Is selling customers online access to fill-in forms templates on my web site -- with no software copy delivered -- subject to NY sales tax?

Plain-English summary

The petitioner is developing software that lets customers access forms templates on its web site, fill a form in with their own data, and then download the populated form to print at their own location. The customer is billed per downloaded form and never receives a copy of the software in any tangible or downloadable form. The petitioner asked whether these receipts are subject to NY sales tax.

The Office of Counsel concluded the product is taxable prewritten software. Prewritten (off-the-shelf) computer software is included in NY's definition of tangible personal property (Tax Law 1101(b)(6)), and its sale -- including a mere license to use (1101(b)(5)) -- is taxable under 1105(a). Under the regulations, a "transfer of possession" occurs when the customer has actual or constructive possession or "the right to use, or control, or direct the use" of the property (20 NYCRR 526.7(e)(4)). The location of the code is irrelevant, because the software works just as well for the customer whether or not the code is ever delivered.

Here, although the customers cannot alter the underlying code, they gain constructive possession and the right to use the software because they can alter the content by filling in the form -- without which the form is unavailable. (The Department analogized to earlier opinions treating online loan-processing software (TSB-A-09(15)S) and online image-manipulation software (TSB-A-08(62)S) as taxable prewritten software.)

Situs / local tax: the sale is sourced to the location associated with the license to use -- i.e., the location of the customer's employees who use the software. If those users are both in and out of NY, the petitioner collects tax on the portion of receipts attributable to NY users.

What this means for you

Software / SaaS vendors

If you sell access to prewritten software -- even when nothing is downloaded and the customer only uses it through your web site -- NY treats it as a taxable sale of tangible personal property. "We host it; nothing leaves our server" does not avoid the tax. The test is whether the customer gets the right to use, control, or direct the software's use.

Sourcing multistate customers

Collect NY tax based on where the customer's users are located, not where your server is. For a customer with users inside and outside NY, apportion and collect only on the NY share.

Common questions

Q: We never give the customer a copy of the software -- is it still taxable?
A: Yes. The location of the code is irrelevant; constructive possession and the right to use the software are enough.

Q: Customers can't change our code -- doesn't that mean they don't "use" the software?
A: No. Being able to alter the content (filling in the form) is enough to give them the right to use and control it.

Q: A customer's staff is split between NY and other states -- how much do we tax?
A: Source to the users' location and collect NY tax only on the portion of receipts attributable to the customer's NY users.

Citations and references

• Tax Law section 1101(b)(6) (prewritten software is tangible personal property)
• Tax Law section 1101(b)(5) (definition of sale; license to use)
• Tax Law section 1105(a) (sales tax on tangible personal property)
• 20 NYCRR section 526.7(e)(4) (transfer of possession; license to use)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2013.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a13_22s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-13(22)S
Sales Tax
July 25, 2013

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

PETITION NO. S130102B

The Department of Taxation and Finance received a Petition for Advisory Opinion from
name and address redacted. Petitioner asks whether New York State and local sales taxes are
imposed on the receipts from sales of access to forms via software stored on Petitioner’s web
site.
We conclude that, under the facts below, Petitioner’s product is prewritten software that
is subject to State and local sales taxes when accessed by a customer located in this State.
Facts
Petitioner is developing software to allow its customers to access forms templates on its
web site. Petitioner will sell only access to the digital files stored on Petitioner’s server; the
customer will not receive a copy of the software in tangible or other form. By connecting to
Petitioner’s web site, a customer will be able to pull up a form and populate the form with the
customer’s own data. If, and only if, the customer has entered some data on the form, the form
can then be downloaded to the customer’s computer and printed at the customer’s own location.
The customer will be billed for each form that is downloaded. Petitioner expects to have
customers within and without New York State.
Analysis
Petitioner’s product allows its customers to access templates of forms on Petitioner’s web
site, populate the forms with the customer’s own data, and download populated forms onto the
customer’s own computer from which the forms can be printed out. In line with previous
Advisory Opinions discussed below, we view Petitioner’s business as selling access to prewritten
computer software, which is included within the definition of “tangible personal property”
subject to New York State and local sales tax. 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.” See Tax Law § 1101(b)(5). Sales and Use Tax Regulation § 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 § 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.”

-2-

TSB-A-13(22)S
Sales Tax
July 25, 2013

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.
We conclude that the accessing of Petitioner’s software by Petitioner’s customers for
consideration constitutes the sale of prewritten computer software. See, e.g., TSB-A-09(15)S
(charges for online access to “loan origination and processing services,” which, among other
things, allowed customer to complete and print certain loan processing documents, constituted
receipts from the sale of prewritten computer software); TSB-A-08(62)S (license to use software
product that allowed customer to upload an image to a web site and manipulate the image to
show various colors and views, constituted the sale of prewritten computer software). Although
Petitioner’s customers do not have the right to “alter, change, or control” the underlying code of
the software itself, they gain constructive possession of the software and the “right to use, control
or direct the use” of the software, because they have the right to alter the content by filling in the
form, without which the form is unavailable. The situs of the sale for purposes of determining
the proper local tax rate and jurisdiction is the location associated with the license to use, i.e., the
location of the customer’s employees that use the software.1 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 receipts attributable to the customer’s users located in NYS.

DATED: July 25, 2013

NOTE:

1

/S/
DEBORAH R. LIEBMAN
Deputy 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. The information provided in this
document does not cover every situation and is not intended to replace the law or
change its meaning.

See 20 NYCRR §526.7(e)(1) and (4) and TSB-A-03(5)S.