Must a real-estate facilities-management firm collect sales tax on the rental-plan books and custom software it delivers to building owners?

Plain-English summary

Paul Carucci & Co. asked, for a client running a computer-assisted real-estate facilities-management business, whether the client must collect sales tax on its charges for computer-generated rent information and floor-plan graphics provided to building owners. The client builds a rental plan of every floor from architectural drawings, verifies walls and suite numbers by field inspection, calculates rentable area by a chosen measurement method, and folds in tenant data. It delivers the result as rental plan books (8½ × 11") and on floppy disk — a program the owner runs on its own PC — plus a user-guide handbook and a demonstration.

The Department's answer (applying the software rules effective September 1, 1991), under Tax Law §§ 1101(b)(5), (6), (14), 1105(a), and 1115(o):

• Rental plan books are taxable goods. The books are tangible personal property, so their sale is subject to sales tax under § 1105(a).
• Modified prewritten software stays taxable unless split out. Under § 1101(b)(14), prewritten software that is modified or enhanced to a specific purchaser's specifications remains prewritten software (taxable tangible personal property) unless the charges for the prewritten portion and the modifications are separately stated on the invoice. So the client's programs, updates, and modifications on floppy disk are taxable unless separately stated.
• Software services must be separately stated too. Under § 1115(o), the entire charge for services performed under the agreement is taxable unless the charge is separately stated between the taxable and exempt services (citing Arthur Andersen and Co., TSB-A-91(70)S).

What this means for you

Physical deliverables (books, printouts) are taxable

If you deliver your analysis as a tangible product — bound rental-plan books, printed reports — that sale is taxable tangible personal property, regardless of the analytical work behind it.

"Custom" tweaks to prewritten software don't make it exempt

Prewritten software modified for one customer stays taxable prewritten software under § 1101(b)(14). The only way to carve out the modification work is to separately state the prewritten-portion charge and the modification charge on the invoice.

Separately state taxable vs. exempt software services

Under § 1115(o), software services can be exempt — but only when the charge is reasonable and separately stated between taxable and exempt work. Bundle them and the whole charge is taxable.

Accountants and tax professionals

This applies the post-September-1991 software regime (§§ 1101(b)(6), (14), 1115(o)) and the Arthur Andersen separately-stated rule. Compare the modified-prewritten-software analysis in TSB-A-92(50)S (Garpac/Fenics line).

Common questions

Q: Are the rental-plan books taxable?
A: Yes. They're tangible personal property, taxable under § 1105(a).

Q: Is the software on floppy disk taxable?
A: Yes, as prewritten software modified for the customer — unless the prewritten-portion and modification charges are separately stated, in which case only the prewritten portion is taxed.

Q: How do I keep the software services exempt?
A: Under § 1115(o), separately state the taxable and exempt services on the invoice, with a reasonable charge. Otherwise the entire charge is taxable.

Q: Why does the September 1991 law matter?
A: The 1991 amendments treat prewritten software as taxable tangible personal property and set the modification/separately-stated rules the opinion applies.

Citations and references

Statutes and authorities:

• Tax Law § 1101(b)(5) (sale includes a license to use, and, for software, the right to reproduce)
• Tax Law § 1101(b)(6) (tangible personal property includes prewritten computer software)
• Tax Law § 1101(b)(14) (prewritten computer software; modified/enhanced software remains prewritten unless separately stated)
• Tax Law § 1105(a) (tax on receipts from retail sales of tangible personal property)
• Tax Law § 1115(o) (services performed on software exempt only when reasonable and separately stated)
• Arthur Andersen and Co., Adv. Op. Comm. T&F, Nov. 8, 1991, TSB-A-91(70)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1992.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a92_26s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-92 (26)S
Sales Tax
March 19, 1992

