Is selling music downloads delivered electronically over the Internet subject to New York sales tax, either as a sale of tangible personal property, a taxable information service, or a taxable entertainment service?

Plain-English summary

Universal Music Group planned to sell its catalog of copyrighted music, digitized and stored with a third party, directly to customers over the Internet — customers would order and pay by credit card, then download the music to their own computer hard drives using free third-party software. The downloaded files couldn't be copied to a CD at the time (though future technology might allow limited copying). Universal asked the Department to weigh in on three separate legal theories for taxing this: as a sale of tangible personal property, as a taxable "information service," and as a taxable "entertainment service."

The Department rejected all three. First, following its own earlier ruling that electronically-transferred digital photographs are a sale of intangible property (The Stock Market Photo Agency, TSB-A-99(48)S), the Department held that digitized music delivered the same way is likewise intangible property — not "tangible personal property" — so it falls outside the basic retail sales tax and compensating use tax entirely. Second, selling music downloads isn't "the furnishing of information" the way that taxable information services are (think market research reports or database access) — it's the sale of a creative work, not information about something. Third, for the same reason it isn't a taxable "entertainment service" delivered by telephone or similar means under § 1105(c)(9).

What this means for you

Digital media and content companies

If you sell copyrighted creative content (music, and by the same reasoning likely similar digital media) for download and permanent storage on a customer's own device, New York's traditional "tangible personal property" sales tax framework may not reach it, following this and the Department's earlier digital-photograph ruling. This line of reasoning predates later, more specific rules for prewritten computer software (which New York does tax even when downloaded) — the "intangible property" analysis here is specific to content like music and images, not software.

Accountants and tax professionals

This opinion extends The Stock Market Photo Agency's digital-image reasoning to digital music, reinforcing a consistent Department position (see also New York Society of Renderers, TSB-A-98(43)S) that the method of delivery (electronic transfer, no physical medium) matters more than the content when classifying something as tangible vs. intangible property. Watch for later legislative or regulatory changes specific to digital goods, since sales tax treatment of digital products has evolved substantially in many states since 2001; confirm current law before relying on this reasoning for present-day transactions.

Business owners generally

Keep in mind this ruling is now over two decades old. While it reflects a consistent historical Department position on electronically-delivered intangible content, always verify whether more recent guidance, legislation, or case law has updated this specific area before relying on it for current tax planning.

Common questions

Q: Is digital music sold and downloaded over the Internet subject to New York sales tax?
A: Under the facts and law addressed in this 2001 opinion, no — it's treated as a sale of intangible property, not a taxable sale of tangible personal property, information service, or entertainment service.

Q: Does this same reasoning apply to downloaded computer software?
A: Not necessarily. New York's Tax Law separately and specifically defines "tangible personal property" to include prewritten computer software, and taxes it regardless of delivery method — a different statutory hook than the one analyzed here for music.

Q: Can a company other than Universal Music Group rely on this ruling today?
A: No. This is a fact-specific advisory opinion binding only for Universal Music Group as of 2001. Digital-goods tax law has evolved since then in many states (though not necessarily in New York specifically for music); confirm current law and your own facts before relying on this reasoning.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4) (definition of "retail sale")
• Tax Law § 1101(b)(5) (definition of "sale, selling or purchase")
• Tax Law § 1101(b)(6) (definition of "tangible personal property")
• Tax Law § 1105(a) (tax on retail sales of tangible personal property)
• Tax Law § 1105(c)(1) (tax on furnishing information)
• Tax Law § 1105(c)(9) (tax on entertainment/information services via telephony)
• Tax Law § 1110(a) (compensating use tax)
• 20 NYCRR § 526.7 (definition of "sale, selling or purchase")

Prior rulings referenced:

• The Stock Market Photo Agency, Inc., Adv Op Comm T&F, Nov. 12, 1999, TSB-A-99(48)S
• New York Society of Renderers, Adv Op Comm T&F, July 1, 1998, TSB-A-98(43)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2001.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a01_15s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-01(15)S
Sales Tax
April 18, 2001

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S000510A

On May 10, 2000, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Universal Music Group, 800 Third Avenue, New York, New York, 10022.
The issues raised by Petitioner, Universal Music Group, are whether:
1) Petitioner’s sale of music delivered electronically over the Internet is a sale of tangible
personal property subject to sales or compensating use tax.
2) Petitioner’s sale of music delivered electronically over the Internet is an information
service subject to sales or compensating use tax under Section 1105(c)(1) or 1105(c)(9) of the Tax
Law.
3) Petitioner’s sale of music delivered electronically over the Internet is an entertainment
service subject to sales tax under Section 1105(c)(9) of the Tax Law.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner is a unit of Vivendi Universal, a global media and communications company.
Petitioner’s worldwide operations encompass the development, manufacture, marketing, sales and
distribution of recorded music through a network of subsidiaries, joint ventures and licensees in 63
countries around the world.
Petitioner has established headquarters in New York for the digital distribution of music over
the Internet. Through subsidiaries and joint ventures, Petitioner’s business will include the
development of new methods of digital distribution of music through a variety of channels such as
the Internet, cable, satellite, wireless and other platforms, as well as other related functions.
Through subsidiaries and joint ventures, Petitioner plans to sell digitized music over the
Internet to customers located throughout the United States, including customers located in
New York. Petitioner will digitize its copyrighted catalog of music and store the digitized catalog
with a third party for distribution over the Internet. Customers, using their personal computers, will
order music over the Internet. Payment will be made using a credit card serviced by a third party
financial institution. The music will be delivered electronically in digital form and stored on the
customers’ computer hard drives. Customers will then be able to play the music on their computer.
In order to have the capability to download music, customers will be required to download and
install software on their computer hard drives. The software is available from third party vendors

