Is an Internet cafe's charge for computer workstation access exempt as Internet access service, even though food and drinks are also available on the premises from a separate vendor?

Plain-English summary

An operator of New York City Internet cafes ("Company X") provides customers with workstations — a desk, chair, and computer — solely to browse the web and check email. The workstation computers have limited pre-installed software (like document viewers) but customers can't edit or save files, insert a disk, print, play games, or download music; the machines can't be used for anything but Internet access. Customers pay either a fixed-price time ticket or a metered "credit" ticket usable at that store's workstations. Separately, an unrelated national food-chain vendor sells food and drinks on the premises (or via vending machines) from an area apart from the workstations — customers can buy food, use a workstation, or both, with no cover charge, no minimum purchase, and no requirement linking the two.

New York exempts "Internet access service" outright, including any incidental extras like an email address or website space bundled into that connection. The Department found Company X's workstation charge is exactly this: since the workstations do nothing but provide Internet/email access (no editable software, no printing, no games), the whole charge for using them is exempt, even though the charge nominally includes "use of a workstation" — that workstation use is merely incidental to the exempt Internet access itself. Because the food vendor is unrelated, operates independently, doesn't require any purchase from cafe customers, and isn't required by cafe customers to buy anything either, the two revenue streams stay separate: the food vendor collects and remits its own tax on its food/drink sales, while Company X collects none on its Internet access charges. And because there's no cover charge and food/drink is never a package deal with Internet access, the whole arrangement also escapes the separate tax on cabaret/roof-garden-style admission charges.

What this means for you

Internet cafe and co-working space operators

If your workstations are genuinely limited to providing Internet/email access — no ability to edit, save, print, or run unrelated software — your access charges qualify for New York's Internet access service exemption, even if the charge is described as including "workstation use." The moment you add real value-added services (a CD burner, fax service, editable software), those extras may need their own separate, non-exempt analysis.

Businesses hosting an unrelated food or beverage vendor on the same premises

Keep the two businesses genuinely separate to avoid pulling your exempt service into the taxable food-and-drink bucket: no cover charge, no minimum purchase requirement tying the two together, and no requirement that a customer buy from one vendor to use the other's service. If those conditions hold, each vendor is taxed (or not taxed) independently based on what it actually sells.

Businesses layering new "value-added" services onto an exempt core offering

This ruling explicitly doesn't reach future services the operator might add (CD burning, fax, extra software) — new offerings bundled onto an otherwise-exempt service need their own separate tax analysis rather than automatically riding along exempt.

Common questions

Q: Is every charge by an "Internet cafe" automatically exempt from sales tax?
A: No — the exemption depends on the workstation genuinely being limited to Internet/email access, without additional editable software, printing, gaming, or other functionality. A cafe offering broader computer services would need a different analysis for those added features.

Q: Does having a food vendor on the premises make our Internet access charges taxable?
A: Not if the food vendor is a genuinely separate business, there's no cover charge or minimum purchase, and using the workstation doesn't require buying food (or vice versa) — in that case, each vendor's sales are taxed independently.

Q: Are cover charges or minimum-purchase Internet cafes taxed the same way?
A: Not necessarily — this opinion specifically notes there are no cover fees or minimum purchase requirements in the facts presented; a cafe imposing those requirements could implicate the cabaret/roof-garden admission tax differently.

Citations and references

Statutes and rules:

• Tax Law § 1101(b)(5) (sale/purchase definition)
• Tax Law § 1101(d)(12) (roof garden/cabaret definition)
• Tax Law § 1105(d)(i), (f)(3) (restaurant food/drink tax; cabaret admission tax)
• Tax Law § 1115(v) (Internet access service exemption)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2004.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a04_27s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-04(27)S
Sales Tax
December 14, 2004

