For a company that licenses proprietary hardware/software to religious organizations, sells consulting, design, and web services, and lets the public download audio/video content, which parts of the business are taxable in New York?

Plain-English summary

Spiritual Compass, LLC builds technology and marketing tools mainly for not-for-profit religious organizations (though some customers are for-profit). Its core offering, "Hemisphere," is a proprietary hardware box with encoded software that lets a customer's staff easily digitize audio messages and automatically upload them to Spiritual Compass's online library, without special technical skill. Spiritual Compass keeps ownership of the Hemisphere unit (customers must return it when the contract ends) and charges a monthly fee plus a separately stated set-up fee for the extra programming needed to interface with each customer's existing equipment. Beyond Hemisphere, Spiritual Compass sells consulting (marketing, PR, event planning, ad placement, SEO), web design, graphic design (delivered electronically), print-management coordination with a customer's own printer, editing of digitized files into finished presentations, public per-download/subscription access to its online content library, and general retail merchandise.

The Department worked through each piece separately, since New York's software and digital-goods rules turn on specific facts:

• Hemisphere hardware/software license (monthly fee): Taxable. The proprietary software is "prewritten" (not custom-built for one specific customer), so the license to use it is a taxable rental/license of tangible personal property, taxed at the rate where the unit is shipped — only deliveries within New York are taxed at all.
• Set-up fee: The custom-programming portion is exempt (customizing existing software isn't taxed if separately stated), but if the fee also covers hardware installation, the WHOLE set-up fee becomes taxable unless the taxable installation and exempt programming pieces are separately stated and reasonable.
• Training and support on using Hemisphere: Exempt, when separately stated.
• Consulting services (marketing, PR, event planning, SEO strategy, etc.): Exempt, as long as they're optional, separately stated, and not bundled with a taxable sale.
• Web site design and development: Exempt — it isn't a sale of tangible personal property and isn't on the list of enumerated taxable services.
• Graphic design/artwork: Exempt if transmitted electronically; but if delivered on physical media (disk, CD, tape), it becomes a taxable sale of tangible personal property.
• Print-management coordination (working with the customer's own printer, not printing itself): Exempt, if not bundled with a taxable sale.
• Editing digitized files into a finished presentation, delivered electronically: Exempt, since digitized audio/video/music files delivered electronically aren't tangible personal property (unlike prewritten software).
• Public per-download or subscription access to the online content library: Exempt — same reasoning as electronically-delivered digital content generally.
• General merchandise sales (electronics, clothing, books, etc.): Taxable like any ordinary retail sale, though clothing under $110/item still qualifies for the separate clothing exemption.
• Sales to exempt religious-organization customers: Not taxable if the organization is the direct purchaser/payer and gives Spiritual Compass a properly completed exemption certificate (Form ST-119.1) within 90 days.

What this means for you

Religious, nonprofit-facing SaaS/media technology companies

Your hardware-plus-software product is taxable prewritten software, but the surrounding services — consulting, web design, electronically-delivered creative work, digital content access — can be structured as exempt, as long as each is genuinely optional and separately, reasonably stated on invoices rather than bundled into one lump charge.

Businesses that deliver design or creative work electronically

Whether your graphic design or editing work is taxable often turns on the DELIVERY METHOD: electronic transmission keeps it as an exempt service, but delivering the same finished work on physical media (disk, tape, CD) converts it into a taxable sale of tangible personal property.

Nonprofit customers of technology vendors

Make sure you're the direct purchaser and payer of record, and give your vendor a properly completed Form ST-119.1 within 90 days of the sale — otherwise your vendor may have to charge you tax even though your organization would otherwise qualify as exempt.

Accountants and tax professionals

This is a comprehensive template for classifying a "digital publishing platform" business model: separate the taxable hardware/software license from the many surrounding services, apply the electronic-vs-physical-delivery test to creative work, and always check whether bundling with a taxable item (hardware installation, prewritten software) drags an otherwise-exempt service into the tax base.

