We sell interactive online e-learning courses, plus separate add-on charges for a reference library, a live mentoring service, and a course-planning consultation — which of these are subject to New York sales tax?

Plain-English summary

MindLeaders, Inc. sells over 2,000 web-based e-learning courses (desktop, technical, professional, and practical skills, many mapped to certification requirements) under 1-3 year non-perpetual license agreements, mostly accessed online (about 95%) with the rest on CD-ROM. Each course is highly interactive: more than half the screens require active student engagement, with embedded questions, answer analysis anticipating all possible responses, adaptive learning paths based on a skill assessment, and "intelligent client" bookmarking so students can stop and resume without losing progress. Beyond the core courses, MindLeaders sells (separately charged) On-line Instant Mentoring (live, 24-hour access to subject-matter mentors) and access to a Reference Library (1,000 searchable e-book titles, no downloading, priced flat regardless of usage). It also has a newer Food Safety course line delivered by direct download, and charges separately for a training needs analysis/course sequencing consultation.

The Department split the analysis into five pieces:

1. The e-learning courses themselves — taxable, as a sale of prewritten computer software. The heavy interactivity (embedded Q&A, adaptive branching, resume-where-you-left-off) is what makes this "software" rather than a passive service; accessing it online is a taxable constructive transfer of possession regardless of whether any code ever reaches the student's own machine — the same constructive-possession framework applied in other 2009 opinions (citing Adobe Systems, Inc., TSB-A-08(62)S). This is expressly distinguished from an earlier opinion (TSB-A-06(5)S) that found a different online learning program nontaxable — that program included substantial non-automated academic support at no extra charge, a meaningfully different fact pattern.
2. On-line Instant Mentoring — not taxable. This is a live, human educational service, not enumerated as a taxable service under Tax Law §1105(c).
3. Reference Library access — taxable, as an information service under §1105(c)(1), following the same 2006 opinion (TSB-A-06(5)S) that addressed a similar library feature.
4. The downloaded Food Safety courses — taxable as prewritten software, same as the web-accessed courses, just delivered by a different medium (the medium doesn't matter to prewritten-software taxability).
5. Training needs analysis/course sequencing consulting — not taxable, as an unenumerated service, provided it's genuinely distinct: the e-learning courses must be purchasable without this service, and the course price can't vary based on whether the customer also buys the consulting.

Tax is sourced to where the software is actually used (not where the code resides); if a customer's employees are located both in and out of New York, MindLeaders must allocate and collect tax on the New York-attributable portion, relying on customer-provided location information (per KPMG LLC, TSB-A-03(5)S).

What this means for you

E-learning and online training companies

Interactivity is the dividing line the Department uses: a course that's mostly automated software (branching logic, embedded assessments, adaptive paths) is taxable software, while genuinely live, human-delivered instruction/mentoring is not an enumerated taxable service. If your product mixes both, keep the live/human components as clearly separate, optional, separately priced offerings.

Companies bundling reference/library content with courseware

A flat-fee reference library or e-book access feature is likely a taxable information service on its own, even when bundled conceptually with an otherwise-taxable (or even nontaxable) course product — evaluate each component separately.

Companies selling consulting alongside a taxable product

To keep a training-needs-analysis or similar consulting charge untaxed as an unenumerated service, make sure it's genuinely optional and separately priced — if the core course price changes based on whether the customer also buys the consulting, or if the course can't be bought without it, the consulting risks being pulled into the taxable bundle.

Common questions

Q: Our online course is basically an interactive quiz/branching-logic program — is that taxable?
A: Likely yes, per this opinion — the Department treats highly interactive, embedded-question, adaptive-path courseware as prewritten software, taxable regardless of delivery method (online access or download).

Q: We also offer live human tutoring/mentoring for an extra fee — is that taxable too?
A: No, per this opinion — live educational mentoring isn't among New York's enumerated taxable services.

Q: Does it matter whether our course is downloaded versus accessed only through our website?
A: No — prewritten software is taxable "regardless of the medium by means of which it is conveyed," so both a downloaded course and a purely web-accessed course are taxed the same way.

Q: We charge a flat fee for access to a reference library of e-books related to our courses — taxable?
A: Yes, per this opinion, as a taxable information service, following an earlier opinion (TSB-A-06(5)S) addressing a similar reference-library feature.

Q: How do we keep our course-planning consulting service untaxed?
A: Make sure it's a genuinely distinct, separately priced offering — the course itself must be purchasable without it, and the course price shouldn't change based on whether the customer also buys the consulting.

Q: Can any e-learning company rely on this exact opinion?
A: No. An advisory opinion binds the Department only as to the taxpayer who requested it and the facts described — particularly the specific level of interactivity described here. A course with significant non-automated academic support (like the one in TSB-A-06(5)S) could be analyzed differently.