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over the Internet at no cost to the customer. Petitioner does not furnish any such software to its
customers.
The downloaded music will remain on the customers’ personal computers and is not capable
of being copied to a compact disc (“CD”). It is anticipated that future technology will permit limited
copying of digitized music to CDs or to a chip for play on handheld electronic devices. Under
current technology, Petitioner will know whether customers are located within the United States;
however, the location of a customer within a particular state or local jurisdiction is not determinable.
Applicable Law and Regulations
Section 1101(b) of the Tax Law provides, in part:
When used in this article for purposes of the taxes imposed by subdivisions
(a), (b), (c) and (d) of section eleven hundred five and by section eleven hundred ten,
the following terms shall mean:
*

*

*

(4) Retail sale. (i) A sale of tangible personal property to any person for any
purpose, other than (A) for resale as such....
(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.
(6) Tangible personal property. Corporeal personal property of any nature....
Section 1105 of the Tax Law provides, in part:
On and after June first, nineteen hundred seventy-one, there is hereby
imposed and there shall be paid a tax of four percent upon:
(a) The receipts from every retail sale of tangible personal property, except
as otherwise provided in this article.
*

*

*

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(c) The receipts from every sale, except for resale, of the following services:
(1) The furnishing of information by printed, mimeographed or multigraphed
matter or by duplicating written or printed matter in any other manner, including the
services of collecting, compiling or analyzing information of any kind or nature and
furnishing reports thereof to other persons, but excluding the furnishing of
information which is personal or individual in nature and which is not or may not be
substantially incorporated in reports furnished to other persons, and excluding the
services of advertising or other agents, or other persons acting in a representative
capacity, and information services used by newspapers, radio broadcasters and
television broadcasters in the collection and dissemination of news, and excluding
meteorological services.
*

*

*

(9)(i) The furnishing or provision of an entertainment service or of an
information service (but not an information service subject to tax under paragraph
one of this subdivision), which is furnished, provided, or delivered by means of
telephony or telegraphy or telephone or telegraph service (whether intrastate or
interstate) of whatever nature, such as entertainment or information services provided
through 800 or 900 numbers or mass announcement services or interactive
information network services. Provided, however, that in no event (i) shall the
furnishing or provision of an information service be taxed under this paragraph
unless it would otherwise be subject to taxation under paragraph one of this
subdivision if it were furnished by printed, mimeographed or multigraphed matter or
by duplicating written or printed matter in any other manner nor (ii) shall the
provision of cable television service to customers be taxed under this paragraph.
Section 1110(a) of the Tax Law provides, in part:
Except to the extent that property or services have already been or will be
subject to the sales tax under this article, there is hereby imposed on every person a
use tax for the use within this state on and after June first, nineteen hundred seventy­
one except as otherwise exempted under this article, (A) of any tangible personal
property purchased at retail...(C) of any of the services described in paragraphs (1),
(7) and (8) of subdivision (c) of section eleven hundred five....
Section 526.7 of the Sales and Use Tax Regulations provides, in part:
Sale, selling or purchase. (Tax Law Sec. 1101(b)(5))

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(a) Definition. (1) The words sale, selling or purchase mean any transaction
in which there is a transfer of title or possession, or both, of tangible personal
property for a consideration.
(2) Among the transactions included in the words sale, selling or purchase are
exchanges, barters, rentals, leases or licenses to use or consume tangible personal
property.
Opinion
Petitioner’s copyrighted catalog of digitized musical recordings will be stored with a third
party for distribution to Petitioner’s customers over the Internet. Petitioner, through subsidiaries
and joint ventures, will sell its digitized music recordings in electronic form, over the Internet to
customers located within and outside of New York State. The Stock Market Photo Agency, Inc.,
Adv Op Comm T&F, November 12, 1999, TSB-A-99(48)S, concluded that “receipts from the
electronic transfer of digital photographic images over the Internet represent receipts from the sale
of an intangible and are not subject to sales tax.” Also, see New York Society of Renderers, Adv
Op Comm T&F, July 1, 1998, TSB-A-98(43)S. Based on the foregoing, Petitioner’s sale of digitized
music recordings over the Internet constitutes the sale of intangible property and is not subject to
sales or compensating use tax under Section 1105(a) or 1110(a)(A) of the Tax Law.
Additionally, Petitioner’s sale of digitized music recordings delivered electronically over the
Internet does not constitute the provision of a taxable information service or an entertainment service
within the meaning and intent of Section 1105(c)(1) or 1105(c)(9) of the Tax Law.

DATE: April 18, 2001

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist III
Technical Services Division

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