Are a computer company's on-site repair visits, on-site staffing arrangements, service contracts, and telephone technical-support charges subject to New York sales tax?

Plain-English summary

Western New York Computing Systems sells computer hardware and software and also sells support services — installing, repairing, and maintaining equipment its customers already own or bought from it. The company asked the Department to sort out five common billing scenarios:

Scenario 1 — dispatched repair visit. A technician travels to a customer's site to fix a jamming printer, and the company bills for diagnosis, repair, labor, and travel. Repairing hardware is a taxable service, and under the general rule that expenses billed to a customer follow the taxability of the underlying charge, the travel expenses are taxed right along with the repair charge.

Scenario 2 — dedicated on-site technician under customer's direction. A technician/programmer works at the customer's site for an extended stretch, taking direction from the customer, while remaining Western's employee (Western pays the salary and benefits). This is treated as Western providing staffing to perform whatever service the worker actually does: if the worker is doing taxable hardware repair/maintenance, the whole placement fee is taxable, regardless of how the fee is calculated or what Western pays the worker. If the worker is instead doing nontaxable work (software maintenance, custom programming), no tax applies.

Scenario 3 — dedicated on-site technician working independently. Same rule as Scenario 2 — it's the nature of the work performed (hardware = taxable, software = exempt), not the fact that a person, rather than a discrete repair job, is being billed, that controls.

Scenario 4 — multi-year service contract for a flat fee. Buying a service agreement for the future performance of repair/maintenance is itself a taxable transaction under New York's rules, and tax is due when the contract is sold (a lump sum today), not spread across the term. If the contract bundles taxable hardware coverage with nontaxable software coverage, the whole $5,000 fee is taxable unless the nontaxable portion is reasonably allocated and separately stated in the contract and on the bill.

Scenario 5 — phone-in troubleshooting. A customer calls with a problem and a technician talks them through possible causes and fixes. If the trouble is with software, the charge is exempt (technical support, diagnosis, and training on software are excluded from tax). If the trouble is with hardware, the charge is a taxable repair/maintenance service even though it's delivered by phone rather than in person. Mixed calls are taxable in full unless the nontaxable software-related portion is reasonably and separately stated.

Two rules run through every scenario: (1) hardware services are taxable, software services are exempt, and (2) mixing taxable and nontaxable elements in one bill makes the whole charge taxable unless the nontaxable part is broken out reasonably and separately — a rule the Department has applied consistently since a 1993 guidance memo, TSB-M-93(3)S, broadened software's taxable definition.

What this means for you

IT service providers and computer resellers

Track whether each engagement touches hardware, software, or both, and bill accordingly. If you're doing mixed work, itemize the software-related (exempt) portion separately and reasonably on the invoice — otherwise the entire charge, including any software components, becomes taxable.

Staffing arrangements and "body shop" placements

Placing your own employee at a client's site doesn't avoid sales tax if that employee performs a taxable service (like hardware repair) under your direction or the client's — the fee for the placement is still taxed the same as if you'd billed for the discrete repair job.

Businesses selling multi-year service or maintenance contracts

Tax is due up front, at the time you sell the contract, not spread over its term, and the whole contract price is taxable unless the exempt (software-related) share is reasonably allocated and separately stated in both the contract and the invoice.

Accountants and tax professionals

This opinion is a good five-scenario checklist for any client mixing hardware and software services in NY: the controlling question is always what kind of property the service touches, and whether nontaxable elements are separately and reasonably priced on the customer's bill.

Common questions

Q: Is phone-based tech support always exempt?
A: No — only when it addresses software issues. Phone support for hardware problems is taxed the same as an in-person repair.

Q: If I place my own employee at a client site, do I avoid collecting sales tax?
A: Not if the employee is performing a taxable service like hardware repair or maintenance — the fee you charge the client is still subject to tax regardless of how you compensate your worker.

Q: When is a multi-year service contract taxed?
A: All at once, at the time the contract is sold, not spread across its term — unless it's a "conditional" or continuing-service arrangement that would be treated differently; here the flat-fee, fixed-term contract was taxed as a single lump-sum sale.

