current position.

What this means for you

Healthcare technology and other vertical-specific SaaS providers

Sensitive subject matter (patient medical records here) doesn't change the tax analysis — what matters is whether your customer gains the practical right to use and direct your software, not what the software is used for or how confidential the data running through it is. Web-based access without any local install is still a taxable software sale in New York.

SaaS companies billing multiple states

Track where your actual end users (not just your contracting customer) are located — that's the sourcing rule for local sales tax purposes. A single corporate customer with users split between New York and other states should only be taxed on the New York-user portion of the receipt.

Accountants and tax professionals advising SaaS clients

Note that this opinion expressly supersedes Dataline, Inc., TSB-A-04(17)S "to the extent" it suggested a contrary conclusion — a useful marker that the Department's Internet-software-as-taxable-license position (also seen in TSB-A-09(33)S, issued two months later) has been consistently applied and any older opinion suggesting hosted software access could escape tax should not be relied upon.

Common questions

Q: We run a web platform where sensitive data (medical, financial, etc.) is exchanged between our customers, and we never touch that data ourselves — is our access fee still taxable?
A: Yes, generally. The taxability turns on whether the customer gains the right to use and control your software, not on what data flows through it or whether you interact with that data.

Q: How do we determine which state/locality's tax rate applies to our SaaS fees?
A: Look to where the actual users of the software are located, not your own business location or your contracting customer's headquarters. Split the receipt proportionally if users span multiple jurisdictions.

Q: Can we avoid tax on training and customization we provide alongside our software?
A: Yes, if those charges are reasonable and separately stated on the invoice — bundling them into one undifferentiated software fee would pull them into the taxable receipt.

Q: Does this ruling apply to any web-based software platform?
A: Not automatically. An advisory opinion binds the Department only as to the taxpayer who requested it and only on the facts described, though the Internet-access-as-taxable-license position it applies is now well-established, general Department policy.

Citations and references

Statutes, regulations, and guidance:

• Tax Law §1101(b)(5) (definition of "sale")
• Tax Law §1101(b)(6), (14) (prewritten and custom software)
• Tax Law §1105(a), (c) (taxable property and services)
• Tax Law §1115(o) (services performed on software)
• 20 NYCRR §526.7(e), (e)(4) (situs; transfer of possession)
• TSB-M-93(3)S (Sales Tax on Certain Sales of Computer Software)

Cited opinions:

• Adobe Systems, Inc., TSB-A-08(62)S; Josh Rosoff, TSB-A-09(8)S
• Dataline, Inc., TSB-A-04(17)S (superseded by this opinion)

Source

• Landing page: NY Sales Tax Advisory Opinions, 2009
• Original opinion: TSB-A-09(25)S

Original ruling text

New York State Department of Taxation and Finance
TSB-A-09(25)S
Sales Tax
June 18, 2009

Office of Tax Policy Analysis
Taxpayer Guidance Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S080122D

On January 22, 2008, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Homecare Software Solutions LLC, 2000 Coney Island Avenue,
Brooklyn, New York 11223. Petitioner, Homecare Software Solutions LLC, provided additional
information pertaining to the Petition on May 23, 2008 and February 2, 2009.
The issues raised by Petitioner are:

1. Whether Petitioner’s charges for the use of its HHA Exchange system are subject to
   sales tax.
2. Whether Petitioner’s charges for the use of its HHA Exchange time and attendance
   system are subject to sales tax.
   Petitioner submitted the following facts as the basis for this Advisory Opinion.
   Petitioner has developed software specifically for use by the homecare industry. The
   software application, HHA Exchange, is an Internet platform providing a process management
   solution for contractual work in the homecare industry.
   Homecare agencies that are unable to fulfill all of their contractual obligations with their
   clients/patients may wish to subcontract the nursing, rehab, or home health aide visits to some
   other homecare subcontractor agencies.
   HHA Exchange provides a platform for the homecare agency to find subcontractors.
   Petitioner provides a centralized place for communication of patient condition between the
   homecare agency and subcontractor; and provides the means for the subcontractor to bill the
   homecare agency electronically for subcontracted homecare services.
   The New York State Department of Health regulates who may provide services to
   patients. Petitioner’s Web-based platform is a means by which certified homecare agencies and
   licensed subcontractor agencies can get together to provide patient services. The agencies must
   be certified and/or licensed by the Department of Health before being granted access to
   Petitioner’s platform.
   HHA Exchange provides a secure platform where the homecare agency can enter
   confidential patient information relative to the patient’s prescribed therapy and care. The
   homecare agency can note prescribed care, scheduling, changes in care, etc. Using the system, a

