Is a cloud data-storage, backup, file-sharing and sync subscription subject to New York sales tax?
Plain-English summary
A company offers a web-based "cloud" data service that lets subscribers store and back up files, share files (including with non-subscribers) and synchronize files across devices, sold in Free, Pro and Business tiers. An optional app can be downloaded but is not required — everything works through any web browser — and the app is free. The provider's processing software sits entirely on its own out-of-state servers, which customers never access or configure. It asked whether its charges are taxable.
The Office of Counsel concluded the service is not subject to sales or use tax, on three independent grounds:
- Not a sale of software. Although prewritten software is taxable tangible personal property (Tax Law section 1101(b)(6)), here the app is free, is not required, and the full service runs through any browser. Customers are not paying for software.
- Not an information service. A taxable information service (Tax Law section 1105(c)(1)) involves collecting, compiling or analyzing information and furnishing reports to others. Here, users can access only their own stored data, and the provider furnishes no reports to anyone.
- Not taxable storage of property. Tax Law section 1105(c)(4) taxes storing tangible personal property — but digital data is not tangible personal property. Electronic data storage is not an enumerated taxable service (citing TSB-A-05(40)S).
The paid add-on (the ability to retrieve prior versions of files) is likewise just electronic data storage and is not taxable.
What this means for you
Cloud storage/backup/sync is generally nontaxable in New York
A service whose substance is storing, backing up, syncing and sharing the customer's own digital files is not a taxable enumerated service — it is neither software, an information service, nor the taxable storage of tangible property.
The free, optional app matters
Because the downloadable app was free and not necessary (the browser did everything), there was no charge for software. Bundling a required or separately charged piece of prewritten software can change that analysis — keep client software genuinely optional and free if you want to stay on the nontaxable side.
"Information service" needs reports to others
You are only providing a taxable information service if you furnish information/reports to other people. Letting a customer reach only their own data is not an information service.
Common questions
Q: Isn't storing my files a taxable "storage" service?
A: No — Tax Law section 1105(c)(4) taxes storing tangible personal property, and digital data is not tangible personal property. Electronic data storage is not an enumerated taxable service.
Q: There's an app — does that make it taxable software?
A: No. The app is free and not required; the service works fully in a browser, so customers are not paying for software.
Q: Is the paid "prior versions" add-on taxable?
A: No — it is just more electronic data storage, which is not taxable.
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 1105(c)(1) (information services)
- Tax Law section 1105(c)(4) (storing tangible personal property)
- Tax Law section 1101(b)(5) (definition of sale)
- Tax Law section 1101(b)(6) (prewritten software is tangible personal property)
Source
- Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2016.htm
- Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a16_19s.pdf
Original ruling text
New York State Department of Taxation and Finance
TSB-A-16(19)S
Sales Tax
May 20, 2016
Office of Counsel
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
PETITION NO. S140708A
The Department of Taxation and Finance received a Petition for Advisory Opinion from
REDACTEDREDACTEDREDACTEDREDCACTEDREDACTED (“Petitioner”). Petitioner
asks whether its charges for its data storage service are subject to New York State and local sales
and use taxes. We conclude that Petitioner’s service is not subject to sales or use tax.
Facts
Petitioner provides a web-based data-hosting service that uses "cloud" based technology
and storage to enable subscriber users to: (i) securely store and back-up data files; (ii) share data
files with others (including non-subscribers) across the Internet; and (iii) synchronize files across
multiple user devices (collectively the "Service").
Petitioner provides its customers with three types of subscription offerings: (i) Free; (ii)
Pro; and (iii) Business. All subscription offerings allow users to access the Service. The Free
service provides users with two gigabytes of storage space, in addition to various opportunities to
earn more free storage capacity through a variety of actions, including referring friends who in
turn become users. The Free service represents more than 95 percent of the current user base.
The Pro subscriptions are offered at a flat price per month or per year, based on the amount of
storage capacity provided to the customer.
In addition, Petitioner sells, as an optional add-on offering to the Pro subscription, a
service that provides the customer the ability to retrieve prior versions of files at a separatelystated additional per month or per year charge (“Add-on feature”).
