Can an online software marketplace that facilitates downloads by independent vendors be treated as a vendor required to collect New York sales tax?

Plain-English summary

A company operates online marketplaces (app stores, game stores) where independent software vendors (ISVs) offer downloadable prewritten software — apps, games, programs. The operator hosts and delivers the products from its own data centers, processes the customer's payment, calculates and remits the sales tax, and keeps a service fee (a percentage of the price). The license runs directly between the ISV and the customer; the ISV sets the price. The operator asked whether facilitating these sales makes it a vendor required to collect tax.

The Office of Counsel concluded the Commissioner may treat it as a co-vendor:

• Prewritten software is taxable tangible personal property (Tax Law § 1101(b)(6)), and the marketplace sales are taxable when delivered to New York customers — that wasn't disputed.
• Under Tax Law § 1101(b)(8)(ii)(A), when necessary for efficient tax administration, the Commissioner may treat an intermediary that performs key acts in facilitating a vendor's sales as a co-vendor jointly responsible for collecting the tax. The courts upheld this for a broker in Jericho Boats (displayed the goods, arranged sales, collected the price) and in Names in The News.
• The operator does the same kind of acts — provides product information, brings buyers and sellers together by hosting the marketplace, and collects the purchase price — so it may be treated as a co-vendor with each ISV that itself qualifies as a vendor.

The consequences of co-vendor status (all confirmed in the opinion):
- ISVs selling only through the marketplace need not register separately, as long as the operator complies with its vendor duties (20 NYCRR 526.10(e)(3)(ii)).
- The ISV isn't liable for tax the operator properly collects and remits.
- The operator is protected from the § 1132(c) presumption of taxability when it timely accepts a good-faith, properly completed resale/exemption certificate; that acceptance also protects the ISV absent the ISV's actual knowledge the sale didn't qualify.
- The operator may claim refunds/credits of excess tax it collected — once it has refunded the customer and makes a timely claim (§ 1139).

The opinion assumes (doesn't decide) nexus, and it supersedes TSB-A-99(49)S, which "no longer reflects the Department's policy."

What this means for you

Marketplace and platform operators

Performing the facilitation core — listing products, matching buyers and sellers, and collecting the price — can make you a co-vendor jointly liable to collect New York sales tax, even when the underlying license is between the seller and the buyer. Note this is a 2019 Advisory Opinion rooted in the longstanding § 1101(b)(8)(ii)(A) agent-vendor power; New York later enacted statutory marketplace-provider collection rules, so check current law too.

Sellers (ISVs) on a marketplace

If the marketplace collects and remits, you generally aren't separately liable for those sales, and selling only through it can spare you from registering — provided the operator does its job.

Practical mechanics

Resale/exemption certificates accepted in good faith protect both the operator and the ISV, and excess-tax refunds require first refunding the customer.

Common questions

Q: We just host and collect payment — the license is between the seller and buyer. Are we a vendor?
A: You can be. The Commissioner may treat an intermediary that facilitates sales and collects the price as a co-vendor jointly liable to collect tax (Jericho Boats).

Q: If we collect and remit, is the software seller still on the hook?
A: No — an ISV isn't liable for tax you properly collect and remit, and ISVs selling only through your marketplace needn't separately register.

Q: Do resale certificates we accept protect the seller too?
A: Yes — your good-faith acceptance protects the ISV as well, unless the ISV actually knew the sale didn't qualify.

Q: Can we get back tax we over-collected?
A: Yes, after you refund the customer the excess and make a timely refund claim under § 1139.

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 — and note it assumes nexus and supersedes TSB-A-99(49)S.

