Is a hosted digital advertising campaign platform that lets customers build and manage their own ads subject to New York sales tax?

Plain-English summary

An out-of-state company sells access to a digital advertising campaign management platform hosted on its servers. Customers get a non-exclusive, non-transferable right to use a package of software tools to create, deliver, and manage their own ads (rich media, standard media, tracking, in-stream video, mobile, dynamic creative, viewability, search-and-display tracking, real-time bidding, analytics, and more). The company also offers consulting and places ads through its publisher network. It bills a single total per campaign, with no separate charge for platform access.

The Office of Counsel concluded the receipts are subject to sales tax. Selling a customer the right to access and use prewritten software is a taxable sale of tangible personal property under Tax Law § 1105(a). The platform's tools are prewritten (not custom-built for one buyer), so giving New York customers the right to use them is a taxable software sale, taxable to the extent the customers' employees who use it are in New York. The consulting and ad-placement services are not taxable on their own, but because everything is billed as one non-itemized campaign charge, the entire receipt is taxable (20 NYCRR 527.1(b)).

What this means for you

SaaS and ad-tech vendors

Letting customers use your hosted, prewritten software, even branded as a "service," is a taxable sale of prewritten software in New York. Where it's hosted doesn't matter; the right to use/control the software is what's taxed.

How you bill matters

Non-taxable consulting or placement services can stay exempt only if you separately state them at a reasonable charge. Bundle them into one price with taxable software and the whole charge becomes taxable.

Multistate sellers

Tax applies based on where the users are located. Track how many of your customers' users are in New York to source the receipts correctly.

Accountants and tax professionals

Apply the § 526.7(e)(4) "right to use, control or direct the use of" test and the bundling rule (527.1(b)). Compare prior software-access opinions (TSB-A-15(25)S; TSB-A-15(1)S; TSB-A-08(62)S).

Common questions

Q: It's called a service, why is it taxed as software?
A: The substance is that customers get the right to use prewritten software tools. The label doesn't control.

Q: Aren't consulting and ad placement non-taxable?
A: On their own, yes. But they were bundled into a single campaign charge with the taxable software, so the entire charge is taxable.

Q: How could the vendor have limited the tax?
A: By separately stating the non-taxable consulting/placement charges at a reasonable amount.

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

Statutes and guidance:
- Tax Law §§ 1101(b)(6), 1105(a); § 1101(b)(5), (14)
- 20 NYCRR 526.7(e)(4); 527.1(b); TSB-A-15(25)S; TSB-A-15(1)S; TSB-A-08(62)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales-ao-2020.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a20-22s.pdf

Original ruling text

New York State Department of Taxation and Finance
Office of Counsel

TSB-A-20(22)S
Sales Tax
June 30, 2020

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
The Department of Taxation and Finance received a Petition for an Advisory Opinion
from [ REDACTED ] (“Petitioner”). Petitioner asks if its receipts from its digital advertising
campaign management platform are subject to New York State and local sales and use Tax.
We conclude that Petitioner’s receipts from its platform are subject to sales and use tax.
Facts
Petitioner, a corporation headquartered outside New York State, provides digital
advertising products to customers using an advertising campaign management platform (“the
Platform”). The Platform, which is hosted on Petitioner’s servers, allows Petitioner’s customers
to access a package of software tools to create, deliver and manage their own digital advertising.
Access to the Platform is granted to a customer through the execution of a service agreement
with the Petitioner, by which the customer is granted a non-exclusive, non-transferable and
limited right to access and use the Platform. The service agreement forbids customers from
copying, distributing, publishing or transferring the Platform or any other intellectual property.
The Platform allows a customer to access and use the following products to create digital
advertisements:
1. Rich Media – Interactive digital advertisements that Petitioner sends to various
online third-parties that, in turn, publish the advertisements on their web pages. Rich
Media allows the web page viewer to engage and interact with the advertisement, for
example, by expanding the advertisement when the viewer clicks or rolls the cursor
over the advertisement.
2. Standard Media – Standard flash advertisements that typically include text with a
visual logo or graphic. Standard Media involves only one interaction, meaning that
when the viewer clicks on the advertisement, the viewer will be taken to a destination
website.
3. Tracking – Tracking involves a third-party tracking tag sent to a publisher when that
publisher cannot serve advertisements. The Tracking product provides click and