Common questions

Q: Is a monthly software license fee for proprietary hardware/software taxable in New York?
A: Yes, if the software is "prewritten" (not custom-built for that one customer) — the license to use it is taxed as tangible personal property, based on the delivery location.

Q: Are consulting, web design, and digital content downloads generally taxable?
A: No, these are generally exempt in New York as long as they're genuinely separate from any taxable sale and, where applicable, separately and reasonably stated on the invoice.

Q: Does delivery method matter for digital creative work like graphic design?
A: Yes. Design work transmitted electronically is exempt, but the identical finished artwork delivered on physical media (CD, disk, tape) becomes a taxable sale of tangible personal property.

Q: Can another technology or digital-media company rely on this exact ruling?
A: No. This Advisory Opinion binds the Department only as to Spiritual Compass, LLC and the facts it described. A company with different bundling practices or delivery methods should confirm its own treatment.

Citations and references

Statutes, regulations, and guidance:

• Tax Law § 1101(b)(5) (definition of sale, including license to use software)
• Tax Law § 1101(b)(6) (tangible personal property, including prewritten software)
• Tax Law § 1101(b)(14) (definition of prewritten computer software)
• Tax Law § 1105(a) (imposition of sales tax on retail sales)
• Tax Law § 1105(c)(2) (producing, fabricating, or processing tangible personal property)
• Tax Law § 1115(a)(30) (clothing and footwear under $110 exemption)
• Tax Law § 1115(o) (exemption for services performed on computer software)
• Tax Law § 1116(a)(4) (charitable/religious organization exemption)
• Tax Law § 1132(c)(1) (presumption of taxability; exemption documentation)
• 20 NYCRR 525.2(a), 529.7(h)(2)
• TSB-M-93(3)S (Sales and Compensating Use Taxes on Computer Software, March 1, 1993)

Prior opinions cited (selected): Universal Music Group, TSB-A-01(15)S; KPMG LLP, TSB-A-00(7)S; Virtual Systems Group, TSB-A-98(71)S; Liquid Digital Information Systems Inc., TSB-A-02(7)S; Doyle Partners, TSB-A-06(32)S; Debra Horn Stachura, TSB-A-04(26)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_16s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-07(16)S
Sales Tax
June 22, 2007

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

PETITION NO. S060313A

On March 13, 2006, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Spiritual Compass, LLC, PO Box 12754, Albany, New York 12212­
2754. Additional information was provided by Petitioner, Spiritual Compass, LLC, on May 3,
2006.
The issue raised by Petitioner is whether sales tax applies to the sale or license of the
following products and services, as described below:

1. Computer hardware and proprietary software.
2. Set-up services.
3. Consulting services.
4. Design services.
5. Editing digitized files.
6. Rights to download audio, video, or music content from Petitioner’s online library on
   a per-download or subscription basis.
   Petitioner submitted the following facts as the basis for this Advisory Opinion.
   Petitioner has developed, and offers for sale, software programs and consulting services
   designed generally for not-for-profit religious organizations to meet the growing challenge of
   keeping up with emerging trends and opportunities for outreach and marketing. The primary
   software program licensed by Petitioner is an audio-publishing solution delivered via
   Hemisphere, Petitioner’s proprietary hardware package. Some of Petitioner’s customers may be
   for-profit entities.
   The Hemisphere Plug-n-Play hardware and its encoded software enables Petitioner’s
   customers to automatically digitize audio messages and add them to Petitioner’s audio library
   without requiring a customer’s staff or volunteers to have special technical expertise. A
   customer must have an Internet connection from a third-party Internet service provider as well as
   a sound board (recording device), keyboard, mouse, and monitor or an existing hardware system.
   Petitioner generally ships the Hemisphere box to a customer with instructions on how the
   customer should install it. Installation simply requires that the Internet connection be plugged
   into the Hemisphere box, which is then connected to the customer’s hardware. Petitioner

