Is the sale of a video delivered electronically over the Internet subject to New York sales or use tax?

Plain-English summary

Apple Computer stores a digital catalog of videos — music-video-style clips, short films, and TV episodes it's licensed (but doesn't own) — on a California server and sells them to customers, who download the content over the Internet using free proprietary software. The video isn't broadcast live and can't be watched while downloading (unlike a live stream or webcast); once downloaded, it stays on the customer's device and can be copied to a limited number of other devices.

The Department ruled these downloadable video sales are NOT subject to New York sales or compensating use tax. The reasoning tracks two established doctrines. First, from the Department's own film-industry guidance: while sales tax normally applies to hard-copy film sales, it does NOT apply to a film sold and delivered electronically or digitally, wherever that delivery happens. Second, and more directly, the Department had already ruled that electronically delivered MUSIC and PHOTOGRAPHS are intangible property, not taxable sales of tangible personal property or prewritten software — and applied that same logic here: downloadable video, like downloadable music and photos, is an intangible, not a taxable good. That's a different result from prewritten software delivered electronically, which stays taxable under the statute's express inclusion of software "regardless of the medium" of delivery.

The Department also confirmed this isn't a taxable "information" or "entertainment" service under the telephony-service provisions, because the video isn't delivered live or in real time and can't be watched mid-download — those provisions are aimed at real-time content delivery, not stored downloads.

What this means for you

Digital content sellers (video, music, images)

Selling video, music, or photo content for electronic download is not a taxable sale in New York, as long as the content isn't itself prewritten software and isn't delivered as a live/real-time broadcast. This tracks the same "intangible property" treatment New York has already given to downloadable music and photos.

Software companies bundling media with software

Don't assume this exemption extends to your software products — prewritten software delivered electronically remains fully taxable under New York's express statutory language, regardless of delivery medium. Keep video/media downloads and software downloads on separate, distinctly taxed lines if you sell both.

Streaming and live-broadcast services

This ruling doesn't cover live or real-time content. The Department's reasoning turned partly on the fact the video couldn't be watched while downloading and wasn't broadcast live — a genuine live-streaming or webcast product could be analyzed differently under the telephony-service provisions.

Common questions

Q: Is selling a downloadable video taxable in New York?
A: No — downloadable video is treated like downloadable music and photographs: intangible property, not a taxable sale of tangible personal property.

Q: Does it matter that the video is copyrighted content the seller doesn't own?
A: No — the analysis turns on the nature of the transaction (download of intangible content) rather than on who owns the underlying copyright.

Q: What about prewritten software sold the same way?
A: Prewritten software delivered electronically stays taxable, because the statute expressly taxes it "regardless of the medium" of delivery — a key contrast with video/music/photo content.

Q: Can another company rely on this Advisory Opinion?
A: No. It's binding only on the Department for the specific petitioner and facts described; another business should confirm its facts match, or request its own ruling.

Citations and references

Statutes and publications:

• Tax Law §§ 1101(b)(4), (5), (6) (retail sale; sale/selling/purchase; tangible personal property)
• Tax Law § 1105(a) (retail sale of tangible personal property)
• Tax Law § 1105(c)(1), (c)(9)(i) (information/entertainment services)
• Tax Law § 1110 (compensating use tax)
• Publication 28, A Guide To Sales Tax for the Film Industry

Prior rulings referenced:

• Universal Music Group, TSB-A-01(15)S
• Martin R. Timm, TSB-A-05(34)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2007.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a07_11s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-07(11)S
Sales Tax
April 12, 2007

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S060411A

On April 11, 2006, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Apple Computer, Inc., c/o Terry Ryan, Director of Tax, 1 Infinite Loop,
Cupertino, California 95014. Petitioner, Apple Computer, Inc., furnished additional information
with respect to the Petition on May 15, 2006.
The issue raised by Petitioner is whether the sale of a video delivered electronically over
the Internet is subject to sales and use tax.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner, a California company, will store a digitized catalog of videos and video
content on a server located in California. The videos will be for sale to its customers.
Customers, using their computers, will purchase the videos, which will be delivered to them
electronically over the Internet. Customers will pay for the digitized content in one of a number
of ways, including with a credit card issued by a third-party financial institution. The video
content will be delivered electronically in digital form and will be stored on the customer’s
computer or other device. Customers cannot watch the video while it is being downloaded.
Further, the content will not be broadcast “live” or in “real-time.” The videos are unlike the
“streaming” of radio or television broadcasts or “Webcasts.” In order to be able to download a
video to a computer or other device, customers will be required to download and install
proprietary software (the proprietary software required is available for download on Petitioner’s
Web site free of charge) on their computer or other device.
A downloaded video will remain on the customer’s computer or other device and may be
copied to a limited number of CDs, personal computers, or handheld electronic devices. The
catalog of videos available for download will consist of copyrighted content that Petitioner is
licensed to distribute, but that is not owned by Petitioner. Video content may include the
following:

