Are fees for online courses, completion certificates, specializations, and degrees subject to New York sales tax?
Plain-English summary
An online education provider offers pre-recorded video courses from partnering universities. Most courses are free to take; the provider charges for verified "course certificates" (a streaming video plus a completion certificate, $29 to $79, or $49/month), specializations (course series, by subscription), and university-recognized degrees (sold by the university, priced around $20,000, with the provider supplying part of the online learning). It asked whether these receipts are taxable.
The Office of Counsel concluded none are subject to sales tax. The online access and any downloadable software are free, so there's no charge or receipt to tax (Tax Law § 1101(b)(3)), even though prewritten software is normally taxable tangible personal property. For the paid offerings, the primary function is providing educational programs, so the certificate videos, specializations, and degrees are neither taxable tangible personal property nor taxable enumerated services.
What this means for you
Online course providers (MOOCs, e-learning)
Charging for courses, certificates, specializations, or degree programs whose primary purpose is education is generally not taxable in New York. Free software access carries no receipt, so there's nothing to tax there.
Learners
Fees for online courses, completion certificates, and online degrees shouldn't carry New York sales tax.
Accountants and tax professionals
Two threads: no charge means no taxable receipt for the otherwise-taxable software (§ 1101(b)(3)); and the educational primary function keeps the paid programs outside tax. Contrast taxable prewritten software the customer pays to use.
Common questions
Q: Isn't prewritten software taxable?
A: Yes, but here the software access and downloads are free, so there's no receipt to tax.
Q: Are paid completion certificates taxable?
A: No. The primary function is education, so the certificate-and-video fee isn't taxable tangible property or a taxable service.
Q: What about the degree programs?
A: Also not taxable; they are educational programs, not taxable property or services.
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 § 1105(a), (c); § 1101(b)(6), (14); § 1101(b)(3)
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/a20-33s.pdf
Original ruling text
New York State Department of Taxation and Finance
Office of Counsel
TSB-A-20(33)S
Sales Tax
July 14, 2020
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 ] (Petitioner). Petitioner asks whether receipts from its sales of online courses
of study are subject to State and local sales tax. We conclude that Petitioner’s receipts from
its sales of online courses are not subject to sales tax.
Facts
Petitioner is a provider of online courses in the form of pre-recorded lectures that are
available to the public. Petitioner’s “Terms of Use” govern the use of Petitioner’s website, apps,
and other products. Products are accessed as an online service and also as downloads to a
computer, phone, tablet or other device. There is no charge for the online access and
downloaded software and updates.
Petitioner grants the user a limited, personal, non-exclusive, non-transferable, and
revocable license to use the product that is permitted to be accessed or downloaded for only
personal, non-commercial use unless written permission is obtained to otherwise use the content.
A user also agrees that the user will create, access, and/or use only one user account, and will not
share access to that account with any third party. The user acknowledges that use of Petitioner’s
product does not grant any ownership of any intellectual property rights in the services or the
content accessed.
A user first creates an account directly with Petitioner. Once logged in, the user may
choose from the various courses offered by Petitioner. At the time the Petition for Advisory
Opinion was submitted Petitioner offered 1,764 courses taught by professors from 147 partnering
universities. The user registers for the course of the user’s choice, and begins the course.
The users stream the videos directly from the Petitioner’s website. Classes have
syllabuses, modules, quizzes, and a grading procedure. Grading is based primarily on multiple
choice testing, but some courses provide peer review assignments where fellow students grade
the user’s work. While students have little or no interaction with the instructor, each course
offers an online forum for peer discussion regarding the course. On this forum, students may
post questions, answers, or general discussion topics to engage with other students enrolled in
that course. At the end of the course, there generally is an exam administered by Petitioner. If
the exam has objective answers, the instructor has previously documented the correct answers
and the passing grade. Petitioner merely administers the exam grading. If the exam is subjective
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Sales Tax
July 14, 2020
(for example, an essay exam), Petitioner administers the exam via peer review as described
above, based on the instructor having set the minimum threshold for passing the course.
Most of Petitioner’s courses are free to the general user. The users can register and
complete the course without payment.
Petitioner also offers “Course Certificate” courses for a fee. The “Course Certificate”
courses offer verified completion certificates issued by Petitioner, and include the University or
industry partner name, e.g. Cisco, Google, or IBM. Certificates confirm the learner’s identity so
that the learner can list the course on his/her resume and job posting websites, provide
verification of work related training, etc. These courses are open to all, and are priced at $29$79 per course, but can be purchased on a subscription basis for $49 per month.
In addition, Petitioner offers Specializations for learners who want to master a specific
skill. Specializations are a coherent series of courses designed to teach a particular skill. When
a learner completes a Specialization, he/she receives a “Specialization Certificate.”
Specializations are offered on a subscription basis for $39-$79 per month.
Finally, Petitioner offers “University-recognized” degrees. Petitioner works with
University partners to offer online degree programs in areas such as business, accounting and
computer science. This program includes more instructor involvement and a higher threshold to
pass each course because the courses satisfy requirements for an accredited degree. This
program also requires a capstone project or collaborative group project prior to the issuance of a
degree. When a learner qualifies for admission, and completes all requirements, he/she receives
an accredited online degree from the University. This program is priced at $20,000. Petitioner
does not sell the degree program directly to the learner; the degree-granting University does.
Petitioner provides a portion of the online learning.
Specializations and degree programs utilize the same online features as described with
the regular catalogue courses.
Analysis
The receipts from the sale of tangible personal property and enumerated services are
subject to tax, unless otherwise provided. See Tax Law § 1105(a), (c). Prewritten computer
software is considered tangible personal property, regardless of the medium by means of which
such software is conveyed to a recipient. See Tax Law § 1101(b)(6), (14). However, since
Petitioner’s online access and downloads themselves are free to all users, there is no charge or
receipt for the downloading of the software; therefore, the software is not subject to tax. See Tax
Law § 1101(b)(3).
Petitioner charges a fee for “course certificate” videos for which the user receives a
streaming video and a certificate verifying completion of a course. This is neither taxable
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Sales Tax
July 14, 2020
tangible personal property nor a taxable service, because the primary function of Petitioner’s
service is to provide educational programs. We therefore conclude that the streaming video and
certificate for which Petitioner charges a fee are not subject to tax. With respect to the
Specializations and University–recognized degree courses offered by Petitioner, these also are
not tangible personal property or services subject to tax.
DATED: July 14, 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.