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homecare agency can query subcontractor agencies to see if a subcontractor agency is willing
and available to provide care to the homecare agency’s patient. For example the homecare
agency may broadcast that it requires the services of a physical therapist to perform services for a
patient for 5 days starting on Wednesday. The homecare agency can then provide the
subcontractor agency that has accepted the assignment with the password code that allows the
subcontractor access to the patient’s confidential data. The subcontractor agency can then add its
own notes to the patient’s file about the care it provided and how the patient is responding to the
therapy. Changes in prescribed therapy, scheduling, etc. may be noted by the homecare agency
and the subcontractor agency is alerted to check the file for such changes.
Every homecare agency and subcontractor agency that wants to have access to HHA
Exchange signs a license agreement with Petitioner. Petitioner provides the agencies with a
username and password to access the specific areas of the HHA Exchange Web site to which
their individual agreements pertain. Petitioner does not install software on the homecare
agencies’ computers. If an agency cancels its license agreement, Petitioner removes its user
rights for the Web site. The list of subcontractors is provided to HHA Exchange by the
homecare agency which does business with those subcontractors. Therefore, each homecare
agency provides HHA Exchange with its own unique list of subcontractors. The subcontractors
may be selected by the homecare agency on the basis of specific personnel employed by the
subcontractor, a particular language in which the subcontractor’s personnel are proficient, or any
one of a number of other criteria in which the particular homecare agency is interested. The
homecare agency may use HHA Exchange to contact a specific subcontractor; a specific group
of subcontractors who possess the qualifications needed for a particular patient; or may broadcast
its request for a subcontractor to its entire list.
Confidential medical information shared on the Web site can only be shared between the
particular homecare agency and subcontractors with which it has an agreement to share such
information. The medical information and therapy notes are entered into the system by the
homecare agency and the subcontractor agency. Petitioner neither data enters nor looks at any
of the medical information transferred between the homecare agency and the subcontractor
agencies.
HHA Exchange is also used by subcontractors to bill the homecare agencies
electronically for the homecare services performed by the subcontractor. While the information
as to the services provided by the subcontractor to the homecare agency forms a basis for charges
ultimately billed by the homecare agency to the patient, Petitioner’s system does not provide for
billing to the patient or the patient’s insurer. As between the subcontractor and the homecare
agency, Petitioner’s system facilitates the submission of an invoice for the visit provided by the
subcontractor to the homecare agency’s patient. Petitioner itself does not invoice or bill the
homecare agency for the healthcare services performed by the subcontractor and Petitioner
neither collects nor remits payments in respect of the performance of such service.

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June 18, 2009

Per the licensing agreements with Petitioner, subcontractors are required to use an
electronic time and attendance system. Petitioner has a system available for use by
subcontractors, although a subcontractor may use a third party’s time and attendance solution, if
it chooses. Petitioner’s time and attendance program is a telephone based system. Each time that
the subcontractor’s caregiver arrives at the patient’s location, the caregiver must call an
electronic voice system and enter a pin number. That call indicates that the caregiver has arrived
at the patient’s location. When the caregiver has completed the visit and before leaving, the
caregiver must call the electronic voice system again to indicate that the visit is completed. A
code is also entered to verify the therapy provided. Both the homecare agency and the
subcontractor agency can access the time and attendance data to verify that the prescribed
therapy was performed and to verify billing for such therapy. Petitioner does not verify the
accuracy of the information. The 800 phone number the caregiver uses to access the time and
attendance system may belong to the subcontractor (and the call is forwarded to Petitioner’s
system) or an 800 phone number may be obtained by Petitioner and provided for the customer’s
use. Petitioner recoups its phone costs as part of the fees it charges.
Petitioner charges the homecare agency or subcontractor a fixed transaction fee for each
visit that is billed through HHA Exchange without regard to the number of hours or types of
services rendered during the visit. Petitioner generally charges the subcontractor for this but,
where a specific agreement calls for it, may charge the homecare agency. Petitioner also charges
the homecare agency a fixed fee per transaction for the homecare agency’s use of HHA
Exchange.
Petitioner also charges subcontractors a fixed fee for each visit where the HHA Exchange
time and attendance system is used. The fee is fixed for the visit and not based on the duration
or the number of calls for that visit.
Training provided by Petitioner to its customers relating to the use of the system and any
modifications made to the system pursuant to an agency’s request are separately charged and
billed.
Applicable law and regulations
Section 1101(b) of the Tax Law provides in part:
When used in this article for the purposes of the taxes imposed by subdivisions
(a), (b), (c) and (d) of section eleven hundred five and by section eleven hundred ten, the
following terms shall mean:
*