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S031113C

On November 13, 2003, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Wealth and Tax Advisory Services, Inc., 452 Fifth Avenue, 23rd Floor,
New York, NY 10018. Petitioner, Wealth and Tax Advisory Services, Inc., provided additional
information pertaining to the Petition on January 27, 2004.
The issue raised by Petitioner regarding its client (Company X), is whether charges to
customers by Company X’s Internet cafes described below are exempt from New York sales and
use tax.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Company X operates Internet cafes located within New York City at which Company X
provides access to the World Wide Web to its customers. Company X provides its customers
with Internet access points, i.e., workstations, that consist of a desk, chair and computer (with
keyboard, monitor, etc.). Food and drinks are available on Company X’s premises. Company X
rents space to an unrelated food vendor or Company X may be renting space from the unrelated
food vendor. Currently, the food vendors are national franchise food chains. The unrelated food
vendor provides food and drink from an area which is separate from the area where the
workstations are located, or the food vendor may provide food and drink through vending
machines. Customers purchase the food and drink in the separate area; they cannot buy or order
food from the workstation location. The customer can bring their food and drink purchases back
to the workstation. There are no cover fees or minimum purchase requirements to enter the
establishment. A customer may use a workstation without purchasing food or drink, purchase
food or drink only, or both use a workstation and purchase food or drink. The separate charges
for these items do not change if one, the other, or both are purchased.
The Service
Company X refers to its service as an online information service that allows customers to
browse online information for varying periods of time. Company X’s terms and conditions for
use of its service provide as follows: “By using our Service, you will be able to browse online
information and access third party web sites, including, but not limited to, search engines,
interactive news rooms, directories, and/or databases (‘third party web site(s)’).” Company X
does not make any warranties with respect to the information provided as part of the service,
including but not limited to any information published on Company X’s Web site and/or the
Internet.

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While Company X does provide workstations consisting of a desk, chair, and computer,
the customer does not have access to any software installed on the computer. Although the
workstation computers have certain software applications, such as Microsoft Word Viewer,
Excel Viewer 97, and PowerPoint Viewer 97, the customer cannot edit or save documents related
to the use of such software or insert a diskette or CD into the computer to download or save
information. The customer can merely launch documents from Web sites or e-mail and view
such documents at the workstation. Besides a calculator program, the computers do not have
games or other “canned” software packages (e.g., the customer cannot upload or download
music). The workstations cannot be used for any other purpose than accessing the World Wide
Web. While Company X may provide certain value-added services in the future (e.g., use of a
CD burner, fax service, and certain software applications), separate charges will be made for
such services.
Pricing
Company X has two types of pricing models for its service:

1. Time-Based Access (Unmetered) - Access based on a defined start and finish
   for a fixed up-front price (i.e,. 1, 7, or 20 day ticket, etc.); and
2. Credit-Based Access (Metered) - Access time is dependent upon the current
   “store rate” (i.e., cost of access per hour) at the time of log-on. Increases to the
   store rate only impact customers at log-on while decreases in the store rate impact
   all customers currently logged on.
   The credit is provided in the form of a nontransferable ticket printed with a User ID. The
   customer may turn the ticket into Internet access time at any workstation in the store, but not at
   other stores. The minimum purchase for a credit-based ticket is $1. Sales and use tax is not
   separately stated on the ticket.
   In order to access the Internet, the customer logs on at any available workstation
   computer, but cannot reserve a specific workstation or time to use the workstation. Before
   access to the Internet is granted, the customer must enter the unique User ID printed on the ticket
   purchased for Internet access time, create a password, and accept the on-screen terms and
   conditions set forth by Company X. Upon log-on, a banner across the top of the screen shows
   the customer how much credit is remaining. The customer can then begin to browse the Internet,
   with certain restrictions (e.g., Company X blocks inappropriate Web sites relating to
   pornography, terrorism, etc.).
   Applicable law and regulations
   Section 1101 of the Tax Law provides, in part:

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(b) 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:
*
*
*
(5) Sale, selling or purchase. Any transfer of title or possession or both, exchange
or barter, rental, lease or license to use or consume . . . for a consideration. . . .
*

*

*

(d) When used in this article for purposes of the tax imposed under subdivision (f)
of section eleven hundred five, the following terms shall mean:
*