Citations and references

Statutes and regulations:

• Tax Law §1101(b)(5), (6) (definition of sale; prewritten software as tangible personal property)
• Tax Law §1105(a) (sales tax on tangible personal property)
• Tax Law §1105(c)(1) (information services)
• 20 NYCRR §526.7(e), (e)(4) (place of delivery; constructive possession)

Cited opinions:

• Adobe Systems, Inc., TSB-A-08(62)S (constructive possession based on location of use, not location of code)
• KPMG LLC, TSB-A-03(5)S (allocating receipts across in-state/out-of-state use)
• TSB-A-06(5)S (contrasting nontaxable online learning program with significant non-automated academic support; taxable reference-library feature)

Source

• Landing page: NY Sales Tax Advisory Opinions, 2009
• Original opinion: TSB-A-09(2)S

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-09(2)S
Sales Tax
January 21, 2009

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S080306A

Petitioner, MindLeaders, Inc., requests an advisory opinion about whether its sale of on-line e-learning
courses and associated products as described below are subject to sales tax. We conclude that the on-line
e-learning courses are taxable as sales of prewritten software, and that petitioner’s additional charges for on-line
access to library reference works are taxable as an information service, while its additional charge for a
mentoring service is nontaxable because it is an unenumerated service.
Petitioner is an Ohio-based for-profit corporation that provides real-time, interactive, web-based training
and educational services (“e-Learning”) that enable its customers to earn educational certificates in various
fields through online study. MindLeaders’ courseware database is comprised of over two-thousand (2,000)
e-Learning courses relating to the development of desktop, technical, professional and practical skills. A large
number of the e-Learning courses are designed to meet specific technical and professional certification
requirements and have been audited by third parties to ensure that the company’s instructional design is sound
and the courses support the specified learning objective. Students who complete the course receive a
certification from petitioner. Students then can use this certification to apply for continuing education units
through a select group of universities, for relicensure or recertification with state agencies and professional
organizations, or as proof to employers of their professional development activities.
Customers enter into non-perpetual user agreements, typically one or three years in duration, in order to
access the e-Learning courses. Petitioner sells directly (Direct Sales) to large organizations and indirectly
through Internet Service Providers (ISPs). The agreements allow for free updates during the term. The
e-Learning courseware contains embedded restrictions that prevent it from being used beyond the agreement
expiration date. Petitioner’s direct sale customers have the option of receiving the e-Learning courses either
directly over the internet, or by receipt of a CD-ROM for use on a company-wide intranet or LAN or a stand­
alone personal computer. Approximately 95% of the e-Learning courses are accessed over the internet.
Petitioner has ceased offering e-Learning courses by CD-ROM.
Each e-Learning course is protected by a copyright and contains more than 60% original content.
Petitioner uses a proprietary four-stage course development process to create the interactive Web-based
courseware. More than fifty percent of the course screens are interactive and require the user to actively engage
in the learning process. The courseware also provides immediate and supportive feedback to reinforce the
learning. Each unit of a training course consists of the following:
•

a well-defined set of learning objectives that are relevant, specific, and mapped to certification
requirements;

•

a series of interactions that teach the stated objectives through frequent opportunities for practice in the
form of simulations and exercises; and

•

a means of evaluating whether the learning objectives have been met through simulations and
range of questions.

a

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TSB-A-09(2)S
Sales Tax
January 21, 2009