-2­
TSB-A-07(16)S
Sales Tax
June 22, 2007

provides training and support on how to use the system’s interface. Hemisphere allows a virtual
private network to be established between Petitioner and its customers.
Petitioner’s proprietary software in Hemisphere provides powerful, easy-to-use tools
allowing customers to digitize audio, video, and music content, which is automatically uploaded
to Petitioner’s online library.
Petitioner maintains ownership of the Hemisphere hardware with its proprietary software
and requires that the hardware be returned to Petitioner upon termination of the contract. Thus,
Petitioner provides its customers with the use of Hemisphere under a written contract for a pre­
determined period of time (e.g., one or two years). In addition, Petitioner’s contract requires that
Hemisphere remain at the location identified as the shipping address.
Petitioner charges a monthly fee for Hemisphere use as well as a set-up fee which is
separately stated when invoiced. The set-up fee is charged for additional programming needed
for Petitioner’s system to properly interface with the customer’s existing hardware and software.
Petitioner may also provide customers with other proprietary or third-party publishing and
management software for an additional charge.
Once a customer’s digitized content is stored in Petitioner’s online library, the public can
access the online library and purchase the rights to download audio, video, or music content
supplied by Petitioner’s customers. Such charges may be either on a per-download or
subscription basis. Purchasers electing to subscribe to Petitioner’s library are permitted to
download a specific number of files for a flat monthly charge. Petitioner allows a credit for any
subscription fees paid but not used in any specific month to be carried forward.
Petitioner provides various services to assist its customers in promoting and marketing
their digitized content. Such services are optional and separately stated on the customer’s
invoice. Consulting services may be related to marketing, promotional campaigns, program
management, public relations, event planning, and placing radio or television advertisements.
Petitioner may also consult with customers on Web site design or how to structure digitized
content for search engine optimization. Petitioner will also design a customer’s Web site upon
request.
Petitioner provides graphic design services for the Web or other electronic multi-media
activities, as well as for print. The resulting artwork is transmitted electronically to the customer
or the customer’s designee. Customers have the option to obtain print management services
whereby Petitioner will work with a customer’s designated printer to ensure that the digitized
files meet the printer’s specifications. Petitioner does not do any printing or mailing and does
not hire the third-party printer.

-3­
TSB-A-07(16)S
Sales Tax
June 22, 2007

In addition, Petitioner provides a service to assist customers with special projects
by editing the customer’s digitized audio, video, or music files into a cohesive presentation.
Petitioner also sells general merchandise such as electronic equipment, clothing, books,
etc., to both Petitioner’s customers and the public.
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:
*

*

*

(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. [Emphasis added]
(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. . . . [Emphasis added]
*

*

*

(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. . . 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

-4­
TSB-A-07(16)S
Sales Tax
June 22, 2007

enhancement, such modification or enhancement shall not constitute pre-written
computer software.
Section 1105(a) of the Tax Law imposes a tax on the receipts from every retail sale of
tangible personal property, except as otherwise provided.
Section 1105(c) of the Tax Law imposes a tax on, in part:
The receipts from every sale, except for resale, of the following services:
*

*

*

(2) Producing, fabricating, processing, printing or imprinting tangible personal
property, performed for a person who directly or indirectly furnishes the tangible
personal property, not purchased by him for resale, upon which services are performed.
Section 1115 of the Tax Law provides, in part:
(a) Receipts from the following shall be exempt from the tax on retail sales
imposed under subdivision (a) of section eleven hundred five and the compensating use
tax imposed under section eleven hundred ten:
*

*

*

(30) Clothing and footwear for which the receipt or consideration given or
contracted to be given is less than one hundred ten dollars per article of clothing, per pair
of shoes or other articles of footwear or per item used or consumed to make or repair
such clothing and which becomes a physical component part of such clothing.
*

*

*

(o) 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 1116(a) of the Tax Law provides, in part:

-5­
TSB-A-07(16)S
Sales Tax
June 22, 2007

Except as otherwise provided in this section, any sale or amusement charge by or
to any of the following or any use or occupancy by any of the following shall not be
subject to the sales and compensating use taxes imposed under this article:
*

*

*

(4) Any corporation, association, trust, or community chest, fund, foundation, or
limited liability company, organized and operated exclusively for religious, charitable,
scientific, testing for public safety, literary or educational purposes . . . no part of the net
earnings of which inures to the benefit of any private shareholder or individual, no
substantial part of the activities of which is carrying on propaganda, or otherwise
attempting to influence legislation . . . and which does not participate in, or intervene in
(including the publishing or distributing of statements),any political campaign on behalf
of any candidate for public office;
Section 1132(c)(1) of the Tax Law provides, in part:
For the purpose of the proper administration of this article and to prevent evasion
of the tax hereby imposed, it shall be presumed that all receipts for property or services of
any type mentioned in subdivisions (a), (b), (c) and (d) of section eleven hundred five . . .
are subject to tax until the contrary is established, and the burden of proving that any
receipt . . . is not taxable hereunder shall be upon the person required to collect tax or the
customer. Except as provided in subdivision (h) or (k) of this section, unless . . . (ii) the
purchaser, not later than ninety days after delivery of the property or the rendition of the
service, furnishes to the vendor: any affidavit, statement or additional evidence,
documentary or otherwise, which the commissioner may require demonstrating that the
purchaser is an exempt organization described in section eleven hundred sixteen, the sale
shall be deemed a taxable sale at retail.
Section 525.2 (a) of the Sales and Use Tax Regulations provides, in part:
(2) 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 . . . .
(3) Except as specifically provided otherwise, the sales tax is a “destination tax.”
The point of delivery or point at which possession is transferred by the vendor to the
purchaser, or the purchaser's designee, controls both the tax incidence and the tax rate.

-6­
TSB-A-07(16)S
Sales Tax
June 22, 2007

Section 529.7(h)(2) of the Sales and Use Tax Regulations provides:
In order to exercise its right to exemption the organization must be the direct
purchaser, occupant or patron of record. It must also be the direct payer of record and
must furnish its vendors with a properly completed exempt organization certification.
Direct purchaser, occupant or patron as used in this paragraph includes any agent or
employee authorized by the organization to act on its behalf in making such purchases,
provided the organization and its agent or employee are both identified on any bill or
invoice. An organization is the direct payer of record where direct payment is made by
the organization or from its funds directly to the vendor.
Technical Services Bureau Memorandum entitled State and Local Sales and
Compensating Use Taxes Imposed on Certain Sales of Computer Software, March 1, 1993,
TSB-M-93(3)S, states, in part:
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. Thus, a payment made by a customer . . . for a license to use, or for the
rental or lease of prewritten software is subject to sales or use tax. . . .
Software that was originally designed and developed to the specifications of a specific
purchaser (i.e., “custom” software) loses its identity as such and becomes prewritten
software, subject to tax, if and when it is sold to someone other than the person for whom
it was specifically designed and developed. . . .
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.

-7­
TSB-A-07(16)S
Sales Tax
June 22, 2007

Example 1. A software developer creates an accounting system using prewritten software
modules for general ledger, accounts receivable, accounts payable, payroll, inventory
management, etc. The developer may also sell the modules separately or bundled in other
packages. Even though the modules may be modified to the specific requirements of the
client's business, the sale of the modules is subject to sales or use tax as prewritten
software. An additional charge for modification or “custom” programming by the
developer would not be subject to sales or use tax if the developer's charge for the
modification is reasonable and is separately stated on the billing statement.
*

*

*

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 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 prewritten. 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.