Q: How do I keep the software portion of a mixed bill exempt?
A: State a reasonable, separate charge for the software-related work on the invoice or contract. If you don't, the entire charge — including the software piece — becomes taxable.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(3)-(6), (14) (definitions: receipt, retail sale, sale, tangible personal property, prewritten computer software)
• Tax Law § 1105(a), (c)(3) (retail sales tax; installation/maintenance/repair services tax)
• Tax Law § 1110(a) (compensating use tax)
• Tax Law § 1115(o) (exemption for services performed on computer software)
• 20 NYCRR § 525.2(a)(2) (transactions tax); § 526.5(e) (vendor expenses not deductible); § 527.5 (installing/maintaining/servicing/repairing); § 532.1(a) (time of collection)
• TSB-M-93(3)S (March 1, 1993, sales/use tax on computer software)

Prior rulings referenced:

• Salomon & Leitgeb, CPAs, LLP, TSB-A-97(44)S
• Pitney Bowes Management Services, Inc., TSB-A-93(10)S
• STS Systems, Ltd., TSB-A-98(73)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2002.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a02_42s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-02(42)S
Sales Tax
July 26, 2002

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S010403A

On April 3, 2001, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Western New York Computing Systems, Inc., 1100 Pittsford Victor Rd., Pittsford,
New York 14534-3801.
The issue raised by Petitioner, Western New York Computing Systems, Inc, is whether the
transactions described below pertaining to Petitioner’s on-site and telephone support services are
subject to State and local sales and compensating use taxes.
Petitioner submits the following facts and scenarios as the basis for this Advisory Opinion.
Petitioner is a company that sells computer related hardware and software. Petitioner also
sells support services to install, repair and/or maintain computer related hardware and software
which the customer owns or has purchased from Petitioner.
Scenario 1
A customer calls Petitioner with a request that Petitioner provide service on a printer that
keeps jamming. Petitioner logs the request and sends out one of its technicians to the customer’s
site. The technician logs travel time and the length of time spent diagnosing and repairing the
problem. Petitioner bills the customer for diagnosis and repair of the printer and for labor and travel.
Scenario 2
A customer has a specific project that requires Petitioner to provide a technician/programmer
on-site for an extended period of time. The technician/programmer is under the direction of the
customer for the duration of the project. Petitioner bills the customer for the time the
technician/programmer has spent on-site on a month by month basis. The technician/programmer
remains the employee of Petitioner and Petitioner provides his/her salary and benefits.
Scenario 3
A customer has a project that requires the attention of one of Petitioner’s technicians for an
extended period of time. The technician works on the project independent from the customer.
Petitioner bills customer for the labor of the technician. The technician remains the employee of
Petitioner and Petitioner provides his/her salary and benefits.

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Scenario 4
A customer decides that rather than paying on a use-by-use basis, it would like to buy a
service agreement that will cover the cost of labor and materials for a specific term of years.
Petitioner sells the customer a service contract for $5,000.00.
Scenario 5
A customer calls Petitioner with a question about a problem that they are experiencing and
requests to speak with a technician. The technician asks several questions as to the nature of the
problems the customer is experiencing and offers probable causes and solutions to the customer.
Petitioner bills the customer for the time the technician has spent on the problem.
Applicable Law and Regulations
Section 1101(b) of the Tax Law provides, in part:
When used in this article for the 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:
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*

*

(3) Receipt. The amount of the sale price of any property and the charge for
any service taxable under this article . . . valued in money, whether received in
money or otherwise, including any amount for which credit is allowed by the vendor
to the purchaser, without any deduction for expenses or early payment discounts and
also including any charges by the vendor to the purchaser for shipping or delivery
. . . regardless of whether such charges are separately stated in the written contract,
if any, or on the bill rendered to such purchaser and regardless of whether such
shipping or delivery . . . is provided by such vendor or a third party. . . .
(4) Retail sale. (i) A sale of tangible personal property to any person for any
purpose, other than (A) for resale as such or as a physical component part of tangible
personal property, or (B) for use by that person in performing the services subject to
tax under paragraphs (1), (2), (3), (5), (7) and (8) of subdivision (c) of section eleven
hundred five where the property so sold becomes a physical component part of the
property upon which the services are performed or where the property so sold is later
actually transferred to the purchaser of the service in conjunction with the
performance of the service subject to tax. . . .