The courseware includes embedded questions at regular intervals to keep interaction high. The
embedded questions incorporate a thorough answer analysis that anticipates all possible responses from the
learner. The courseware also includes writing hints and feedback that are supportive and reinforce what the
student just learned.
Customers have the option of taking a skill assessment test before or at any time from within the
training course. The results of the test are used to create a custom learning path for each student so that students
need not review material they have already mastered. Also, although the courseware is primarily designed as
linear instruction, a topics list and index using advanced search technology is always available to give the
learner “just-in-time” access to the course contents. The e-Learning courses contain intelligent client
technology enabling students to stop at any time and resume the course at a later time, without losing any
information and without having to start the course over from the beginning. In addition, students have unlimited
access to the completed course any time during the license agreement period for further study and consultation.
In addition to the e-Learning courses, Petitioner’s customers can access two additional on-line services:
On-line Instant Mentoring and Reference Library. The On-line Instant Mentoring service offers real time access
to certified subject-matter mentors 24 hours a day. Mentors provide comprehensive knowledge to assist
students at all stages of learning. On-line Instant Mentoring allows students to clarify concepts, fine-tune
solutions, or seek guidance with regard to certain applications. There is a separate charge for the On-line
Mentoring service. Reference Library contains 1,000 electronic book titles to offer Petitioner’s customers
additional blended learning tools. The Reference Library provides searchable, full-text copies of reference
books from major publishers to clarify questions or provide additional in-depth information on questions arising
from the e-learning courses. The charge for this service is for access to the library and is not based on the
number of books accessed. The student is able to access the books on petitioner’s website but is not given any
downloading rights.
Petitioner has recently developed another line of course study related to Food Safety. These courses are
delivered to the customer via download directly to the customers’ own computers. This method of delivery
differs from Petitioner’s other training courses, which are accessed by customers through Petitioner’s website.
Petitioner also charges its customers for professional services related to providing training needs
analysis and course sequencing services to match petitioner’s course offerings with the customer’s training
needs. This service does not involve the development or transfer of software.
Analysis
Issue 1: Is the sale of access to e-Learning courses offered via the internet subject to New York sales
tax?
Yes. Petitioner’s e-learning courses are educational courses taught through software, with a mentoring
service available only for a separate charge. The software is highly interactive in order to keep the student
engaged in learning. The software includes embedded questions and an answer analysis that anticipates all
possible responses from the learner. The software is designed to allow it to offer linear instruction or to allow
the customer to learn about specific topics by accessing a topics list or an advanced search mechanism.
Furthermore, the customer can re-start the software from the point at which the user last used it.
This makes the courses taxable. A sale of prewritten software is taxable as the sale of tangible personal
property “regardless of the medium by means of which [ it] is conveyed” (Tax Law sections 1101(b)(6);
1105(a)). “Sale” is defined as “[a]ny transfer of title or possession or both, exchange or barter, rental, lease or

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Sales Tax
January 21, 2009

license to use or consume (including with respect to computer software, merely the right to reproduce) or
otherwise, in any manner or by any means whatsoever for a consideration, or any agreement therefor . . . .” Tax
Law § 1101(b)(5). Sales Tax Regulation section 526.7(e) provides that, in general, “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.” Sales Tax Regulation section 526.7(e)(4) further provides that, with
respect to a “license to use,” a transfer of possession has occurred if there is 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.”
“[C]onstructive possession” of software or “the right to use or control” software for purposes of Regulation
section 526.7(e)(4) is determined based on the location where the software is used and not on the location of the
code embodying the software (Adobe Systems, Inc., TSB-A-08(62)S, November 24, 2008). Thus, on-line use of
petitioner’s educational software in New York constitutes a transfer of possession of the software to the
customer and petitioner should collect tax from its customers based on where the software is being used.
For this purpose, petitioner may rely on information received from its customer as described in the
KPMG, LLC, Advisory Opinion, TSB-A-03(5)S, January 31, 2003 (Tax Law sections 1132(c)(1); 1142(4)). If
the customer’s employees who use the software are located both in and out of New York State, petitioner should
collect tax, based on the portion of the receipt attributable to the employee users located in New York (Adobe
Systems, Inc., TSB-A-08(62)S, supra).
This service is distinguishable from the on-line learning program found to be nontaxable in TSB-A­
06(5)S (February 2, 2006) because that service included, at no extra charge, significant non-automated academic
support.
Issue 2: Is the sale of access to the On-line Mentoring Service subject to New York sales tax?
Only the services enumerated in Tax Law section 1105(c) are subject to sales and use tax. Petitioner’s
mentoring service is in the nature of an educational service that is not included in the services made taxable by
Tax Law section 1105(c).
Issue 3: Is the sale of access to the Reference Library via the internet subject to New York sales tax?
Petitioner’s fee for the right to access petitioner’s Reference Library gives a student access to full-text
copies of reference books from major publishers to provide additional in-depth information on topics covered by
the e-learning courses. Access to the on-line books is in the nature of an information service and is subject to
sales tax pursuant to Tax Law section 1105(c)(1) (see, TSB-A-06(5)S, supra).
Issue 4: Is the sale of the Food Safety courses downloaded to the customer’s computer taxable?
Petitioner’s sale of its Food Safety course that is delivered to the customer via download to the
customer’s computer is taxable as a sale of prewritten software delivered to New York (see Tax Law section
1105[a]; Sales Tax Regulation 526.7[e]).
Issue 5: Is petitioner’s charge for professional services related to providing training needs analysis and
course sequencing services as described above taxable?
Assuming this service is distinct from the provision of the e-learning courses, it appears to be an
unenumerated service and thus is not subject to tax (Tax Law section 1105[c]). This service will be considered
distinct from the e-learning courses if the e-learning courses can be purchased without the purchase of this

TSB-A-09(2)S
Sales Tax
January 21, 2009

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service, and the charge for the e-learning courses does not vary based on whether the customer is also buying
this service.

DATED: January 21, 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.