Are sales of downloadable video-game software, in-game content, access/point/subscription cards, and dollar-value gift cards subject to NY sales tax, and where is the sale taxed?
Plain-English summary
The Petitioner sells digital game products in New York stores and online, in four categories. The Office of Counsel ruled on each:
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Downloadable software and game content (full games or add-ons -- new maps, levels, etc. -- downloaded to the player's device), including access codes printed on a receipt or card that the buyer uses to download from a third-party server. Taxable. Prewritten software is tangible personal property regardless of the medium (section 1101(b)(6)), so the download is taxable under section 1105(a) wherever it's used. An access code is taxable too, because it merely effectuates the download of prewritten software.
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Remotely accessed software and content (pay-only portions of online games, "digital aids" like extra fuel or better gear). Taxable. The customer pays to access prewritten software that extends or enhances gameplay; the server's location is irrelevant.
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Subscription and point cards (cards/codes that unlock access to a third-party gaming network and its prewritten software for a time, or points redeemable for game content/levels). Taxable, because they entitle the user to access prewritten gaming software.
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Dollar-value cards (cards with a stated face amount, e.g., $20). Not taxable when sold -- they're like gift certificates. The taxable sale happens when the card is redeemed for taxable property or services.
Where the tax applies (sourcing): the Petitioner collects tax based on where the card or paper receipt is delivered to the customer (constructive possession, 20 NYCRR 526.7(e)/(e)(4)). If the access code is delivered electronically, tax is based on where it's delivered -- e.g., the customer's billing address. The location of the hosting server doesn't matter.
What this means for you
Game / digital-content sellers
Treat downloadable games, add-on content, remote-access game features, and access/point/subscription cards as taxable prewritten software -- it doesn't matter that there's no disc, where the customer plays, or where the server sits.
Access codes follow the software
An access code or card that just lets the buyer download or unlock prewritten software is taxed like the software itself. Don't treat the code as a nontaxable intangible.
The gift-card exception
A stated-dollar gift card (real gift-certificate equivalent) is not taxed at purchase -- tax attaches at redemption when the customer buys something taxable. The distinction is dollar value redeemable for unspecified goods (nontaxable now) vs. a code/points that unlock specific prewritten software (taxable now).
Sourcing
Collect tax based on where you hand over the card/receipt, or, for an emailed code, the delivery/billing address. Ignore the server location.
Common questions
Q: I sell download codes, not discs -- is that taxable?
A: Yes. The code effectuates a download of prewritten software, so it's taxed like the software. Same for point/subscription cards that unlock prewritten gaming software.
Q: Does it matter where the game server is, or where the customer plays?
A: No. Prewritten software is taxable regardless of medium or where it's used; the hosting server's location is irrelevant.
Q: Are gift cards taxable?
A: A stated-dollar-value gift card is not taxed when sold -- only when it's redeemed for taxable goods or services. That differs from access/point cards, which are taxable at sale.
Q: Where do I source the tax?
A: To where you deliver the card or receipt; for an electronically delivered code, to the delivery/billing address.
Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner. Use it as guidance and confirm your own facts.
Citations and references
- Tax Law section 1105(a) (sales tax on retail sales of tangible personal property)
- Tax Law section 1101(b)(6) (prewritten software is tangible personal property regardless of medium)
- 20 NYCRR section 526.7(e) (place of delivery / constructive possession)
- 20 NYCRR section 526.7(e)(4) (transfer of possession of a license to use)
Source
- Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2015.htm
- Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a15_25s.pdf
Original ruling text
New York State Department of Taxation and Finance
TSB-A-15(25)S
Sales Tax
June 3, 2015
Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
PETITION NO. S100920A
The Department of Taxation and Finance received a Petition for Advisory Opinion from
REDACTEDREDACTEDREDACTED “Petitioner”. Petitioner asks if charges related to the
sale of several categories of electronic products are subject to the sales and use tax. These sales
include the sale of video game software that is downloaded to a customer’s computer, the remote
access of video game software and the sale of various point or subscription cards that are
redeemed by the purchaser to obtain access to third-party computer games or to access in-game
content.
We conclude that Petitioner’s charges for the sale of pre-written game software are
subject to tax irrespective of where that software is used or resides. Likewise, charges for
subscription or point cards that provide access to pre-written game software are subject to tax.
However, the sale of gift cards with a specific dollar amount or the sales of any access code
unrelated to the access of pre-written software would not be subject to tax.
Facts
Petitioner sells various forms of digital entertainment content both at its retail locations
throughout New York State and through its website. These products fall into the following
general categories:
1. Downloadable software and digital game content -- this content consists of pre-written
software games or related video game add-ons that are downloaded to the purchaser’s computer,
gaming console or mobile device. These products are often the same products offered for sale on
a CD or DVD disk in boxes at Petitioner’s retail stores. This category includes the download of
additional content for such games, including, for example, new maps, levels of play, or other
additions that improve the customer’s playing experience and that are integrated into the prewritten software already installed on the purchaser’s gaming device.
Petitioner also sells access codes that are printed on a paper receipt or plastic card
provided to the purchaser. These codes allow the purchaser to access and download the prewritten software from a specific third-party server directly to the purchaser’s computer, gaming
console or mobile device. Petitioner may also sell the access code through its website on behalf
of the third-party provider, for the customer to record and use. In either instance, the download
will either provide a complete stand-alone game or will significantly modify the existing prewritten game software to extend or otherwise improve the game already owned by the purchaser.