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(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
. . . Such term shall also include pre-written computer software, whether sold as part
of a package, as a separate component, or otherwise, and regardless of the medium
by means of which such software is conveyed to a purchaser. . . .
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(14) Pre-written computer software. Computer software (including pre­
written upgrades thereof) which is not software designed and developed by the
author or other creator to the specifications of a specific purchaser. The combining
of two or more pre-written computer software programs or pre-written portions
thereof does not cause the combination to be other than pre-written computer
software. Pre-written software also includes software designed and developed by the
author or other creator to the specifications of a specific purchaser when it is sold to
a person other than such purchaser. Where a person modifies or enhances computer
software of which such person is not the author or creator, such person shall be
deemed to be the author or creator only of such person's modifications or
enhancements. Pre-written software or a pre-written portion thereof that is modified
or enhanced to any degree, where such modification or enhancement is designed and
developed to the specifications of a specific purchaser, remains pre-written software;
provided, however, that where there is a reasonable, separately stated charge or an
invoice or other statement of the price given to the purchaser for such modification
or enhancement, such modification or enhancement shall not constitute pre-written
computer software.
Section 1105 of the Tax Law provides, in part:
Imposition of sales tax.-- . . . 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:
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(3) Installing tangible personal property . . . or maintaining, servicing or
repairing tangible personal property . . . not held for sale in the regular course of
business, whether or not the services are performed directly or by means of coin­
operated equipment or by any other means, and whether or not any tangible personal
property is transferred in conjunction therewith. . . .
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 . . . .
Section 1115(o) of the Tax Law provides:
Services otherwise taxable under subdivision (c) of section eleven hundred
five or under section eleven hundred ten shall be exempt from tax under this article
where performed on computer software of any nature; provided, however, that where
such services are provided to a customer in conjunction with the sale of tangible
personal property any charge for such services shall be exempt only when such
charge is reasonable and separately stated on an invoice or other statement of the
price given to the purchaser.
Section 525.2(a)(2) of the Sales and Use Tax Regulations provides, in part:
Except as specifically provided otherwise, the sales tax is a "transactions
tax," with the liability for the tax occurring at the time of the transaction. Generally,
a taxed transaction is an act resulting in the receipt of consideration for the transfer
of title to or possession of (or both) tangible personal property or for the rendition
of an enumerated service. The time or method of payment is generally immaterial,
since the tax becomes due at the time of transfer of title to or possession of (or both)
the property or the rendition of such service . . . .
Section 526.5 (e) of the Sales and Use Tax Regulations provides, in part:

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Expenses. All expenses . . . incurred by a vendor in making a sale, regardless
of their taxable status and regardless of whether they are billed to a customer are not
deductible from the receipts.
Example 1:

A photographer contracts with a customer to furnish
photographs at $50 each in addition to expenses.
The customer is billed as follows:
Photographs (2)
Model fees
Meals
Travel
Props (Flowers)
Total due
Receipt subject to tax is $200

Example 2:

$100
60
10
25
5
$200

An appliance repairman charges $10 per hour plus expenses
when on a service call. The customer is billed as follows:
3 hrs. at $10
Travel
Parts
Meals
Total due
Receipt subject to tax is $70

$ 30
15
20
5
$ 70

Section 527.5 of the Sales and Use Tax Regulations provides, in part:
(a) Imposition. (1) The tax is imposed on receipts from every sale of the
services of installing, maintaining, servicing or repairing tangible personal property
....
(2) Installing means setting up tangible personal property or putting it in
place for use.
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*

(3) Maintaining, servicing and repairing are terms used to cover all activities
that relate to keeping tangible personal property in a condition of fitness, efficiency,
readiness or safety or restoring it to such condition.
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(b) Exemptions.
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(7) Wages, salaries and other compensation paid by an employer to his
employee for installation, repair or maintenance service rendered by the employee
under an employer-employee relationship are not receipts subject to the tax.
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*

(c) Maintenance and service contracts. (1) The purchase of a maintenance
or service contract is a taxable transaction.
Section 532.1(a) of the Sales and Use Tax Regulations provides, in part:
Time of collection. (1) Every person required to collect the tax shall collect
the tax from the customer when collecting the price, amusement charge or rent to
which it applies.
Technical Services Bureau Memorandum, TSB-M-93(3)S, dated March 1, 1993, entitled
State and Local Sales and Compensating Use Taxes Imposed on Certain Sales of Computer
Software, provides, in part:
Effective September 1, 1991, State and local sales and compensating use
taxes are imposed on the sale or use of prewritten computer software and certain
related services.
The effect of this change in the Tax Law is to broaden the types of computer
software that are subject to sales and use taxes.. . . certain software previously
considered "custom" may now be considered prewritten computer software and
subject to such taxes. . . . The only software that is exempt from sales and use taxes
under the new law is software designed and developed to the specifications of a
specific purchaser.
Prewritten computer software is any computer software that is not designed
and developed by the author or other creator to the specifications of a specific
purchaser.
The sale of prewritten software includes any transfer of title or possession,
any exchange, barter, rental, lease or license to use, including merely the right to
reproduce, for consideration. . . .

