NY TSB-A-10(44)S Sales Tax 2010-09-22

Is a software license taxed in full because the buyer's NY office is the bill-to address, or only on the NY users?

Short answer: Only on the portion attributable to users located in New York. Prewritten software is tangible personal property (Tax Law 1101(b)(6)), and a license to use it is taxed where possession is transferred -- which for software means the location where the client uses or directs the use of it, not where the code sits and not the billing address (20 NYCRR 526.7(e)(4); TSB-A-08(62)S). Here the buyer countersigned a license for ~3,000 copies used worldwide and listed its New York office as the 'invoice to/bill to/ship to' address, but only about 18 of roughly 250 U.S. users are in New York (most are abroad or in Texas/Florida/California). So the software vendor should situs the sale to the location of the employee users and collect New York tax only on the share attributable to New York users -- it may rely on information the buyer provides (Tax Law 1142(4); TSB-A-03(5)S).

Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion (TSB-A), issued by the Office of Counsel at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. Taxpayer-identifying details are redacted. New York State and local sales taxes are administered centrally by the Department. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

A New York subsidiary of a global maritime/energy services group countersigned a three-year license for about 3,000 copies of a software vendor's (Company X's) prewritten software, used by the group's employees worldwide. Only ~250 users are in the U.S. (mostly Texas/Florida/California), and only about 18 are in New York; the rest are abroad. The buyer listed its New York office as the "invoice to / bill to / ship to" address, and Company X thought it had to charge New York tax on all 3,000 licenses. The question: is the whole license taxable in New York?

The Office of Counsel concluded: only the New York-user portion is taxable.

Prewritten software is tangible personal property (Tax Law 1101(b)(6)); a license to use it is a taxable sale (1105(a)).
A sale is taxed where possession is transferred (20 NYCRR 526.7(e)). For a "license to use," possession transfers where there's constructive possession or the right to use/control the software -- and that's determined by where the client uses or directs the use of the software, not by where the code lives and not by the billing address (20 NYCRR 526.7(e)(4); TSB-A-08(62)S).
So Company X should situs the sale to the location of the employee users and collect New York tax only on the portion attributable to users located in New York. It may rely on information the buyer provides about user locations (Tax Law 1142(4); TSB-A-03(5)S).

What this means for you

Buyers signing one license for many locations

A New York bill-to / ship-to address on a global software contract does not make the entire license taxable in New York. Tax follows where your people actually use the software. Keep records of user counts by state so your vendor can allocate -- and so you aren't over-charged on users who are abroad or in other states.

Software vendors

Don't default to taxing the full contract at the billing address. Situs prewritten-software sales to the users' locations and collect New York tax only on the New York share. You're entitled to rely on the purchaser's user-location information (1142(4)).

Common questions

Q: Our NY office is the bill-to address for a global license -- is the whole thing NY-taxable?
A: No. Tax is based on where the software is used. New York tax applies only to the portion attributable to users located in New York.

Q: Does the location of the servers/code matter?
A: No. Constructive possession is determined by where the client uses or directs the use of the software, not where the code resides.

Q: How does the vendor know the New York share?
A: It can rely on user-location information the buyer provides (Tax Law 1142(4); TSB-A-03(5)S).

Citations and references

Tax Law section 1105(a) (sales tax on tangible personal property)
Tax Law section 1101(b)(6) (prewritten computer software is tangible personal property)
Tax Law section 1142(4) (vendor may rely on purchaser information)
20 NYCRR section 526.7(e) (place of delivery; license to use)
20 NYCRR section 526.7(e)(4) (constructive possession / right to use software)
TSB-A-08(62)S (constructive possession determined by where software is used)
TSB-A-03(5)S (allocate software receipts by NY employee users)

Source

Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2010.htm
Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a10_44s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-10(44)S
Sales Tax
September 22, 2010

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S100623A

On June 23, 2010, the Department of Taxation and Finance received a Petition for Advisory Opinion
from name redacted. The petition asks whether any portion of the price Petitioner paid for prewritten
software is subject to New York State sales and use taxes.
We conclude that the portion of the price attributable to users located in New York is subject to sales
and use tax.
Facts
Petitioner’s parent, name redacted (GL), is a global provider of assurance, consulting and
classification services to the maritime and energy industries and is headquartered in Hamburg, Foreign
Country 1. GL has approximately 6,700 employees in 80 countries. Most of GL’s employees are located in
Foreign Country 1 and the Foreign Country 2. GL owns several subsidiaries in the US, including petitioner,
which maintains its offices in New York Petitioner, and U.S. affiliates of petitioner, collectively have
approximately 250 employees in the U.S., including approximately 18 employees in New York State. The
remaining US employees are located primarily in Texas, Florida, and California.
Petitioner has entered into a three-year license agreement with a software company located in
Nevada (Company X). The license agreement provides for approximately 3,000 copies of Company X’s
prewritten software to be used by GL, Petitioner, and other subsidiaries of GL worldwide. Approximately
2,750 of these employees/users will be located in name of country redacted (Foreign Country 1) and name
ofcountry redacted (Foreign Country 2); and approximately 250 users will be located in the US (primarily in
Texas).
The agreement with Company X is countersigned by Petitioner, with its corporate address in
New York listed as the “invoice to,” “bill to” and “ship to” address for invoicing and other purposes. The
authorized number of licensed copies of the software are made available to petitioner for download from
Company X’s servers. The use of the software licenses will effectively be maintained and administered by
GL’s personnel in Foreign Country 1 on behalf of Petitioner.
The employees of GL, Petitioner, and other subsidiaries of GL located worldwide will be able to
access the software as needed, using a code or key provided to them over the internet by the administrators in
Foreign Country 1. GL’s administrators will be able to track usage according to the license agreement, and
GL will be able to provide data, if required, to show that users in Foreign Country 1 or the Foreign Country 2
are in fact physically located in Foreign Country 1 or the Foreign Country 2. Petitioner will not charge its
affiliates for the right to use the prewritten software provided by Company X.
Company X believes it is obligated to bill Petitioner New York sales tax on the total number of
licenses provided for in the agreement based on Petitioner’s New York address in the license agreement and
as the “invoice to,” “bill to,” and “ship to” address.

-2-

TSB-A-10(44)S
Sales Tax
September 22, 2010

Analysis
Prewritten software is considered tangible personal property “regardless of the means by which it
conveyed to a purchaser” (Tax Law section 1101[b]6]). Retail sales of tangible personal property are subject
to sales tax (Tax Law section 1105[a]). A sale includes “[a]ny transfer of title or possession or both” and
includes a “license to use.” 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 the customer obtains
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 client
uses or directs the use of the software and not on the location of the code embodying the software (TSB-A08[62]S).
Accordingly, Company X should situs its sales of prewritten software to Petitioner based on the
location of the employees who use the software. Because the employees of Petitioner and its affiliates who
use the software are located both in and outside of New York State, Company X should collect tax based on
the portion of the receipt attributable to the employee users located in New York. (See TSB-A-03[5]S; Tax
Law section 1142[4]). As described in that Advisory Opinion, Company X may rely on information received
from Petitioner to determine the location of the employee users.

DATED: September 22, 2010

NOTE:

/S/
DANIEL SMIRLOCK
Deputy Commissioner and 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.