*

*

(12) Roof garden, cabaret or other similar place. Any roof garden, cabaret or
other similar place which furnishes a public performance for profit, but not including a
place where merely live dramatic or musical arts performances are offered in conjunction
with the serving or selling of food, refreshment or merchandise, so long as such serving
or selling of food, refreshment or merchandise is merely incidental to such performances.
Section 1105(d)(i) of the Tax Law imposes sales tax on:
The receipts from every sale of beer, wine or other alcoholic beverages or any
other drink of any nature, or from every sale of food and drink of any nature or of food
alone, when sold in or by restaurants, taverns or other establishments in this state, or by
caterers, including in the amount of such receipts any cover, minimum, entertainment or
other charge made to patrons or customers (except those receipts taxed pursuant to
subdivision (f) of this section):
(1) in all instances where the sale is for consumption on the premises where sold;
(2) in those instances where the vendor or any person whose services are arranged
for by the vendor, after the delivery of the food or drink by or on behalf of the vendor for
consumption off the premises of the vendor, serves or assists in serving, cooks, heats or
provides other services with respect to the food or drink; and
(3) in those instances where the sale . . . is for consumption off the premises of the
vendor, except where food (other than sandwiches) or drink or both are (A) sold in an
unheated state and, (B) are of a type commonly sold for consumption off the premises
and in the same form and condition, quantities and packaging, in establishments which
are food stores other than those principally engaged in selling foods prepared and ready
to be eaten.

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Section 1105(f)(3) of the Tax Law imposes sales tax on:
The amount paid as charges of a roof garden, cabaret or other similar place in the
state.
Section 1115(v) of the Tax Law provides:
Receipts from the sale of Internet access service, including start-up charges, and the use
of such service, shall be exempt from the taxes imposed under this article. For purposes of this
subdivision, the term "Internet access service" shall mean the service of providing connection to
the Internet, but only where such service entails the routing of Internet traffic by means of
accepted Internet protocols. The provision of communication or navigation software, an e-mail
address, e-mail software, news headlines, space for a website and website services, or other such
services, in conjunction with the provision of such connection to the Internet, where such
services are merely incidental to the provision of such connection, shall be considered to be part
of the provision of Internet access service.
Opinion
Company X operates an Internet cafe located within New York City. The primary
purpose of the Internet cafe is to provide customers with online computer access to the World
Wide Web and e-mail services. While Company X does provide a computer workstation to its
customers, these workstations only provide the customer with access to the Internet, e-mail and
the ability to view files. The computer workstations do not provide the customer with any
software that would allow the customer to edit or save documents, the workstations do not have
the ability to print documents, and there are no games or other canned software packages
available on these workstations. Section 1115(v) of the Tax Law provides an exemption from
sales and use tax for the receipts from the sale of Internet access service, including start-up
charges, and the use of such service. The charges by Company X to its customers are for the use
of Internet access which is exempt from sales and use tax under section 1115(v) of the Tax Law.
Although the charge by Company X to its customers includes the use of computer workstations,
the use of the workstation is incidental to the provision of Internet access and the charge is not
subject to sales tax. However, if the customers were provided with additional use of the
workstations, the tax treatment of Company X’s charges might be different.
Sales of food or drink to customers are subject to sales tax. See section 1105(d)(i) of the
Tax Law. Under the circumstances described in this Advisory Opinion the customers purchase
food and drinks from an unrelated food vendor and these purchases are made independent of the
purchases from Company X for Internet access time. Other than renting space to or from the
food vendors, Company X is not otherwise related to the food vendor. There are no cover fees,
minimum purchase requirements, or requirements that Internet access customers purchase food
or drink. Similarly, there are no requirements that customers who purchase food or drink also
purchase Internet access time. Therefore, Company X’s charges to customers for Internet access

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do not constitute an entertainment or other charge taxable under section 1105(d)(i) of the Tax
Law. Sales tax should be collected and remitted by the unrelated food vendor on its sales of food
and drinks. No tax is due on Company X’s sales of Internet access time. Notwithstanding the
availability of food or drink, whether provided by Company X or a separate entity, Company X’s
charges to customers for Internet access as described in this Advisory Opinion do not constitute a
charge for admission to a roof garden, cabaret or similar place as contemplated in section
1105(f)(3) of the Tax Law.
Although Petitioner has stated that Company X may provide other “value-added”
services in the future, at this time it is uncertain what these services might be. Accordingly, this
Advisory Opinion does not address the taxable status of such other services.

DATED: December 14, 2004

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.