Are subscription charges for online meeting, web-conferencing, remote-support, and remote-computer-access products subject to NY sales tax or the section 186-e telecom excise tax?
Plain-English summary
The Petitioner sells four web-based subscription products that let its customers' own computers talk to one another over the Internet:
- Online meeting (video/audio multiparty conferencing);
- Online conferencing / web seminars (webinars for up to 1,000 attendees);
- Online remote support (a subscriber's own technicians remotely view/control an employee's or customer's screen); and
- Remote computer access (reach a host computer from a remote one).
In every case the customer downloads a tiny Java "applet" that authenticates the user and opens a secure, encrypted connection to the Petitioner's "broker" server, which then "bridges" the two computers on the Petitioner's communication server. The Petitioner monitors the connections to keep them strong and secure. Customers must supply their own hardware, software, broadband, and Internet service. Subscribers pay a monthly per-user fee for unlimited use.
The Office of Counsel concluded none of the products is taxable:
- Not a telecommunication service. Section 1105(b)(1)(B) taxes intrastate "telephony and telegraphy," and section 186-e is the excise tax on telecommunication services (the two are read together). But the Department has consistently held that "bridging" services -- connecting one computer's output to another's input -- are not telephone or telecommunication services for either tax. So the products are not taxable as telecom.
- Not a sale of prewritten software. The only software the customer gets is the Java applet (which just enters a username/password and opens the connection) plus an optional recording feature. Given that limited functionality in the overall context of the service, the products are not a sale of prewritten software under section 1105(a).
The opinion notes that, to the extent older opinions (TSB-A-82(31)S, 04(16)S, 10(41)S) said otherwise, they no longer reflect Department policy.
What this means for you
SaaS / collaboration platforms structured as "bridging"
If your product's essence is connecting the customer's own machines over the Internet -- and any software you hand over (an applet, a connector, a small client) only authenticates and opens the pipe -- New York treats it as a nontaxable bridging service, not taxable telephony or prewritten software. This is the doctrine later AOs (e.g., TSB-A-16(6)S) build on.
Watch the software line
The result can flip if the software you deliver does substantial work on the customer's side (real functionality the customer uses), because then you may be selling prewritten software, which is taxable under section 1105(a) regardless of how it is delivered. "Limited functionality in the overall context" is the test.
Separate telecom/toll charges are their own question
Charges for toll-free numbers or telecommunications the customer buys (from the provider's affiliate or a third party) are billed and analyzed separately -- this opinion did not rule on them.
Common questions
Q: Is my web-meeting / webinar subscription taxable in New York?
A: Not if it works like this product -- a bridging service that just connects the customers' own computers. It's not taxable telephony, not the 186-e telecom tax, and not a sale of prewritten software.
Q: We make customers download a small app -- does that make it taxable software?
A: Not by itself. An applet that only authenticates and opens the connection is too limited, in context, to be a taxable sale of prewritten software.
Q: What about the phone/toll-free charges?
A: Those are billed and taxed separately and weren't decided here. The bridging service itself is nontaxable.
Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner who asked. Treat it as guidance and confirm your own facts.
Citations and references
- Tax Law section 1105(a) (sales tax on tangible personal property, including prewritten software)
- Tax Law section 1105(b)(1)(B) (sales tax on intrastate telephony and telegraph service)
- Tax Law section 186-e (excise tax on telecommunication services)
- 20 NYCRR section 527.2(d)(2) (definition of telephony and telegraphy)
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_28s.pdf
Original ruling text
New York State Department of Taxation and Finance
TSB-A-15(28)S
Sales Tax
July 9, 2015
Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
PETITION No. Z120320B
The Department of Taxation and Finance received a Petition for Advisory Opinion from
REDACTED “Petitioner”. Petitioner asks whether its on-line meetings and conferences and
remote access computer products described below are subject to sales and use tax. We conclude
that the products are not taxable for sales tax purposes or for purposes of the excise tax on
telecommunication products under Tax Law § 186-e.
Facts
Petitioner’s products generally enable its subscribers to remotely (1) host and participate in
online meetings; (2) organize and present on-line conferences and webinars; (3) provide live
technical support to its employees and customers; and (4) remotely access their computers. All of
Petitioner’s products enable customers to communicate with others on their own computers
through the Internet by providing secure connections among multiple users. Petitioner
continuously monitors those connections, using software controlled by its employees, to ensure
that they remain strong and secure and that unauthorized users cannot gain access. All
communications are encrypted and only authorized users can access the product. Petitioner is not
an Internet access provider, and subscribers to Petitioner’s products must have their own hardware
and software, broadband Internet connections, and Internet service provider that allow them to
connect with Petitioner’s “broker” server as described below.