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S910621B

On June 21, 1991 a Petition for Advisory Opinion was received from Paul Carucci & Co.,
Tax Consultants, 9 Scott Drive, New City, New York 10956.
The issue raised by Petitioner, Paul Carucci and Co., is whether its client, a computer assisted
real estate facilities management business, must collect sales tax on its charges for computer
generated rent information and graphic presentation of rental property for lessors of real property.
Petitioner's client provides computer generated rent information and graphic presentation of
rental property for lessors of real property.
Petitioner's client will create a rental plan of every floor from dimensioned architectural
drawings. He will also verify the location of all demising walls and suite numbers, by field
inspection.
Petitioner's client will calculate the area of every space in the building and produce
tabulations showing the rentable area for every floor and tenant space based upon a choice of method
of floor measurement. The lessor can specify either New York Real Estate Board method or Market
Factor method as a specified add-on or loss factor. Petitioner's client will coordinate with these
calculations tenant information supplied by the lessor such as suite number, tenant name, lease
expiration date and details of any option space situations.
Petitioner's client will produce this information in the form of rental plan books (8 1/2 x 11"
format) and on floppy disk which is a program for the lessor's use on any compatible PC computer
system.
Petitioner's client will demonstrate the use of the disk on the lessor's own PC computer
system showing how the program operates and how data is accessed and printed. Petitioner's client
will provide the lessor with a copy of its User Guide Handbook, so the lessor may fully comprehend
the program capacity for its on-going use.
Section 1101(b) of the Tax Law as amended effective September 1, 1991 provides, in part,
as follows:
(5) Sale, selling or purchase. Any transfer of title or possession or both,
exchange or barter, rental, lease or license to use or consume (including, with respect
to computer software, merely the right to reproduce), conditional or otherwise, in any
manner or by any means whatsoever for a consideration, or any agreement therefor,
including the rendering of any service, taxable under this article, for a consideration
or any agreement therefor.

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TSB-A-92 (26)S
Sales Tax
March 19, 1992
(6) Tangible personal property. Corporeal personal property of any nature. However,
except for purposes of the tax imposed by subdivision (b) of section eleven hundred five,
such term shall not include gas, electricity, refrigeration and steam. Such term shall also
include 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.
*

*

*

(14) Pre-written computer software. Computer software (including pre­
written upgrades thereof) which is not software designed and developed by the author
or other creator to the specifications of a specific purchaser. The combining of two
or more pre-written computer software programs or pre-written portions thereof does
not cause the combination to be other than pre-written computer software. Pre­
written software also includes software designed and developed by the author or
other creator to the specifications of a specific purchaser when it is sold to a person
other than such purchaser. Where a person modifies or enhances computer software
of which such person is not the author or creator, such person shall be deemed to be
the author or creator only of such person's modifications or enhancements. Pre­
written software or a pre-written portion thereof that is modified or enhanced to any
degree, where such modification or enhancement is designed and developed to the
specifications of a specific purchaser, remains pre-written software; provided,
however, that where there is a reasonable, separately stated charge or an invoice or
other statement of the price given to the purchaser for such modification or
enhancement, such modification or enhancement shall not constitute pre-written
computer software.
Section 1115(o) of the Tax Law as amended effective September 1, 1991 provides that:
(o) Services otherwise taxable under subdivision (c) of section eleven
hundred five or under section eleven hundred ten shall be exempt from tax under this
article where performed on computer software of any nature; provided, however, that
where such services are provided to a customer in conjunction with the sale of
tangible personal property any charge for such services shall be exempt only when
such charge is reasonable and separately stated on an invoice or other statement of
the price given to the purchaser.
Petitioner's sales of rental plan books constitute the sale of tangible personal property in
accordance with the meaning and intent of Sections 1101(b)(5) and 1101(b)(6) of the Tax Law and
thus are subject to the sales tax imposed by Section 1105(a) of the Tax Law.
With regard to Petitioner's clients sales of computer programs on floppy discs, updates or
program modifications, pursuant to Section 1101(b)(14) of the Tax Law the sale of pre-written
software or a pre-written portion thereof that is modified or enhanced to any degree to meet the

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TSB-A-92 (26)S
Sales Tax
March 19, 1992
specifications of a specific purchaser constitutes the sale of tangible personal property unless charges
for the pre-written portion and the modifications are separately stated on an invoice or other
statement given to the purchaser. Moreover, pursuant to Section 1115(o) of the Tax Law the entire
charge for services performed under such agreement is subject to sales tax unless the charge is
separately stated between the taxable and exempt services provided under the agreement. Arthur
Anderson and Co., Adv Op Comm T & F, November 8, 1991, TSB-A-91(70)S.

DATED: March 19, 1992

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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