Is a perpetual license to computer software that the vendor analyzes and customizes for each customer subject to New York sales tax?

Plain-English summary

Financial Decision Systems, Inc. (a California company) sold perpetual licenses to use CORPTAX, a mainframe software product large corporations and financial institutions use for federal and state corporate income-tax planning and compliance. Before installing CORPTAX, the vendor evaluated and analyzed each customer's requirements and input/output needs, then customized the software to those requirements and modified it to fit the customer's operating system's job control language. It asked whether these sales are subject to New York sales tax.

Under 1986 law, the Department held the software sale was a non-taxable intangible.

• The governing test came from a Bureau bulletin. Technical Services Bureau Bulletin 1978-1 defined "software" and treated it as exempt if either: (A) preparing or selecting the program for the customer required the vendor to analyze the customer's requirements, or (B) the program required the vendor to adapt it to a specific environment (a particular make/model of computer or output device).
• CORPTAX met the test. Because the software required analysis of the customer's computer equipment and modifications to make it compatible, the sale was "considered the sale of an intangible and thus not subject to sales tax."

Important context on reliance: this opinion applies the law as it stood in 1986, when analyzed/adapted software was treated as an intangible. New York's sales-tax treatment of computer software has changed since then. Treat this page as a historical record of the 1986 rule, not as guidance for a software sale today.

What this means for you

In 1986, "the vendor had to think about my setup" was the exemption line. New York then distinguished a shrink-wrapped, ready-to-run program from software that the vendor had to analyze or adapt for the specific customer. The analysis/adaptation work is what pushed CORPTAX over into non-taxable "intangible" territory.

Don't carry this rule forward. New York later changed how it taxes software, so a modern software license — even a heavily customized one — can't be assumed exempt on the strength of this opinion. This page documents the historical treatment; check current New York guidance (or a tax professional) before pricing tax into a software deal today.

Old rulings still teach the reasoning. Even where a rule has moved, opinions like this show how New York separated a taxable product from a non-taxable service or intangible — a distinction that still matters across many software and digital-goods questions, even if the specific software answer has changed.

Common questions

Q: Did New York tax this software sale?
A: No — under 1986 law the Department treated the analyzed-and-adapted CORPTAX license as the sale of an intangible, which was not subject to sales tax.

Q: What made it an "intangible" rather than taxable property?
A: The vendor had to analyze the customer's requirements and modify the software to be compatible with the customer's equipment, which under Bulletin 1978-1 qualified it as exempt "software" rather than a ready-to-run product.

Q: Can I rely on this for a software sale today?
A: No. This reflects 1986 law, and New York's treatment of computer software has since changed. Use current guidance or consult a New York tax professional for a present-day transaction.

Citations and references

Departmental guidance applied:

• Technical Services Bureau Bulletin 1978-1 — defines "software" and treats it as exempt where (A) preparation/selection requires the vendor to analyze the customer's requirements, or (B) the program requires vendor adaptation to a specific computer environment

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a86_24s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-86(24)S
Sales Tax
June 12, 1986

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S860128A

On February 11, 1986, a Petition for Advisory Opinion was received from Financial Decision
Systems, Inc., 23025 Dorothy Drive, Agowan Hills, CA 91301.
The issue raised is whether Petitioner's sales of computer software on a perpetual license
basis is subject to sales tax.
Petitioner sells licenses on a perpetual basis, to use a computer software product called
CORPTAX. CORPTAX is a mainframe computer software product used by large corporations and
major financial institutions to do corporate tax planning and compliance with regard to Federal and
State corporate income taxes. Prior to the installation of CORPTAX, Petitioner conducts an
evaluation and analysis of its customer's requirements and input/output needs. After the analysis,
the software is customized to meet the customer's specific requirements. In addition, the software
is modified to meet the operating system's job control language.
Technical Services Bureau Bulletin 1978-1 defines software as:
"Instructions and routines (programs) which, after an analysis of the customers specific data
processing requirements, are determined necessary to program the customer's electronic data
processing equipment to enable the customer to accomplish specific functions with his EDP system."
To be considered exempt "software" for purposes of this bulletin, one of the following elements must
be present:
A.

Preparation or selection of the program for the customer's use requires an analysis of the
customer's requirements by the vendor.
or

B.

The program requires adaptation, by the vendor, to be used in a specific environment, i.e.,
a particular make and model of computer utilizing a specified output device. For example,
a software vendor offers for sale a pre-written sort program which can be used in several
computer models. Prior to operation, instructions must be added by the vendor which specify
the particular computer model in which the program will be utilized.

RODERICK G. W. CHU, COMMISSIONER
GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (3/83)

-2­
TSB-A-86(24)S
Sales Tax
June 12, 1986

Since Petitioner's software requires analysis of its customer's computer equipment and certain
modifications are necessary to make its software compatible to such equipment, the sale of such
software is considered the sale of an intangible and thus not subject to sales tax.

DATED: June 12, 1986

s/Frank J. Puccia
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.