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Sales Tax
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impression data and allows the customer to see how often its individual
advertisements were opened.
4. In-Stream – Digital video advertisements that automatically start playing when a
person opens a web page or is viewing video content online.
5. Mobile (Standard and Tracking) – Digital advertising services for campaigns that
target mobile devices, such as cell phones or mobile tablets. Such services can
include the above-listed Digital Advertising Products, but are targeted to users of
mobile devices.
6. Smart Versioning, (also known as Dynamic Creative Optimization or “DCO”) – This
digital advertising product allows the advertiser to tailor the advertisement version to
the specific audience, geography or behavioral profile they desire.
7. Viewability/Verification – This is a suite of products that assist customers in
determining whether their digital advertisements were actually posted on a web page
and, if so, verifying where the posting occurred. This product ensures that a
customer’s digital advertisement is not placed at the bottom of a web page, or
adjacent to offensive content.
8. Channel Connect for Search (or CC4S) – This product allows customers to track their
search marketing campaigns together with their display advertising campaigns, served
by Petitioner, and see all the data together. Such information is individual in nature
to the customer and is not incorporated into reports furnished to other persons.
9. Trading – This product involves a media buy for a customer across multiple
publishers. Such media is purchased in a real-time bidding environment.
10. Creative/Services – Also referred to as production fees or build fees, these services
include any changes made to a digital advertisement, such as adding animation.
11. Analytics – This product involves the reporting and data collection for individual
customers with respect to their digital advertising campaigns. These analytics are
individual in nature to the customer and are not incorporated into reports furnished to
other persons.
Petitioner also provides additional services, including consulting with customers about
how to optimize their digital advertising campaigns. Customers may use Petitioner’s consulting
services as much or as little as they wish. In all cases, Petitioner’s personnel approve a final
advertising campaign and place digital advertisements using its network of third-party
publishers.

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Sales Tax
June 30, 2020

Most of Petitioner’s receipts are based on the number of “impressions” (views) of ads on
a publisher’s website by visiting users. For certain other digital advertising products, customers
are billed at a percentage of an advertising budget or on an hourly basis. Regardless of the type
of service provided or the form of billing, each customer receives an invoice that states a total
charge for each advertising campaign for that invoice period. There is no specifically identified
charge for access to the Platform.
Analysis
Sales tax is imposed on retail sales of tangible personal property, including prewritten
software. See Tax Law §§ 1101(b)(6); 1105. Tax Law § 1101(b)(5) defines “sale” as “any
transfer of title or possession or both, exchange or barter, rental, lease or license to use or
consume … conditional or otherwise, in any manner or by any means whatsoever for a
consideration ….” See also 20 NYCRR 526.7. “Transfer of possession with respect to a rental,
lease or license to use, means that one of the following attributes of property ownership has been
transferred: (i) custody or possession of the tangible personal property, actual or constructive; (ii)
the right to custody or possession of the tangible personal property; [or] (iii) the right to use, or
control or direct the use of, tangible personal property.” See 20 NYCRR 526.7(e)(4).
Prewritten computer software is computer software that is not designed and developed by
the creator to the specifications of a specific purchaser. Tax Law § 1101(b)(14). “Prewritten
computer software is included within the definition of tangible personal property, 'regardless of
the medium by means of which such software is conveyed to the purchaser.'” TSB-A-08(62)S;
Tax Law § 1101(b)(6). Selling a customer access to or the right to use prewritten software
constitutes the sale of prewritten software, which is taxable under Tax Law § 1105(a). See TSBA-15(25)S; TSB-A-15(1)S; TSB-A-08(62)S.
Here, the Platform allows Petitioner’s customers access to certain software tools to
create, deliver and manage their own digital advertisements. Although the agreement refers to
these products as “services,” they are software that allow customers to create and deliver their
own advertisements and to track the placement and exposure of those advertisement. This
software is “prewritten” because it is not customized to the specifications of a particular
customer. By giving its customers access to prewritten software for their own use, Petitioner is
making sales of tangible personal property in New York to the extent that any of its customers’
employees who use the software are located in New York.
Petitioner also provides consulting services and advertisement placement services. These
are not among the services subject to sales tax. Petitioner would not be required to collect sales
tax on receipts from these services if the charges for these services were separately stated and

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reasonable in relation to the overall receipt. However, Petitioner indicates that it invoices its
clients a single amount for each advertising campaign for a billing period. It does not separately
bill for the use of the software tools or its other non-taxable services. When several distinct
taxable and non-taxable items are sold together for one non-itemized price, sales tax is due on
the total sales price charged. See 20 NYCRR 527.1(b). Accordingly, Petitioner’s entire receipt is
subject to sales tax.
DATED: June 30, 2020

/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.