Is SaaS Taxable in New York? New York Sales Tax Rules for Software and Remote Access Software
In New York, prewritten computer software is treated as tangible personal property and is taxable regardless of whether it is delivered through physical media, electronic transmission, or remote access. Qualifying custom software is generally not taxable. This article explains New York sales tax rules for SaaS, prewritten software, remote access software, and customized software.
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New York SaaS Sales Tax: Prewritten Software Is Generally Taxable
New York applies sales tax rules based on software classification.
The key question is whether software is:
- prewritten computer software; or
- custom software.
Prewritten software is treated as tangible personal property and is taxable regardless of delivery method.
Prewritten Software Is Taxable Regardless of Delivery Method
New York taxes prewritten computer software whether delivered:
- on physical media;
- electronically;
- through remote access.
Physical Delivery
Example:
Software delivered on disk USD 1,000
The transaction is taxable because it involves prewritten software.
Electronic Delivery
Example:
Software download USD 1,000
Electronic delivery does not create an exemption.
Prewritten software remains taxable.
Remote Access Software
New York also taxes prewritten software accessed remotely.
Example:
Cloud ERP subscription USD 1,000/month
If the service provides access to prewritten software, it is generally taxable.
Custom Software Is Generally Non-Taxable
New York distinguishes custom software from prewritten software.
Custom software:
- is designed for a specific purchaser;
- requires customer-specific analysis;
- is not intended for general sale.
Example:
Custom enterprise software development USD 100,000
Qualifying custom software is generally not taxable.
Customized Modifications Require Analysis
If prewritten software is modified or enhanced:
The underlying software remains taxable.
However, separately stated charges for reasonable custom modifications may be exempt.
Example:
Software license USD 50,000
Custom modification fee USD 10,000
Possible treatment:
- Software license: Taxable;
- Separately stated customization: Potentially non-taxable.
SaaS Businesses Should Analyze Software Classification
For SaaS businesses, the key question is not simply whether the product is cloud-based.
Businesses should evaluate:
- whether software is standardized;
- whether it is provided to multiple customers;
- whether customers receive software rights;
- whether the transaction represents software access.
Common New York SaaS Compliance Issues
Assuming cloud software is exempt
New York does not automatically exempt cloud software.
Remote access software may still be taxable.
Assuming electronic delivery is exempt
Electronically delivered prewritten software remains taxable.
Confusing customization with modified software
Modifying standard software does not automatically make it custom software.
Failing to separate charges
Businesses should separate:
- software charges;
- access fees;
- customization;
- maintenance.
Compliance Tips for SaaS Businesses
Businesses selling SaaS or software services in New York should:
- Determine whether software is prewritten;
- Identify whether software is customer-specific;
- Separate software and customization charges;
- Separately state qualifying modification fees;
- Maintain contracts and invoices.
Conclusion
New York software tax treatment depends on classification:
- Prewritten software: Taxable;
- Remote access prewritten software: Taxable;
- Electronically delivered prewritten software: Taxable;
- Custom software: Generally non-taxable;
- Separately stated custom modifications: May be non-taxable.
For SaaS businesses, the key issue is whether the product is standardized prewritten software rather than whether it is delivered through the cloud.
Sources
New York State Department of Taxation and Finance — Computer Software https://www.tax.ny.gov/pubs_and_bulls/tg_bulletins/st/computer_software.htm