Citations and references

• Tax Law § 1105(a), (b), (c) (imposition of sales tax)
• Tax Law § 1101(b)(6) (prewritten computer software is tangible personal property)
• Tax Law § 1101(b)(8)(ii)(A) (commissioner's discretion to treat an agent as a co-vendor)
• Tax Law § 1131(1); Tax Law § 1132(a)(1), (c) (persons required to collect; presumption of taxability)
• Tax Law § 1139 (refunds)
• 20 NYCRR 526.10(e)(3)(ii); 20 NYCRR 532.4; Jericho Boats of Smithtown v. State Tax Comm'n, 144 AD2d 163 (1988); Names in The News v. NY State Tax Comm'n, 75 AD2d 145 (1980)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2019.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a19-1s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel

TSB-A-19(1)S
Sales Tax
March 7, 2019

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
The Department of Taxation and Finance received a Petition for Advisory Opinion from
REDACTED REDACTED REDACTED REDACTED REDACTED REDACT (Petitioner).
Petitioner asks whether, as a result of operating an online marketplace in which it facilitates taxable
sales by independent software vendors (ISVs), it qualifies as a vendor for sales tax purposes and
what the consequences of such status would be. We conclude that, assuming that Petitioner has
sufficient nexus with the State and the ISV qualifies as a vendor for sales tax purposes, it is within
the discretion of the Commissioner of Taxation and Finance to treat Petitioner as a vendor based on
such activities, in which case Petitioner would be jointly liable with the ISV to collect sales tax and
must assume all the responsibilities of a vendor.
Facts
Petitioner develops and markets a wide range of software, services, and digital products. In
connection with these products, Petitioner operates online marketplaces on which ISVs may offer for
sale, among other things, software, games, and apps (“software products”) for customers to
download electronically, using their personal computers, tablets, game consoles, phones, and other
devices. Although the marketplaces are separately branded (e.g., “Company X Phone Store,”
“Company Y Video Game Store”), this Advisory Opinion will refer to them collectively as
"Marketplace."
Customers gain access to the Marketplace using their computing devices. Customers may
search a catalog that identifies the title and the ISV of the prewritten software available for purchase.
To initiate a purchase, the customer selects a title to add to the shopping basket. The customer
checks out using a credit card or other form of payment. Petitioner processes the payment using its
own payment infrastructure, and electronically delivers the product from one of its data centers. The
sale may include titles from more than one ISV. Petitioner is not required to obtain approval from
the ISVs prior to sale.
Under the Marketplace arrangements, the ISVs enter into service agreements with Petitioner
whereby Petitioner agrees to host and supply the prewritten software to customers on each ISV's
behalf, process the customer's payments, and remit the proceeds to each ISV, less Petitioner's service
fee. Petitioner is entitled to withhold the service fee, equal to a percent of the software product's
sales price, from the sales proceeds. Petitioner also calculates the appropriate amount of sales tax
due on the transaction and remits the sales tax directly to the Department.

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TSB-A-19(1)S
Sales Tax
March 7 2019