*

*

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Sales Tax
June 18, 2009

(5) Sale, selling or purchase. Any transfer of title or possession or both, exchange
or barter, rental, lease or license to use or consume (including, with respect to computer
software, merely the right to reproduce), conditional or otherwise, in any manner or by
any means whatsoever for a consideration, or any agreement therefor, including the
rendering of any service, taxable under this article, for a consideration or any agreement
therefor.
(6) Tangible personal property. Corporeal personal property of any nature...Such
term shall also include pre-written computer software, whether sold as part of a package,
as a separate component, or otherwise, and regardless of the medium by means of which
such software is conveyed to a purchaser....
*

*

*

(14) Pre-written computer software. Computer software (including pre-written
upgrades thereof) which is not software designed and developed by the author or other
creator to the specifications of a specific purchaser. The combining of two or more prewritten computer software programs or pre-written portions thereof does not cause the
combination to be other than pre-written computer software. Pre-written software also
includes software designed and developed by the author or other creator to the
specifications of a specific purchaser when it is sold to a person other than such
purchaser. Where a person modifies or enhances computer software of which such person
is not the author or creator, such person shall be deemed to be the author or creator only
of such person’s modifications or enhancements. Pre-written software or a pre-written
portion thereof that is modified or enhanced to any degree, where such modification or
enhancement is designed and developed to the specifications of a specific purchaser,
remains pre-written software; provided, however, that where there is a reasonable,
separately stated charge or an invoice or other statement of the price given to the
purchaser for such modification or enhancement, such modification or enhancement shall
not constitute pre-written computer software.
Section 1115(o) of the Tax Law provides:
Services otherwise taxable under subdivision (c) of section eleven hundred five or
under section eleven hundred ten shall be exempt from tax under this article where
performed on computer software of any nature; provided, however, that where such
services are provided to a customer in conjunction with the sale of tangible personal
property any charge for such services shall be exempt only when such charge is
reasonable and separately stated on an invoice or other statement of the price given to the
purchaser.

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June 18, 2009

Technical Services Bureau Memorandum entitled State and Local Sales and
Compensating Use Taxes Imposed on Certain Sales of Computer Software dated March 1, 1993,
TSB-M-93(3)S, provides, in part:
Effective September 1, 1991, State and local sales and compensating use taxes are
imposed on the sale or use of prewritten computer software and certain related services.
The effect of this change in the Tax Law is to broaden the types of computer
software that are subject to sales and use taxes. . . . certain software previously
considered “custom” may now be considered prewritten computer software and subject to
such taxes. . . .
Prewritten computer software is any computer software that is not designed and
developed by the author or other creator to the specifications of a specific purchaser.
The sale of prewritten software includes any transfer of title or possession, any
exchange, barter, rental, lease or license to use, including merely the right to reproduce,
for consideration. Thus, a payment made by a customer on or after September 1, 1991,
for a license to use, or for the rental or lease of prewritten software is subject to sales or
use tax….
*

*

*

Prewritten software is subject to tax whether sold as part of a package or separately.
Software created by combining two or more prewritten programs or portions of prewritten
programs is still prewritten software subject to tax. The medium by which the software is
transferred to the purchaser has no effect on the software's taxability. Thus, prewritten software
is taxable whether sold, for example, on a disk, tape or by electronic transmission over telephone
lines.
Prewritten software, even though modified or enhanced to the specifications of a specific
purchaser, remains prewritten software subject to tax. However, if a charge for the custom
modification or enhancement is reasonable and separately stated on the invoice or billing
statement, then the separately stated charge for the custom modification or enhancement is not
subject to tax.
Example 1. A software developer creates an accounting system using prewritten
software modules for general ledger, accounts receivable, accounts payable, payroll,
inventory management, etc. The developer may also sell the modules separately or
bundled in other packages. Even though the modules may be modified to the specific
requirements of the client’s business, the sale of the modules is subject to sales or use tax
as prewritten software. An additional charge for modification or “custom” programming

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by the developer would not be subject to sales or use tax if the developer’s charge for the
modification is reasonable and is separately stated on the billing statement.
*

