New York Advisory Opinion TSB-A-10(4)C/(23)S: Are charges to use an online virtual-call-center network (and related billing and call-handling services) subject to New York sales tax?

Plain-English summary

Two related Canadian companies asked how New York taxes their virtual-call-center business. LiveXchange runs a software network that lets a customer build a "call center" staffed by off-site "Certified Independent Agents" (CIAs) working from home. Customers and CIAs pay fees to access the network. PaySource invoices customers for the agents' work, collects payment, and pays the agents. They asked seven questions about sales tax registration, franchise tax, and the taxability of the various fees.

The Department's conclusions:
- Nexus / doing business: It could not decide on the facts whether the companies have sales-tax nexus or are "doing business" for Article 9-A. Using independent contractors in New York is not doing business unless an agency relationship exists (Tax Law section 209.1; 20 NYCRR 1-3.2(b)(2)); a future New York data center would establish nexus.
- Network access fees: These are taxable as receipts from the sale of prewritten computer software. The CIAs and customers gain constructive possession and the right to use/control the software, so accessing it is a taxable transfer of tangible personal property (Tax Law sections 1101(b)(6), 1105(a)). They are not taxable telephony (the company doesn't transmit voice/data; agents buy their own Internet/phone). Situs is where the using employees are located.
- Training: Webcast training is not taxable; training delivered via prewritten software modules can be taxable.
- Background checks: LiveXchange's charges to CIAs are a recoupment of cost, not taxable protective/detective services.
- PaySource billing/collection fees: Not an enumerated taxable service -- not taxable.
- Call-center duties billed to customers: May be taxable if the agent's work is in the nature of a telephone answering service (Tax Law section 1105(b)(1)(C)); taxable based on the customer's New York location.

What this means for you

SaaS and virtual-platform businesses

Letting customers remotely use your software -- even with no download and the code hosted abroad -- is a taxable sale of prewritten software in New York when the users are in New York. The location of the code is irrelevant; what matters is the users' "right to use, control, or direct the use" of the software.

Outsourcing, BPO, and call-center operators

Unbundle your charges. Pure billing/collection and webcast training are not taxable; software access and answering-service-type call handling can be. The character of each separately stated charge drives the result.

Accountants and tax professionals

"Doing business" and nexus through independent home-based contractors hinge on whether they are agents -- a fact question. A New York data center would settle it. Watch the software-vs-telephony line and the answering-service rule.

Common questions

Q: Is paying to use a hosted software platform taxable in New York?
A: Yes. Remote access to prewritten software is a taxable sale of tangible personal property, sourced to where the users are.

Q: Are billing and collection services taxable?
A: No. They are not among New York's enumerated taxable services.

Q: Are the agents' call-handling charges taxable?
A: Possibly, if the work amounts to a telephone answering service; then it is taxable based on the customer's New York location.

Citations and references

• Tax Law § 1101(b)(6) (prewritten software is tangible personal property); Tax Law § 1105(a) (tax on tangible personal property)
• Tax Law § 1105(b)(1)(B) (telephony and telegraphy); Tax Law § 1105(b)(1)(C) (telephone answering service)
• Tax Law § 209.1 (corporation franchise tax; doing business); 20 NYCRR 1-3.2(b)(2) (independent contractors vs. agency)
• Quill Corp. v North Dakota, 504 US 298; Orvis Co. v Tax Appeals Tribunal, 86 NY2d 165; Jayco Corp., TSB-A-10(2)C

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2010.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a10_4c_23s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-10(4)C
Corporation Tax
TSB-A-10(23)S
Sales Tax
May 27, 2010