Petitioner does not provide a software license per se to the subscriber for any of its
products. However, subscribers do have to complete a subscription agreement to access
Petitioner’s applications or products. Petitioner maintains that it is the user of the proprietary
software used to provide its products, and that its charges are only for these products. For each
product, a connection is established by downloading an applet that allows the subscriber or user to
connect from a remote location and use Petitioner’s product over a proprietary network. Once a
connection is established, an encrypted data stream is passed through the servers that connect with
one or more computers or electronic devices that may be dispersed within the State, nationally and
internationally.
Each of the products is separately available for sale. Petitioner’s customers pay a monthly
subscription charge based on the number of their users. Payment of the subscription charge
permits unlimited usage by each user.
Each of Petitioner’s products is described below.
(1) Online Meeting Product (Video and Audio). The Online Meeting Product enables
individuals and organizations to conduct multiparty conferences over the Internet. To use this
product, a subscriber creates an account by entering into a contract with Petitioner or registering
online and creating a username and password. The subscriber then uses its own Internet browser
to visit Petitioner’s website and to download an applet that identifies the subscriber and permits a
secure connection. The subscriber’s only use of the applet is to enter a username and password.
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July 9, 2015
Once registered, subscribers are able to conduct Internet meetings for a monthly or annual fee and
invite others to attend and view the meetings through the Internet. Users of the product include
paying subscribers, non-paying participants invited by any subscriber, and trial users, all of whom
download the applet. Meetings may be scheduled on a one-time or recurring basis, and the
application integrates such features as the participant’s third party calendar software and enables
the organizer to track certain things, such as meeting attendance.
A subscriber organizes and hosts a meeting by sending participants a uniform resource
locator (URL) that identifies them and enables them to download an applet that functions as a key
to the connection to the meeting organizer’s computer. The applet consists of a small series of
coded commands in the Java computer language that establishes a secure connection with
Petitioner’s “broker” server. Once the broker server identifies the participant and the organizer
whose meeting the participant wants to attend, it connects the participant with the spot on
Petitioner’s communication’s server where the meeting is being hosted, to which the organizer,
through a similar process will also be connected. As with the other applets used by Petitioner, the
applet sent the subscriber has no function without being connected to the Petitioner’s proprietary
system over the Internet. Once a connection is established, an encrypted data stream is passed
through Petitioner’s data centers.
There is no charge to the meeting participants or attendees and, unlike the subscriber
organizing the meeting, the participants and attendees do not have to be registered users. The
organizer does not pay a fee to allow potential participants to download the applet. With the
appropriate Java applet, attendees may also connect using certain smart phones or tablets. The
participants may connect through an invitation e-mail, or enter their name and the 9-digit meeting
ID number to access the meeting. During presentations, the meeting host retains control of the
content on the host’s computer. The subscriber must pay other providers for telecommunication
or Internet access service to Petitioner’s servers. However, it is not necessary to use a computer
headset or microphone to access Petitioner’s meeting product. A subscriber may require the
participants to pay for their own long distance service, or provide a toll free number secured from
a third party telecommunications service provider. However, a subscriber may also elect to use a
toll free number provided by an entity related to Petitioner. The cost of the toll-free service,
whether purchased from the related entity or from another provider, is billed to the customer by
the provider and is not part of the fee for Petitioner’s product. Petitioner’s request for an Advisory
Opinion does not concern the taxability of this charge.
The organizer has authority to initiate a digital recording feature, which records to the
organizer’s computer. Petitioner does not supply software to play these recordings, and it does not
have access to them.
(2) Online Conferencing and Web Seminar Product. The Online Conferencing and Web
Seminar Product enables individuals and organizations to present information over the Internet.
Through this product Petitioner allows the subscriber “organizer” to hold seminars on the Internet
with up to 1,000 attendees. Petitioner’s infrastructure for this product includes multiple data
centers around the world that help it provide a high quality of transmission and connection. The
product uses end-to-end encryption for all data. This product includes a recording feature similar
to the one discussed above. The organizer can post the webinar to a web seminar server. The
organizer can then e-mail a URL designation to others who may wish to view it.
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July 9, 2015
The connection between the computer of the organizer and the web seminar attendee is
brought about through the use of applets in the same way as discussed above with regard to
Petitioner’s on-line meeting product.
