Does New York sales tax apply to a free app that lets users pay to use restrooms at participating venues?

Plain-English summary

A developer planned a free smartphone app: users download it at no charge, then pay a $1 or $2 fee through the app to use a restroom at a participating restaurant, cafe, or bar. The developer collects the fee and shares part of it with the venue. He asked whether sales tax is due.

The Office of Counsel concluded no tax is due on either piece:

• The app: Prewritten software is taxable tangible personal property (Tax Law sections 1101(b)(6), 1105(a)) — but a sale requires a transfer for consideration (section 1101(b)(5)). Because the app is given away free, there is no consideration and no taxable sale. (If the developer charged for the app, tax would be due.)
• The restroom fee: Using a restroom is not one of the enumerated services taxed under section 1105(c), and it is not a taxable admission charge to a place of amusement under section 1105(f)(1). So the fee is not taxable.

What this means for you

App developers

Giving software away free is not a taxable sale — there is no consideration. The tax analysis flips the moment you charge for the app (or charge for prewritten software access), which would be a taxable sale of tangible personal property.

The underlying service still needs its own analysis

A non-taxable app does not automatically make the paid service non-taxable, and vice versa. Here the restroom-access fee was independently non-taxable because it isnt an enumerated service and isnt a taxable amusement admission. A different paid service delivered through a free app could be taxable.

Common questions

Q: Software is taxable — why isnt the app taxable?
A: Because the app is given away for free. A sale requires consideration; with no charge, there is no taxable sale.

Q: Would the answer change if the developer charged for the app?
A: Yes. Selling the prewritten app for a price would be a taxable sale of tangible personal property.

Q: Is the $1-$2 restroom fee taxable?
A: No. It is not an enumerated taxable service and not a taxable admission charge to a place of amusement.

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) (tax on retail sales of tangible personal property)
• Tax Law section 1101(b)(5) (sale requires a transfer for consideration)
• Tax Law section 1101(b)(6) (prewritten software is tangible personal property)
• Tax Law section 1105(c)(1) (tax on enumerated services)
• Tax Law section 1105(f)(1) (tax on admission charges to places of amusement)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2017.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a17_3s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-17(3)S
Sales Tax
February 28, 2017

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

PETITION NO. S150728A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
REDACTED REDACTED REDACTED REDACTED REDACTED REDACTE (“Petitioner”).
Petitioner asks whether sales tax would be due if he provides a free software application to
smartphone users that would allow the users access to bathrooms at participating locations for a
fee.
We conclude that Petitioner’s provision of the software application would not be subject
to tax since the application is provided free of charge. We also conclude that there is no tax due
on the charge for the use of the bathrooms since this is not among the enumerated services
subject to tax.
Facts
Petitioner is developing a software application for Apple and Android smartphones and
will provide this application free of charge to smartphone users. Once downloaded, the
application will allow users to purchase a ticket for a fee of $1.00 or $2.00 to use a bathroom in a
participating restaurant, café or bar. Petitioner will collect the fee from patrons and pay a portion
of that fee to participating locations after the ticket is used. As the administrator of the
application, Petitioner would be able to track each use of the application and would make
payments to participating locations based on such uses. Fees will not be shared among the
participating locations.
Analysis
Tax Law § 1105(a) imposes a tax on every retail sale of tangible personal property. Tax
Law § 1101(b)(5) defines sale as the transfer of title or possession or both for a consideration.
Tax Law § 1101(b)(6) defines tangible personal property as “corporeal personal property
of any nature.” That term also includes pre-written computer software, whether sold as part of a
package, as a separate component, or otherwise, and regardless of the medium by means of
which such software is conveyed to a purchaser.
Tax Law §1105(c)(1) imposes sales tax on the receipts of every sale, except for resale, of
certain enumerated services.
Tax Law § 1105(f)(1) provides that a sales tax shall be imposed on:

-2-

TSB-A-17(3)S
Sales Tax
February 28, 2017

“Any admission charge where such admission charge is in excess of ten cents to or for
the use of any place of amusement in the state, except charges for admission to race
tracks, boxing, sparring, or wrestling matches or exhibitions which charges are taxed
under any other law of this state, or dramatic or musical arts performances, or live circus
performances, or motion picture theaters, and except charges to a patron for admission to,
or use of, facilities for sporting activities in which such patron is to be a participant, such
as bowling alleys and swimming pools.”
Petitioner’s proposed business idea does not fall within the reach of any of the above
statutes.
Petitioner’s provision of the software application to smartphone users is not a sale since
Petitioner will not charge smartphone users to download the application. While the smartphone
application is computer software that falls within the definition of tangible personal property, this
software will be given to users free of charge. Thus, there is no consideration and no tax is due.
If Petitioner were to sell the software application to users, then a tax would be due on such sale
since the software is tangible personal properly.
In addition, the service provided through the use of the smartphone application to
purchase the use of bathrooms is not one of the services enumerated under Tax Law § 1105(c).
Finally, the admission charge to use a bathroom at a restaurant, café or bar is not a taxable charge
under Tax Law § 1105(f)(1).

DATED: February 28, 2017

/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.