New York – Software Used to Transfer Information is Taxable

SALT Report 1477 – The New York Department of Taxation and Finance determined that a taxpayer’s sale of products used to transfer information between businesses and their customers is considered the sale of prewritten software and subject to New York sales tax.  The taxpayer operates a certified data pool (CDP) that is compliant with the Global Data Synchronization Network (GDSN).  The taxpayer’s CDP captures data, in a hosted, on-line application, and distributes information about products used by suppliers, distributors, and retailers.

The taxpayer charges its customers an annual subscription fee for access to the GDSN which is a network that connects data pools around the world to the GS1 Global Registry and enables the taxpayer’s customers to exchange data.  The taxpayer’s software runs the CDP and is housed on a server located outside of New York.  The taxpayer’s customers have access to the CDP through an Internet connection and must obtain, at their own expense, any equipment necessary to access to the CDP.

With a paid subscription the customer has the right to use the taxpayer’s software to upload and view information on the CDP. Customers can also use the software to run reports regarding product information or send a subscription request to a trading partner in order to get access to that trading partner’s specific product information.  Based on these facts the Department determined that the taxpayer’s subscription charge represents a sale of prewritten software and is taxable under New York Tax Law §§ 1101(b)(6) and 1105(a).

The Department also noted that the taxpayer must use the location of the subscriber, their agents, or employees who are using the software to determine the local tax rate and jurisdiction.  If the subscriber has employees that are located both in and out of New York, the taxpayer must collect tax based on the portion of the receipt attributable to the users located in New York.

For Further Information:

New York Commissioner of Taxation and Finance – TSB-A-12(3)S