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Sales Tax State Activity Update - August 2007

New York - Simply Stated, State Your Electronic Products and Services Separately for Exemptions

A Petitioner requested an opinion on the sales taxability of the following:

1. Computer hardware and proprietary software
2. Set-up services
3. Consulting services
4. Design services
5. Editing digitized files
6. Rights to download audio, video, or music content from Petitioner's online library on a per-download or subscription basis

Background

The Petitioner has developed, and offers for sale, software programs, digital goods and consulting services designed generally for not-for-profit religious organizations to meet the growing challenge of keeping up with emerging trends and opportunities for outreach and marketing.

The primary software program licensed by Petitioner is an audio-publishing solution delivered via Hemisphere, the Petitioner's proprietary hardware package. Some customers may qualify as an Exempt Organization and may make purchases tax free after providing properly completed Exempt Organization Exempt Purchase Certificate.

Opinion

1. The hardware and software were ruled taxable. It was reasoned the software was prewritten and the license fees were taxable regardless of the method of delivery of the software.
2. Set-up fees for any additional programming needed for the Petitioner's system to properly interface with a customer's existing equipment are charges for customizing software, which is not subject to sales tax when separately stated on a customer's invoice.
3. The consulting services sold to customers relate to marketing, promotional programs, program management, public relations, event planning, placing radio or television advertisements, Web site design, and structuring digitized content for search engine optimization. The consulting services were optional, not performed in conjunction with the sale of canned software and separately stated on the customer invoice. It was ruled these services were exempt and not enumerated as taxable.
4. Web design services were ruled exempt because they are not enumerated as taxable in the law. Design services in which the artwork was delivered electronically were ruled exempt. If the artwork is delivered in a tangible form (e.g. disk, CD, tape) it may be consider a sale of tangible personal property subject to tax.
5. Editing digitized files such as audio, video or music and then delivering them back to the customer electronically are not enumerated as taxable and are exempt.
6. The charges for the rights to download audio, video, or music content from the Petitioner's online library were not considered a sale of tangible personal property and therefore exempt.

The full text can be viewed on the New York State Department of Taxation and Finance Website.

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