Petitioner does not sublicense the software product to the customer. The license agreement is
directly between the ISV and the customer. The ISV, as the licensor, determines the price at which
the software products are sold to end customers.
For purposes of this Advisory Opinion, it is assumed that Petitioner has sufficient nexus to
New York to permit the State to require it to collect sales tax.
Analysis
Sales tax is imposed on the retail sale or use of tangible personal property,
and the sale, except for resale, of certain enumerated services. See Tax Law § 1105(a), (b), and (c).
Included in the definition of tangible personal property is “prewritten computer software.” See Tax
Law § 1101(b)(6). The tax is imposed on the customer, but is required to be collected by “a person
required to collect tax when collecting the price.” See Tax Law § 1132(a)(1). Among the persons
required to collect tax is a “vendor” as defined in Tax Law § 1101(b)(8). See Tax Law § 1131(1).
Petitioner does not dispute that the sales of the software products in its Marketplace are
subject to sales tax as sales of prewritten computer software when the products are delivered to
customers in New York. Rather, Petitioner asks whether, by virtue of facilitating those sales on
behalf of ISVs, it is a vendor and thus a person required to collect tax with regard to such sales. The
definition of “vendor” in Tax Law § 1101(b)(8)(ii)(A) provides that “when in the opinion of the
commissioner it is necessary for the efficient administration of this article to treat any salesman,
representative, peddler or canvasser as the agent of the vendor, distributor, supervisor or employer . .
. for whom he solicits business, the commissioner may, in his discretion, treat such agent as the
vendor jointly responsible with his principal, distributor, supervisor or employer for the collection
and payment over of the tax.” This provision permits the Department to treat as vendors
intermediaries that perform key acts in facilitating taxable sales by vendors. See Jericho Boats of
Smithtown, Inc. v. State Tax Comm'n, 144 AD2d 163 (3d Dep’t 1988); Names in The News v. New
York State Tax Comm’n, 75 AD2d 145 (3d Dep't 1980). Thus, in Jericho Boats the Appellate
Division determined that the Department properly treated as a vendor a broker that facilitated the
sale of boats by displaying the boats or pictures of the boats, arranging the sales, sometimes
providing financing, and collecting the purchase price. See Jericho Boats, supra.
Petitioner performs duties similar to the broker in Jericho Boats on behalf of the ISVs selling
software products in its Marketplace: it provides information about the ISVs’ products, brings
buyers and sellers together by hosting the website where sales can be made and accepted, and
collects the purchase price. Presumably some of the ISVs qualify as vendors (hereafter “ISV
vendors”) within the meaning of Tax Law § 1101(b)(8). Accordingly, under Tax Law §
1101(b)(8)(ii)(A), the Commissioner would be entitled to treat Petitioner as a co-vendor with regard
to all taxable sales it facilitates on its Marketplace on behalf of ISVs that themselves qualify as
vendors.1 Doing so would relieve those ISV vendors that make sales only in Petitioner’s
Marketplace of the need to register to collect tax and file returns, so long as Petitioner is complying
1

This conclusion is inconsistent with the outcome in TSB-A-99(49)S. That Advisory Opinion no longer reflects the
Department’s policy and should no longer be followed.

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TSB-A-19(1)S
Sales Tax
March 7 2019

with its duties as a vendor, thereby reducing the administrative burden on those ISVs. See 20
NYCRR § 526.10(e)(3)(ii). Further, treating Petitioner as a vendor would improve the efficiency of
sales tax administration: because Petitioner is collecting the selling price from the Marketplace
customers, and sales tax is to be collected when the sales price is collected, Petitioner is in a better
position than the underlying ISV vendor to collect the sales tax.
Assuming it is found to be a vendor, Petitioner asks a series of additional questions. First, it
asks whether the Department would hold the ISV liable for tax in regard to a sale on which
Petitioner has properly collected and remitted tax. The ISV would not be liable for tax so long as
Petitioner, as vendor, properly collected and remitted tax due on the ISV’s sales. See 20 NYCRR §
526.10(e)(3)(ii). Petitioner next asks whether it will be protected from liability by its acceptance of
resale certificates and other exemption certificates from purchasers in regard to sales it facilitates on
behalf of ISV vendors on its Marketplace. As a vendor, Petitioner would be protected from the
presumption of taxability in Tax Law § 1132(c) with regard to such sales, if it timely accepts in good
faith a properly completed resale or other exemption certificate. See Tax Law § 1132(c); 20
NYCRR § 532.4. Relatedly, Petitioner asks whether its acceptance of the resale certificates for such
sales would also protect from liability the ISV on whose behalf it is facilitating the sale. Where
Petitioner would be protected from liability as a result of its acceptance of a resale or other
exemption certificate, the ISV would also be protected as long as the ISV has no actual knowledge
that the sale did not qualify for the exemption or exclusion at issue. Finally, Petitioner asks whether,
as a vendor, Petitioner would be entitled to seek a refund or a credit for any excess sales tax it has
collected and remitted. Petitioner would be entitled to such refunds as long as it has refunded the
customer the excess tax and makes a timely claim for refund. See Tax Law § 1139.

DATED: March 7, 2019

/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.