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Prewritten software is subject to tax whether sold as part of a package or
separately. Software created by combining two or more prewritten programs or
portions of prewritten programs is still prewritten software subject to tax. The
medium by which the software is transferred to the purchaser has no effect on the
software’s taxability. Thus, prewritten software is taxable whether sold, for example,
on a disk, tape or by electronic transmission over telephone lines.
Prewritten software, even though modified or enhanced to the specifications
of a specific purchaser, remains prewritten software subject to tax. However, if a
charge for the custom modification or enhancement is reasonable and separately
stated on the invoice or billing statement, then the separately stated charge for the
custom modification or enhancement is not subject to tax.
*

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*

The incidental use of a development language (e.g., COBOL, BASIC, C, etc.)
or of libraries of "prewritten" functions or routines in designing and developing a
"custom" software program to the specifications of a specific purchaser will not, in
and of itself, make the sale of an otherwise custom program taxable. The "custom"
program must be examined as a whole to determine whether it is exempt from tax.
If the prewritten components of a custom program are sold separately, their sale is
subject to tax.
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Customer Support and Related Services
Services taxable under section 1105(c) of the Tax Law are exempt from tax
under section 1115(o) of the Tax Law where performed on any computer software.
However, where such services to be performed on software are sold in conjunction
with the sale of tangible personal property, such as prewritten software, the charge
for such services is exempt only if it is reasonable and separately stated on the
invoice or billing statement given to the customer.
Thus, charges for customer (user) support or for information services
provided by a vendor to a customer, either in person or by some type of
telecommunications arrangement (e.g., telephone, modem, facsimile machine, etc.),
in the nature of training, consulting, instructing or other diagnostic or
troubleshooting services related to prewritten software are exempt from sales and use
taxes where the charges are reasonable and separately stated. Charges for the service

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of installing, repairing, maintaining or servicing prewritten software are also exempt
from sales and use taxes where the charges are reasonable and separately stated on
the invoice. Of course, any charges for the above described services sold in
connection with custom software are exempt from tax.
Programming and systems analysis are also exempt services. However,
where these services are rendered in conjunction with the sale of prewritten software,
the charge for the service is exempt from tax only when the charge for the service is
reasonable and separately stated on the invoice or billing statement given to the
customer.
Example 2:

A computer vendor sells an “off-the-shelf” software program
to a customer. The vendor charges additional fees for
installing the software, on-site training, and diagnostic and
trouble-shooting customer support. The sale of the software
is taxable since it is pre-written. However, the charges for
installation, on-site training and customer support services are
not taxable if reasonable and separately stated on an invoice
or billing statement given to the customer.

Software Maintenance Agreements
If a software maintenance agreement provides for the sale of both taxable
elements (e.g., prewritten software upgrades) and nontaxable elements (e.g., training,
consulting, diagnostic and troubleshooting support, etc.), the charge for the entire
maintenance agreement is subject to tax unless the charge for the nontaxable
elements is reasonable and separately stated in the maintenance agreement and
separately billed on the invoice or other document of sale given to the purchaser.
Example 3:

A vendor of computer systems sells a maintenance agreement
to provide on-site training, repairs, software upgrades, and
customer support by telephone for a customer’s computer
system (hardware and prewritten software). The portion of the
cost of the agreement allocated to prewritten software
upgrades and for repair or maintenance of the computer
system hardware is taxable. However, the portion of the cost
allocated for on-site training, repairs and maintenance of the
prewritten software and telephone support is exempt if the
cost is reasonable and separately stated in the written
agreement and the customer invoice.