The Business subscription is targeted at businesses, organizations, and groups that require
greater storage and sharing capacity across multiple users. The base package for a Business
subscription provides unlimited storage for five users at a flat fee per user, per month or per year
and additional users may be added at an additional per user, per month or per year charge.
Petitioner's Add-on feature is also included as part of the Business subscription.
All subscriptions allow users the ability to access their data and information stored by
Petitioner via any web browser. In addition, users have the option to download a software
application (“Software”) to each device from which a user desires to access the Service. It is not
necessary to download the software to use Petitioner’s Service, which is fully functional using
any web browser. However, if downloaded, the Software can be used on various platforms,
including desktop and laptop computers as well as mobile operating devices such as smart
phones and tablets. Petitioner does not charge for the Software. Petitioner's terms and conditions
specify that the user is granted a limited, nonexclusive, nontransferable, revocable license to use
the Software download solely to access the Service.
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TSB-A-16(19)S
Sales Tax
May 20, 2016
Users may access the Service through a web browser or the Software, and it is via the
web browser, the Software, or both, that the user uploads files to Petitioner’s server.
All aspects of the Service can be accessed using only a web browser. Further, only by
using a web browser can a customer send referrals and invite new users, share folders, and use
the Add-on feature. For users downloading the Software, the sole purpose of the software is to
establish a link between the customer's computers and Petitioner's servers where the customer's
data is stored. All processing of the data (i.e., storage, synchronization, and sharing) takes place
on the Petitioner’s servers. The Software on the user's device merely enables the user to upload
and access its own files stored on Petitioner's servers. The Software has no greater functionality
than what a customer can do through the customer’s browser.
The Petitioner’s Service is performed and managed by proprietary software (hereinafter
"Server Software") that resides entirely on Petitioner’s remote servers, which are not located in
New York. The individual customer has no access to the Server Software and does not interact
with the Server Software in terms of entering data into the Server Software, providing
instructions to the Server Software, or otherwise manipulating or configuring the Server
Software.
Analysis
Sales tax applies to the receipts from every retail sale of tangible personal property,
unless a specific exemption applies, and the receipts from every sale, except sales for resale, of
certain enumerated services. See Tax Law §§ 1105(a),(c). “Sale” is defined, in pertinent part, as
“[a]ny transfer of title or possession or both, exchange or barter, rental, lease or license to use or
consume . . . for a consideration, or any agreement therefor.” Tax Law § 1101(b)(5). “Tangible
personal property” is defined to include pre-written software, regardless of the medium by means
of which such software is conveyed to a purchaser. See Tax Law § 1101(b)(6). Among the
taxable services is the furnishing of information, which includes the service of collecting,
compiling or analyzing information and furnishing reports thereof to other persons, and the
service of storing tangible personal property not held for sale in the regular course of business.
See Tax Law §§ 1105(c)(1), (4), (9).
First, we conclude that Petitioner’s charges for its service are not receipts from the sale of
software. The Software is available to all users, including users of the Free subscription, without
charge. Furthermore, the Software is not required to utilize the full functionality of Petitioner’s
service, because users can access the service through any web browser.
Second, Petitioner is not providing an information service. Petitioner is not providing
customers with the service of collecting, compiling or analyzing information of any kind, nor
does it “furnish[ ] reports” of any of the information that its users store to “other persons.” Tax
Law §1105(c)(1). Users can access only their own information, which they have stored using
Petitioner’s service.
Finally, Petitioner’s Service is not taxable under Tax Law § 1105(c)(4), because
Petitioner is not storing tangible personal property. Moreover, data storage service is not one of
the enumerated services and thus is not subject to sales tax. See TSB-A-05(40)S. Petitioner’s
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TSB-A-16(19)S
Sales Tax
May 20, 2016
Add-on feature gives a customer the right to store and retrieve multiple versions of the same
document. Thus, it too is an electronic data storage service that is not subject to sales tax.
In sum, Petitioner’s charges for its paid services are not subject to sales and use tax.
DATED: May 20, 2016
/S/
DEBORAH R. LIEBMAN
Deputy Counsel
NOTE:
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.