Office of Counsel
Advisory Opinion Unit

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. Z071015A

On October 15, 2007, the Department of Taxation and Finance received a petition from
PaySource Direct Inc. and LiveXchange Corporation, 12 Blyth Street, Richmond Hill, Ontario, Canada
L4E2X7, requesting an advisory opinion about whether their business activities are subject to the business
corporation franchise tax imposed by Article 9-A of the Tax Law, and whether their services are subject
to New York State and local sales taxes. We conclude that: (1) the petition provides insufficient facts to
determine whether Petitioners are required to register for sales tax purposes or are subject to the business
corporation franchise tax imposed by Tax Law Article 9-A; (2) LiveXchange’s charges to its customers
and Certified Independent Agents for use of its network are receipts from the sale of prewritten computer
software subject to New York State and local sales and use taxes; (3) PaySource’s charges for billing and
collection services are not subject to sales tax; (4) charges to customers for the call-center-like services of
Certified Independent Agents may be subject to sales tax if their duties are in the nature of a telephone
answering service.
Facts
Petitioner LiveXchange Corporation (“LiveXchange”), based in Canada, does not have facilities
or assets in New York, but intends to open a data center in the United States in the future. LiveXchange
operates a network that is designed to allow customers to establish a telephone “call center” with off-site
personnel.
LiveXchange owns software installed on its servers which are co-located in a
telecommunications central office in Ontario, Canada. The software and equipment allow LiveXchange
to establish secure networks required to operate a call center (e.g., providing off-site personnel with
access to a customer’s computer system). LiveXchange manages the software and equipment and ensures
network security. Customers and CIAs connect to LiveXchange’s central office either by a dedicated T1
line, or by the Internet, which they purchase independently. LiveXchange does not provide the dedicated
lines or Internet access.
LiveXchange recruits and screens “Certified Independent Agents” (“CIAs”) to work in one or
more customers’ off-site call centers. LiveXchange also developed a website (ContractXchange) to
facilitate the contact between CIAs and customers. Customers can post, and applicants can search,
available call center jobs on the website. Applicants can respond to customer postings or leave their
contact information for future reference. Applicants who are selected by the customer are invited to
audition and complete training. After training is completed, the customer decides whether to certify the
applicant and offer a work contract. There is no fee charged to post jobs or search on ContractXchange.
CIAs execute contracts with LiveXchange for access to and use of LiveXchange’s network. The
CIA must also provide the following at his or her own expense: (1) a home office from which work will
be performed; (2) the computer equipment necessary to handle telephone calls; and (3) a high-speed
Internet connection, with either Internet phone service or a dedicated telecommunications line. The CIA
must also pay certain fees and charges to LiveXchange including: (1) fees for network application

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training and client-specific training; (2) charges for security or law enforcement background checks; (3)
invoicing and distribution fees; and (4) a monthly fee to access LiveXchange’s network for each customer
with whom the CIA contracts.
Each customer posts a blank schedule, which the CIAs use to select their work hours in half-hour
increments. CIAs can work as many hours as they choose, but can only sign up to work for customers for
which they have been trained and certified. A CIA uses a thumbprint recognition feature to log on to the
network. Once logged on, the network directs telephone calls to a CIA and gives the CIA access to the
customer’s computer database for work-related purposes. CIAs receive software on a tangible disc that
enables the thumbprint recognition and security features. The CIA’s duties vary by customer and may
include order taking, documenting information from callers to a customer service line, or roadside
assistance service.
Each customer executes a contract with LiveXchange for use of LiveXchange’s network. The
network allows the CIA to access the customer’s computer system, and allows a customer to monitor and
supervise CIAs. The customer pays a monthly fee for the use of the network, based on the amount of
time the CIA is logged on. Customers are sometimes charged an initial fee for special software or
hardware used to integrate the customer’s computer system with LiveXchange’s network. LiveXchange
may also develop and provide training materials for the customer. The training materials may consist of
live “webcast” instruction or software-driven training modules.
Each CIA executes a contract with Petitioner PaySource Direct, Inc. (“PaySource ”) that allows
PaySource to invoice each customer for the CIA’s services. PaySource compiles information about the
number and time of a CIA’s calls for each time period and invoices the customer for the CIA’s services.
PaySource collects payment from customers, deducts fees owed by the CIA and pays the CIA.
Petitioners ask the following questions:
1. Are Petitioners required to register for sales tax purposes, and collect and remit New York
State and local sales taxes?
2. Are Petitioners subject to the business corporation franchise tax imposed by Tax Law Article
9-A?
3. Are the fees charged by LiveXchange to its customers and CIAs to access its network subject
to New York State and local sales taxes?
4. Are the fees charged by LiveXchange to customers and CIAs for network application training
and client specific training subject to State and local sales taxes?
5. Are the fees charged by LiveXchange for security or law enforcement background checks
subject to State and local sales taxes?
6. Are the fees charged by PaySource to a CIA for providing billing and collection services
subject to State and local sales taxes?
7. Are the fees charged by a CIA to customers for performance of call center duties subject to
State and local sales taxes?