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Opinion
Scenario 1
A customer calls Petitioner with a request that Petitioner provide service on a printer that
keeps jamming. Petitioner logs the request and sends out one of its technicians to the customer’s
site. The technician logs travel time and the length of time spent on diagnosing and repairing the
problem. Petitioner bills the customer for diagnosis and repair of the printer and for labor and travel.
All expenses including air fare, hotel and meals, incurred by Petitioner and included in the charges
to its customers are included in the definition of "receipt" provided in Section 1101(b)(3) of the Tax
Law and Section 526.5(e) of the Sales and Use Tax Regulations. Since the charges to repair the
printer would be a taxable service under Section 1105(c)(3) of the Tax Law, the charge to a
customer for all related expenses is subject to tax. When Petitioner makes a nontaxable sale of
tangible personal property or services for which related expenses will be billed to the customer, the
amount charged to its customers, including such reimbursed expenses, is not subject to tax (see
Salomon & Leitgeb, CPA’s, LLP, Adv Op Comm T&F, July 23, 1997, TSB-A-97(44)S).
Scenario 2
A customer has a specific project that requires Petitioner to provide a technician/programmer
on-site for an extended period of time. The technician/programmer is under the direction of the
customer for the duration of the project. Petitioner bills the customer for the time the
technician/programmer has spent on-site on a month by month basis. The technician/programmer
remains the employee of Petitioner and Petitioner provides his/her salary and benefits. When an
independent contractor provides personnel to perform taxable services for its client, the fee paid by
the client for these services constitutes a receipt subject to tax under Section 1105(c) of the
Tax Law. See Pitney Bowes Management Services, Inc., Adv Op Comm T&F, January 25, 1993,
TSB-A-93(10)S. Accordingly, if Petitioner under this scenario is providing a taxable service under
Section 1105(c) of the Tax Law, such as repairing, or maintaining computer hardware, Petitioner
is required to collect sales tax on the fee charged to the customer for such taxable services,
regardless of how the charge is determined or how much Petitioner is required to pay its personnel.
To the extent that the technician/programmer performs nontaxable services such as software
maintenance, or provides custom software programming for the customer, no tax is required to be
collected by Petitioner. For additional information on the taxability of sales of computer software
and related services, Petitioner should refer to TSB-M-93(3)S, supra.
Scenario 3
A customer has a project that requires the attention of one of Petitioner’s technicians for an
extended period of time. The technician works on the project independent from the customer.
Petitioner bills customer for the labor of the technician. The technician remains the employee of
Petitioner and Petitioner provides the technician’s salary and benefits. When Petitioner provides

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personnel to perform taxable services for its client, the fee paid by the client for these services
constitutes a receipt subject to tax under Section 1105(c) of the Tax Law. Accordingly, if Petitioner
under this scenario is providing a taxable service under Section 1105(c) of the Tax Law, Petitioner
is required to collect sales tax on the fee charged to the customer for such taxable services,
regardless of how the charge is determined or how much Petitioner is required to pay its personnel.
For additional information on the taxability of sales of computer software and related services,
Petitioner should refer to TSB-M-93(3)S, supra.
Scenario 4
A customer decides that rather than paying on a use-by-use basis, it would like to buy a
service agreement that will cover the cost of labor and materials for a specific term of years.
Petitioner sells the customer a service contract for $5,000.00. Pursuant to Section 1105(c)(3) of the
Tax Law and Section 527.5(c) of the Sales and Use Tax Regulations, the sale of a maintenance or
service contract is a transaction subject to State and local sales and use taxes. In accordance with
Sections 525.2(a) and 532.1(a) of the Sales and Use Tax Regulations, the sales tax is a transaction
tax, with the liability for the tax occurring at the time of the transaction. Therefore, Petitioner must
collect the applicable tax when it sells the customer the service agreement. Where a service
agreement contains both taxable elements (e.g., service to hardware) and nontaxable elements (e.g.,
service to software), the entire agreement will be subject to tax unless the charges for the nontaxable
elements are reasonable and separately stated in the agreement and on the customer billing. See
TSB-M-93(3)S, supra.
Scenario 5
A customer calls Petitioner with a question about a problem that they are experiencing and
requests to speak with a technician. The technician asks several questions as to the nature of the
problems the customer is experiencing and offers probable causes and solutions to the customer.
Petitioner bills the customer for the time the technician has spent on the problem. Technical support
services involving assistance by telephone or otherwise in using software, problem resolution and
special programming, if performed on computer software, and professional training services are
exempt from sales tax. Charges for technical support services to computer hardware, including
assistance by telephone, are taxable charges for the maintenance, service or repair of tangible
personal property. See Section 527.5(a) of the Sales and Use Tax Regulations, also STS Systems,
Ltd., Adv Op Comm T&F, November 5, 1998, TSB-A-98(73)S. If the service provided involves
both taxable and non-taxable elements, the total charge for the service is subject to tax unless the
charge for the non-taxable service is reasonable and separately stated. For additional information
on the taxability of sales of computer software and related services, Petitioner should refer to
TSB-M-93(3)S, supra.
It should be noted that this opinion only addresses the taxation of services to computer
hardware and software in general. If Petitioner’s customers were otherwise entitled to an exemption

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from tax under Article 28 of the Tax Law ( e.g., an operator of an Internet data center, an exempt
organization, etc.) and the customer provided Petitioner with the appropriate exemption
documentation, the charges that would ordinarily be taxable might be exempt.

DATED: July 26, 2002

NOTE:

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

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