A couple of years ago, the New York Department of Taxation and Finance issued a string of rulings concluding that the provision of ASP/SaaS software that was accessed only through the Internet was the sale of software and not a non-taxable data processing services. There has not been much discussion on that point during 2010 and I thought they had retrenched on their position. Not so!! On Oct. 18, the New York Commissioner issued his latest in a string of rulings that seems to increase the scope of the NY sales tax as it applies to almost any type of on-line data access or data processing. Here is a very brief summary of the case and my comments.
TSB-A-10(52)S October 18, 2010
Company is a provider of various information technology management serves to the railroad industry. The company is located in Atlanta and customers access Company’s services through the Internet. There is no downloading of software to the customer’s location. There is no specific license of software by the Company to their customers. In their ruling request, the Company listed 9 separate services they provide. Each services provides some blend of information retrieval and manipulation. Each service is billed uniquely based on the type of service provided. Of the 9 online services provided by the Company, the Commissioner determined that 4 of these constitute the taxable sale of software. These are briefly discussed below.
1. e-Repair and e-Bol Services: Allows customers to generate repair cards for the repair of rail cars. Customers enter data through website. The repair card is generated and transmitted to rail carrier. Customer is charged for service based on number of repair orders submitted.
Held: Taxable sale of computer software.
2. Business Intelligence: Allows customers to access data to extract information on railroad and various information. Most information is related to customer’s own data. Company charges flat fee for service.
Held: Taxable sale of computer software.
3. Transportation Management Services: Provides customer with information to enable them to manage their railroad operations, car inventory, yard control, train operations, and management reporting. Customers can monitory and query information, and generate reports on specific cars, shipments, and equipment.
Held: Taxable sale of computer software
4. Electronic Data: Company purchases and resells data to customers in order for it to provide the other services. The cost of the data is passed to customers in addition to the cost of the underlying purchase of the service.
Held: These charges are taxable when provided in conjunction with at taxable information service.
Conclusion
This case is another example of how aggressive NY is in taxing ASP/SaaS services as computer software even when there is no license for the software use and when there is no actual transmission of computer software. If you company provides any type of SaaS service and has New York customers, you need to immediately evaluate the application of this case and the others to your situation. The NY auditors are taking this position on audits. Further, more states are taking this same position. After two years of publishing these notices, taxpayers are on notice that the state is serious about its position.
Please contact me if you have any questions or need help with this issue.
Ned Lenhart
President
New York Taxation of SaaS