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Sales Tax
May 27, 2010

Analysis
Based on the information provided, we cannot determine whether Petitioners are required to
register for sales tax purposes and collect and remit sales tax. A state can require an out-of-state seller to
collect the state's sales or use tax if the seller has sufficient nexus with the taxing state; i.e., some physical
presence as required by the Commerce Clause of the United States Constitution. See Quill Corp. v North
Dakota, 504 US 298 (1992); National Geographic Society v California Board of Equalization, 430 US
561 (1977). Petitioners assert that they have no facilities or assets in New York State. However in Orvis
Company, Inc. v Tax Appeals Tribunal, 86 NY2d 165, 178, the court stated that, "[w]hile a physical
presence of the vendor is required, it need not be substantial. Rather, it must be demonstrably more than a
'slightest presence' . . . and it may be manifested by the presence in the taxing State of the vendor's
property or the conduct of economic activities in the taxing State performed by the vendor's personnel or
on its behalf." Nexus may also be based on the presence of sales representatives in the State or on the
presence of employees, independent contractors, agents, or representatives in the State. See Scripto v
Carson, 362 US 207 (1960); Sales and Use Tax Regulations § 526.10(a)(4)(ii). We cannot determine
whether Petitioners have nexus for purposes of sales tax on the basis of the information provided. The
location of a data center or the presence of Petitioners’ employees, agents or representatives in New York
would be sufficient to establish nexus.
Similarly, we cannot opine on the basis of the facts provided whether Petitioners are subject to
the business corporation franchise tax imposed by Article 9-A of the Tax Law. The franchise tax is
imposed on every domestic and foreign corporation for the privilege of exercising its corporate franchise
in this State. That exercise includes doing business, employing capital, owning or leasing property, or
maintaining an office in the state. See Tax Law § 209.1. A foreign corporation’s use of independent
contractors in New York does not constitute “doing business” in the State for purposes of Tax Law § 209,
unless there is an agency relationship between the corporation and the contractors. See Corporation Tax
Regulations § 1-3.2(b)(2); Jayco Corp., TSB-A-10(2)C; Tower Cleaning Systems, Inc., TSB-A-02(6)C.
Petitioners say that, at present, they do not do business, employ capital, own or lease property, or
maintain an office in New York State. Thus, whether Petitioners are subject to tax under Article 9-A
turns on whether Petitioners employ agents, officers, or employees in New York State. For example, if
the CIAs conduct Petitioners’ business in New York as agents or employees of Petitioners, Petitioners
would be subject to tax under Article 9-A. However, the determination of whether an individual is an
employee or agent is a complex and intensely fact-dependent exercise. The petition does not provide us
with sufficient information to make this determination. If Petitioners open a data center in New York
State in the future, the data center would constitute property in New York for purposes of the business
corporation franchise tax.
We conclude that LiveXchange’s charges to its customers and CIAs to access its network are not
receipts from the sale of telephony or telegraphy or telephone or telegraph service for purposes of the
State and local sales taxes. Sales tax is imposed on receipts from the sale of “telephony and telegraphy
and telephone and telegraph service of whatever nature except interstate and international telephony and
telegraphy and telephone and telegraph service . . . .” Tax Law § 1105(b)(1)(B). “The words ‘of
whatever nature’ indicate that a broad construction is to be given the terms describing the items taxed.”
Sales and Use Tax Regulation § 527.2(a)(2). Tax is imposed on receipts from “intrastate communication
by means of devices employing the principles of telephony and telegraphy.” Sales and Use Tax
Regulation § 527.2(d)(1). The terms “telephony and telegraphy” include the “use or operation of any
apparatus for transmission of sound, sound reproduction or coded or other signals.” Sales and Use Tax
Regulation § 527.2(d)(2). LiveXchange does not provide transmission of sound or data, nor is it charging

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the CIAs for the use of telecommunications equipment. Rather, LiveXchange requires the CIAs to obtain
Internet access and telecommunication services independently. Thus, LiveXchange is not selling
telephony subject to State and local sales tax.
Providers of telecommunication services may also be subject to the excise tax imposed by Tax
Law section 186-e. That section defines “telecommunication services” as “telephony or telegraphy, or
telephone or telegraph service, including, but not limited to, any transmission of voice, image, data,
information and paging, through the use of wire, cable, fiber-optic, laser, microwave, radio wave, satellite
or similar media or any combination thereof.” However, because we conclude that LiveXchange does not
provide transmission of voice or data, it is not a provider of telecommunications service subject to the
telecommunications excise tax.
Nevertheless, we conclude that LiveXchange’s charges to CIAs and customers for access to their
network are subject to State and local sales and use tax as receipts from the sale of prewritten computer
software. The network consists of software that is accessed by CIAs and customers over the Internet or
by using dedicated telecommunications circuits. This software allows the CIAs to select work times and
to manage and answer calls on behalf of customers. The software also allows the CIA to securely access
the customer’s computer system to process orders, etc. Customers also use the software to post work
schedules and to monitor and supervise CIAs.
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 the purchaser.” Tax Law
§1101(b)(6). The sale of prewritten computer software is subject to tax as the sale of tangible personal
property. See Tax Law §§1101 (b)(6); 1105(a). “Sale” is defined as “[a]ny 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) or otherwise, in any manner or by any means whatsoever for a
consideration, or any agreement therefor.” Tax Law §1101(b)(5). Sales and Use Tax Regulation section
526.7 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.”
Regulation section 526.7(e)(4) further provides that 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.” 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.
The CIA’s and customers’ accessing of LiveXchange’s software constitutes a transfer of
possession of the software, because the CIA and the customer gain constructive possession of the
software, and gain the “right to use, control or direct the use” of the software. The CIA obtains the right
to access the software in order to manage their call center duties and select work times; the customer
obtains the right to access the software in order to post work schedules and monitor and supervise the
CIAs. This is true even if (with the exception of the security software) no “copy” of the software is
transferred to the CIA. Accordingly, LiveXchange’s charges for the use of its software to a CIA or
customer located in New York are subject to State and local sales tax. The situs of the sale for purposes
of determining the proper local tax rate and jurisdiction is the location of the CIAs or customers’
employees who use the software. If the CIAs or customers’ employees who use the software are located
both in and out of New York State, sales tax is due based on the portion of the receipt attributable to the
CIAs or customers’ employees using the software who are located in New York. See KPMG, LLP,
TSB-A-03(5)S.