(3) Online Remote Support. This web-based product allows a subscriber’s own
technicians to assist and support the subscriber’s employees or, in some cases, the subscriber’s
customers from a remote location. This product enables shared screen, mouse, text chat, and
keyboard control from one computer to another. An applet that allows a connection to the product
is installed on the computer system operated by the technician employed by the subscriber. A
support request is initiated by a subscriber’s employee visiting an Internet support portal
maintained on Petitioner’s server and entering the support request. The request is then queued for
the subscriber’s next available technician. With the employee’s permission, the representative is
granted access to the employee’s computer through Petitioner’s broker server over the Internet, as
described above for Petitioner’s on-line meeting product. The representative then begins a remote
support session with the employee. Alternatively, the employee can initiate a remote support
session with a telephone call. The technician provides the employee with the web portal URL or
web address to begin the session. The representative can, from a remote location, diagnose,
troubleshoot, and resolve problems. Petitioner charges its subscribers for this product on a
monthly per-user basis or on a day-pass basis.
The product provides subscribers with a secure environment for their own technicians to
gain remote access to the computers of their employees or customers. Petitioner provides no
problem solving or troubleshooting. It provides only access for the subscriber’s own technician to
perform those activities. A computer “key” used by the employee to obtain access to this product
is generated each time an employee uses the product and nothing is left on the employee’s
computer that can function independent of a connection to Petitioner’s server.
(4) Remote Computer Access. This product allows a subscriber to access a computer
located elsewhere. The computer being accessed is known as the host computer and the computer
used to access it is the remote computer. Once the subscriber’s host computer is configured with
the applet that allows connection to Petitioner’s server, the employee using the remote computer
then visits Petitioner’s website, enters a user name and password, and clicks on a connect button.
That employee then downloads an applet that functions as a key permitting a secure connection to
the product and to the subscriber’s host computer. The authentication process and the actual
connection between the two computers are done using the same technology as discussed above
with regard to Petitioner’s on-line meeting product. All transmissions through Petitioner’s server
are encrypted and only those subscriber computers previously configured are displayed and
accessed remotely.
Analysis
Tax Law § 1105 imposes sales and use tax on, among other things, retail sales of tangible
personal property, including prewritten software, and certain enumerated services. See Tax Law
§ 1105(a), (b), and (c). Tax Law § 1105(b)(1)(B) imposes sales tax on receipts from every sale,
other than sales for resale, of intra-state “telephony and telegraphy and telephone and telegraph
service of whatever nature.” The terms “telephony and telegraphy” include the “use or operation
of any apparatus for transmission of sound, sound reproduction or coded or other signals.” 20
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July 9, 2015
NYCRR § 527.2(d)(2). Tax Law § 186-e imposes an excise tax on the sale of certain
telecommunication services by a provider of telecommunication services. The two taxes are to
be construed together, given the overlap in their subject matter. See McKinney’s Statutes § 221
(statutes that relate to the same persons or things are to be construed together).
Petitioner’s web-hosting and online meeting products allow the output stream of the
host’s computer to be connected with the in-put stream of another or multiple other computers.
For example, the on-line remote computer access and on-line remote support products allow a
computer to connect with a remote computer for the sole purpose of using the software on the
remote computer or fixing something on the remote computer. For each product, Petitioner
makes this connection or “bridge” on its communication server, as the users of both computers
must provide their own Internet connections to Petitioner’s broker server, which then is able to
bring the connection about on Petitioner’s communication server. The Department has held that
“bridging” services are not telephone or telecommunication services for purposes of sales tax or
the excise tax imposed by § 186-e. See NYT-G-06(1)C/NYT-G-06(3)S; TSB-A-99(35)S and
(20)C. Accordingly, Petitioner’s products are not subject to sales and use tax or § 186-e tax as
telecommunication services.
To access each of these products, the customer must download a Java applet, which
consists of a small series of coded commands in the Java computer language that establishes a
secure connection with Petitioner’s broker server. Also, for some of the products the customer
can initiate a recording feature, which appears to be done through software. In light of the
limited functionality of the software provided to customers in the overall context of Petitioner’s
products, the products do not constitute the sale of prewritten software. See TSB-A-13(1)S.
To the extent that the conclusions here are inconsistent with the conclusions in TSB-A82(31)S, TSB-A-04(16)S, and TSB-A-10(41)S, those AOs no longer reflect the policy of this
Department.
DATED: July 9, 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.