*

*

Customer Support and Related Services
Services taxable under section 1105(c) of the Tax Law are exempt from tax under section
1115(o) of the Tax Law where performed on any computer software. However, where such
services to be performed on software are sold in conjunction with the sale of tangible personal
property, such as prewritten software, the charge for such services is exempt only if it is
reasonable and separatelystated on the invoice or billing statement given to the customer.
Thus, charges for customer (user) support or for information services provided by a
vendor to a customer, either in person or by some type of telecommunications arrangement (e.g.,
telephone, modem, facsimile machine, etc.), in the nature of training, consulting, instructing or
other diagnostic or troubleshooting services related to prewritten software are exempt from sales
and use taxes where the charges are reasonable and separately stated. Charges for the service of
installing, repairing, maintaining or servicing prewritten software are also exempt from sales and
use taxes where the charges are reasonable and separately stated on the invoice. Of course, any
charges for the above described services sold in connection with custom software are exempt
from tax.
Opinion
Petitioner has developed software specifically for use by home health care agencies and
specified health care providers/subcontractors of such agencies. Using HHA Exchange, a
homecare agency can solicit the agency’s designated subcontractors to provide services on behalf
of the homecare agency to the agency’s patients (clients). All of the information as to the
specific scheduling needs of the homecare agency (e.g., it needs a Spanish speaking physical
therapist for 5 weeks duration in the Bronx commencing on a particular date) is managed by the
homecare agency. The confidential medical information regarding the patient’s diagnosis,
prescribed therapy, observations of the care provider, etc. is managed by the homecare agency
and the subcontractor. Petitioner does not enter or manage any of the information exchanged
between the homecare agency and the subcontractor. Rather, Petitioner merely provides the
secure platform and software that allow the homecare agency and subcontractor to schedule and
manage the prescribed care provided to the homecare agency’s patient. If the homecare agency
and the subcontractor do not have their own time and attendance program, the subcontractors
may contract to utilize Petitioner’s program. All the information within both HHA Exchange and
the time and attendance system is entered, managed, and extracted by Petitioner’s clients.
Petitioner does not provide, manage, correct, or verify any of the information entered and
managed by the homecare agencies and the subcontractors. Though HHA Exchange may be used

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June 18, 2009

by subcontractors to create the invoices for services rendered to the homecare agencies,
Petitioner itself performs no billing or collection activities.
Prewritten computer software is included within the definition of tangible personal
property, “regardless of the medium by means of which such software is conveyed to a
purchaser.” Section 1101(b)(6) of the Tax Law. The sale of prewritten computer software is
subject to tax as the sale of tangible personal property. See sections 1101(b)(6) and 1105(a) of
the Tax Law. Sale is defined as “Any transfer of title or possession or both, exchange or barter,
rental, lease or license to use or consume (including, with respect to computer software, merely
the right to reproduce), conditional or otherwise, in any manner or by any means whatsoever for
a consideration, or any agreement therefor.” Section 1101(b)(5) of the Tax Law. Section
526.7(e) of the Sales and Use Tax Regulations provides generally that “a sale is taxable at the
place where the tangible personal property or service is delivered, or the point at which
possession is transferred by the vendor to the purchaser or his designee.” Section 526.7(e)(4)
further provides that, with respect to a “license to use,” a transfer of possession has occurred if
there is a transfer of actual or constructive possession, or if there has been a transfer of “the right
to use, or control or direct the use of, tangible personal property.” The location of the code
embodying the software is irrelevant, because the software can be used just as effectively by the
customer even though the customer never receives the code on a tangible medium or by
download. HHA Exchange and the time and attendance system are Web based software
applications. The accessing of HHA Exchange and the time and attendance system by
Petitioner’s customers constitutes a transfer of possession of the software, because the customer
gains constructive possession of the software, and gains the “right to use, or control or direct the
use of," the software. The transfer of Petitioner's software to its customers in New York is
subject to sales tax. See Adobe Systems, Inc Adv Op Comm T&F November 24, 2008, TSB-A08(62)S and Josh Rosoff, Adv Op Comm T&F, February 2, 2009, TSB-A-09(8)S.
The situs of the sale for purposes of determining the proper incidence of tax is the
location associated with the license to use (i.e., the locations of the customers that use the
software). If the locations where the customers (the homecare agencies and subcontractors) will
use the software are located both in and out of New York State, Petitioner should collect tax
based on the portion of the receipts attributable to the locations in New York. The portion of
Petitioner’s receipts from sales of software that are used by the purchaser outside of New York
are not subject to New York State and local sales and use taxes. The determination of the proper
local tax rate and jurisdiction is also based on the location associated with the license to use.
Petitioner’s separate charges for training and for custom modifications to its software,
where the charges for the training and modifications are reasonable and separately stated on the
invoice or other statement given to the purchaser, are not subject to sales tax. See section
1101(b)(14) of the Tax Law, and TSB-M-93(3)S, supra.

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June 18, 2009

These conclusions represent the current position of the Department. To the extent
Dataline, Inc., Adv Op Comm T & F, June 30, 2004, TSB-A-04(17)S, or any other advice from
the Department suggests a contrary conclusion, it does not represent current policy.

DATED: June 18, 2009

NOTE:

/s/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the
person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.