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Sales Tax
June 3, 2015
- Remotely accessed software and content – These products are purchased by the customer for
use in playing an online video game. Many online video games offer a certain amount of
content that players may access for free. Petitioner sells additional content on behalf of the thirdparty providers that may include access to pay-only portions of the game or digital aid.
Examples of a digital aid would include additional gasoline for operating a virtual vehicle in a
game or improved arms or equipment for use in a war game. As with the downloadable digital
content discussed above, Petitioner sells access codes printed on a paper receipt or plastic card
provided to the purchaser that allows access to additional content hosted on the third-party
server. - Subscription and Point Cards -- Subscription cards are plastic cards that allow the customer
to access online gaming networks for a specified period of time for game play, interaction with
other game players on that network, access to pre-written gaming software, and the direct
download of such software to a customer’s computer gaming console or other device. Each card
contains a redemption code that the purchaser inputs by logging on to the specific third-party
gaming network.
Point Cards are similar in that they contain point values that are used to
access aspects of the on-line gaming software (such as additional levels or enhanced game play)
or that may be redeemed to access a gaming application, related software or access to digital
content on a specific third-party gaming network for a period of time. These include items
available for assisting game play on the third-party gaming networks, downloadable game
demonstrations, and extra game content (such as additional levels, new areas of game play, etc.). - Dollar Value Cards – These are plastic cards containing a specific face value dollar amount
(such as for $20.00) that will be used to purchase additional game content in a manner similar to
the Points Cards listed above.
Analysis
Petitioner asks if the sale of the various video game-related products described above are
subject to the sales and use tax. Petitioner makes these sales at its New York retail locations and
through its website to customers located in New York. - Software and game content -- Tax Law § 1105(a) imposes sales and use tax on retail sales of
tangible personal property. Tax Law § 1101(b)(6) provides that prewritten computer software is
tangible personal property for sales tax purposes “regardless of the medium by means of which
such software is conveyed to the purchaser.” The fee paid for the lease or license to use or
consume prewritten computer software is subject to New York State and local sales tax under
Tax Law § 1105(a). The computer games offered by Petitioner to its customers are prewritten
computer software products. Accordingly, Petitioner's sale of prewritten computer gaming
software that the customer downloads to his or her own gaming device is subject to tax as the
sale of tangible personal property. See Tax Law §§ 1101(b)(6), 1105(a); TSB-A-10(28)S.
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Sales Tax
June 3, 2015
It makes no difference if the download of this prewritten computer software is effected by
the sale of an access code printed on a paper receipt or plastic card provided to the purchaser at
the time of sale. Purchasers use the codes to download the pre-written software to their
computers, gaming consoles or mobile devices from the third-party server. Because the codes
effectuate the download of prewritten computer software, the sales of such access codes
constitute sales of tangible personal property and are subject to sales tax. See Tax Law §1105(a);
TSB-A-10(10)S.
Petitioner must collect tax from its customer based upon where the paper receipt or
access card is delivered to its customer. Sales Tax Regulation § 526.7(e) provides 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.” Sales Tax
Regulation § 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.” In
this instance, “constructive possession” of software or “the right to use, or control” software for
purposes of Regulation § 526.7(e)(4) is determined based on the location where the customer
receives the access code, whether printed on a paper receipt or plastic card. However, in those
instances where the access code is delivered electronically to the purchaser to record and use,
Petitioner would collect tax based upon where the access code is delivered to the purchaser, such
as the billing address of the purchaser.
2. Remote access software and content -- As with the downloadable software and digital content
discussed above, Petitioner’s sale of remotely accessed software constitutes the sale of prewritten
computer software. See Tax Law §§1101(b)(6); 1105(a). In each instance, the customer is
provided access to pre-written software that either extends or enhances the purchaser’s on-line
gaming experience (such as accessing additional levels to explore or interact with). That is, the
customer is charged for changes to pre-written software that either enable faster recharges or
gameplay that otherwise is not available without payment. In either situation, the computer
game or game content accessed by Petitioner’s customers constitutes prewritten computer
software. Accordingly, Petitioner’s fees for customers to access such pre-written software are
subject to tax. Petitioner must collect tax from its customer based upon where the software is
delivered to its customer, such as the purchaser’s billing address if sold on-line. The location of
the server hosting the software is irrelevant. See TSB-A-08(62)S.
3. Subscription and Point Cards -- These cards contain a redemption code or points that the
purchaser uses by logging on to the third-party gaming network. The cards entitle the user to
access a specific gaming network for a specified amount of time for the express purpose of
accessing the pre-written gaming software offered by that network. Therefore, the charges for
these cards are subject to sales tax. See Tax Law § 1105(a); TSB-A-10(10)S. Petitioner must
collect tax from its customer based upon where the card is delivered to its customer.
4. Dollar Value Cards -- These cards are similar in nature to gift certificates for stated dollar
amounts. The purchase of a gift certificate that may be used in full or part payment, up to the
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Sales Tax
June 3, 2015
stated dollar value, for the purchase of unspecified goods and services at some future date
generally is not considered to be a taxable transaction under Tax Law § 1105 at the time the
certificate itself is purchased. See TSB-A-07(21)S; TSB-A-99(13)S. The taxable sale occurs
when the certificate is presented in exchange for the purchase of taxable property or services.
Therefore, sales by Petitioner of dollar value cards for specific monetary amounts are not subject
to sales tax. See TB-ST-806. However, sales tax is due on purchases of taxable tangible
personal property or services when the cards are redeemed.
DATED: June 3, 2015
NOTE:
/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.