1. MTV- style music videos and other short clips including sports;
2. movie clips and short motion pictures (e.g., animated shorts from unaffiliated
   studios); and
3. individual television episodes.
   Applicable law and regulations
   Section 1101(b) of the Tax Law provides, in part:

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TSB-A-07(11)S
Sales Tax
April 12, 2007

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:
*

*

*

(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, . . .
*

*

*

(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.
However, except for purposes of the tax imposed by subdivision (b) of section eleven
hundred five, such term shall not include gas, electricity, refrigeration and steam. 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. . . .
Section 1105 of the Tax Law provides, in part:
Imposition of sales tax On and after June first, nineteen hundred seventy-one,
there is hereby imposed and there shall be paid a tax . . . upon:
(a) The receipts from every retail sale of tangible personal property, except as
otherwise provided in this article.
*

*

*

(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

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TSB-A-07(11)S
Sales Tax
April 12, 2007

which is personal or individual in nature and which is not or may not be substantially
incorporated in reports furnished to other persons, . . .
*

*

*

(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. . . .
Section 1110 of the Tax Law provides, in part:
Imposition of compensating use tax (a) 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, . . .
A Guide To Sales Tax for the Film Industry, Publication 28 (5/05), at p. 11,
provides, in part:
Sale of a film
Unless otherwise exempt, sales and use taxes are imposed on the total selling
price of a film. The vendor selling the film is responsible for collecting sales tax based
on the rate of tax in effect in the taxing jurisdiction where the film or tape is delivered.
There is no New York sales and use tax imposed on the outright sale of a film when the
film is delivered out of state. A film is deemed to be delivered where the original
negative is delivered.
*

*

*

It should be noted, however, sales tax is not imposed on the outright sale of a film
or the granting of a license to exhibit or use the film to a distributor or broadcaster, when
the film is delivered electronically or digitally, whether such delivery takes place within
or without New York State.

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TSB-A-07(11)S
Sales Tax
April 12, 2007

Opinion
Petitioner will store a digitized catalog of videos and video content on a server located in
California. The videos will be offered for sale to its customers and will be delivered to them
electronically over the Internet. Customers will store the videos on their computer or other
device.
Generally, absent some exempt use, the sale of a hard copy of a film is subject to sales
tax. However, sales tax is not imposed on the sale of a film when the film is delivered
electronically or digitally, whether such delivery takes place within or without New York State.
See Publication 28, supra.
While receipts from the sale of prewritten software delivered electronically are subject to
the sales tax pursuant to sections 1101(b)(6) and 1105(a) of the Tax Law, sales of music and
photographs delivered electronically are not considered to be sales of software. In the same way
that audio content (music) and visual content (photographs) delivered electronically are not
subject to sales tax, the receipts from sales of videos that are delivered to customers
electronically over the Internet and downloaded for use on the customer’s computer or other
device likewise are receipts from the sale of an intangible and are not subject to sales or
compensating use tax under section 1105(a) or 1110(a)(A) of the Tax Law. (See Universal Music
Group, Adv Op Comm T&F, April 18, 2001, TSB-A-01(15)S; Martin R. Timm, Adv Op Comm
T&F, September 27, 2005, TSB-A-05(34)S.)
Information and entertainment services delivered via telephony and telegraphy are
subject to sales tax pursuant to section 1105(c)(1) or 1105(c)(9) of the Tax Law. However,
Petitioner states that the video content will not be broadcast “live” or in “real-time,” and that
customers cannot watch the videos while they are being downloaded. The use of the Internet to
sell and electronically deliver a video for download to a customer’s computer or other device, as
described in this Opinion, does not constitute the provision of a taxable information service or
entertainment service within the meaning and intent of section 1105(c)(1) or 1105(c)(9) of the
Tax Law.

DATED: April 12, 2007

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.