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Corporation Tax
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Sales Tax
May 27, 2010

LiveXchange’s charges to customers and CIAs for network application training and clientspecific training may be subject to tax. Petitioners state that the training materials may consist of a
webcast or software-driven training modules. Generally, training services are not among the enumerated
services subject to tax. See TSB-A-09(33)S. Thus, LiveXchange’s separately-stated charges to customers
and CIAs for training are not subject to sales and use tax if they are conducted via webcast. However,
charges for training that consists of the use of software-driven modules may be subject to tax if the
modules are prewritten computer software. See Tower Innovative Learning Solutions, TSB-A-06(5)S;
Markum & Kliegman, TSB-A-06(6)S. “Prewritten computer software” is software that is not designed to
the specifications of a specific purchaser. See Tax Law § 1101(b)(14). Combining two or more
prewritten programs or modules does not cause the combination to be exempt “custom” software.
Moreover, software that is designed to the specifications of a specific purchaser is prewritten computer
software when it is sold to a person other than the person for whom it was designed. See Tax Law §
1101(b)(14). LiveXchange’s charges to customers for training materials that consist of software modules
are exempt from sales and use tax only to the extent that they are designed to a specific customer’s
specifications. If some or all of the software modules are used in training materials for more than one
customer, those modules are considered prewritten software subject to sales and use taxes. Only modules
that are used in training materials for the customer to whose specifications they are designed are exempt.
Modules designed for a specific customer are custom software when sold to that customer, but they are
taxable prewritten software when sold to other customers or to a CIA.
LiveXchange’s charges to CIAs for security or law enforcement background checks are not
subject to tax. Generally, charges for background checks are protective and detective services subject to
State and local sales taxes under Tax Law section 1105(c)(8). See Hotchkiss, Stone & Longtin, LLC,
TSB-A-99(3)S; Resume Verification Services, TSB-A-97(14)S. If LiveXchange purchases these services,
they are subject to tax if they are delivered in New York. However, LiveXchange’s charges to CIAs are
merely a recoupment of its cost of obtaining background checks. Accordingly, they are not protective and
detective services subject to tax under Tax Law section 1105(c)(8).
PaySource’s fees charged to CIAs for billing and collection services are not subject to State and
local sales taxes. Sales tax is imposed on only certain enumerated services. See Tax Law § 1105(c). The
billing and collection services are not among the enumerated services that are subject to sales tax. See
Datamedic Corp., TSB-A-91(58)S.
The fees for call center-like services, for which PaySource bills customers on behalf of the CIAs,
may be subject to sales tax, depending on the nature of the work performed by the CIA. Tax Law section
1105(b)(1)(C) imposes sales tax on telephone answering service. Telephone answering service is a
service that consists of taking messages by telephone and transmitting the message to the customer or the
customer’s designee. See TSB-M-91(13)S. The tax on telephone answering services does not include the
physical act of answering a telephone if that act is merely an incidental element of a different service
being provided to the customer. See id. The call center-like services may not be taxable, depending on
the nature of the services provided. However, if the CIA is providing a telephone answering service, the
charge for that service is subject to tax if the service is provided to a customer in New York. The physical
location of the customer determines the situs of the transaction and which local jurisdiction’s tax rate
applies.
If Petitioners have nexus with New York, they are required to register for sales tax purposes and
collect and remit the State and local sales taxes on their sales of the software and taxable services. See
Tax Law §§ 1101(b)(8), 1131(1). If Petitioners do not have nexus, they are not required to register for

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sales tax purposes, but they may do so voluntarily. Once registered, however, Petitioners would have the
same obligations to collect and remit sales taxes as those vendors who are required to register. See
Publication 750, A Guide to Sales Tax in New York State. If Petitioners do not register for sales tax
purposes, CIAs and customers located in New York are required to remit the tax on the sale directly to the
Department on their purchases of software and taxable services. See Publication 774, Purchaser’s
Obligations to Pay Sales and Use Taxes Directly to the Tax Department, Questions and Answers.

DATED: May 27, 2010

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.