-8­
TSB-A-07(16)S
Sales Tax
June 22, 2007

Opinion
Petitioner has developed software programs designed generally for not-for-profit
religious organizations. Petitioner’s audio-publishing software is delivered via Hemisphere,
Petitioner’s proprietary hardware/software package. The Hemisphere hardware and Petitioner’s
proprietary software provide its customers with powerful, easy-to-use tools allowing customers
to digitize their audio, video, and music content, which is automatically uploaded to Petitioner’s
online library.
Petitioner maintains ownership of Hemisphere with its proprietary software and requires
that the Hemisphere package be returned to Petitioner upon termination of the contract. The
Hemisphere package is delivered to and must be kept at the customer’s location. Petitioner
charges a monthly fee for the use of the Hemisphere package and a set-up fee that are separately
stated when invoiced. The set-up fee covers additional programming needed for Petitioner’s
system to properly interface with a customer’s equipment. Petitioner may also provide
customers with other proprietary or third-party publishing and management software and various
consulting, design, and editing services for an additional charge.
Petitioner’s online library is available to the public where anyone may, for a fee,
download audio, video, or music content supplied by Petitioner’s customers. Petitioner also sells
general merchandise like electronic equipment, clothing, books, etc., to both its customers and
the public.
Petitioner’s proprietary software, as well as any third-party software provided to
customers, is considered to be prewritten computer software since it does not appear that
Petitioner has designed this software to the specifications of a specific purchaser for sale only to
that purchaser. See section 1101(b)(14) of the Tax Law. Such software is tangible personal
property for sales tax purposes. See section 1101(b)(6) of the Tax Law. Thus, the customer’s
license to use Petitioner’s software, whether encoded in the Hemisphere hardware or otherwise
provided to the customer, is the license to use prewritten software subject to sales tax when used
by customers located within New York State. Petitioner’s monthly charges for the use of
Petitioner’s Hemisphere package are considered to be receipts from the license or rental of
tangible personal property and are subject to sales tax. See sections 1101(b)(5) and 1105(a) of
the Tax Law.
The point at which possession of tangible personal property is transferred by the vendor
to the purchaser, or the purchaser's designee, controls both the tax incidence and the tax rate. See
section 525.2(a)(3) of the Sales and Use Tax Regulations. Thus, when Hemisphere is delivered
within New York State, the point of delivery (i.e., the shipping address) dictates the tax rate used
to compute the appropriate State and local sales tax on the monthly charge. Since the point of
delivery determines taxability of a sale, only the charges attributable to customers located in
New York State are subject to sales tax. Petitioner’s bills of lading or other shipping documents

-9­
TSB-A-07(16)S
Sales Tax
June 22, 2007

showing out-of-state delivery of Hemisphere are considered sufficient documentation of the
nontaxability of out-of-state sales.
A large number of Petitioner’s customers are religious organizations that may be exempt
from sales and use tax pursuant to section 1116(a)(4) of the Tax Law. Petitioner is not required
to collect tax on sales of taxable tangible personal property and services to organizations that are
exempt from sales tax pursuant to section 1116(a)(4) of the Tax Law if the organization is the
direct purchaser and payer of record and it furnishes Petitioner a properly completed Exempt
Organization Exempt Purchase Certificate, Form ST-119.1, within 90 days of the sale. See
section 529.7(h)(2) of the Sales and Use Tax Regulations. Acceptance of a properly completed
exemption certificate by Petitioner in good faith will satisfy Petitioner’s burden of proof
regarding the exempt status of the sale. See section 1132(c)(1) of the Tax Law.
Petitioner charges a set-up fee for any additional programming needed for Petitioner’s
system to properly interface with a customer’s existing equipment. Such charges are for
customizing software, which is not subject to sales tax when separately stated on a customer’s
invoice. If the set-up fee includes charges for installation of hardware, the entire set-up fee is
subject to sales tax unless the taxable installation fee and nontaxable programming fee are
separately stated and reasonable. In addition, any separately stated charges to customers for
training and support on how to use Hemisphere are not subject to sales tax. See TSB-M-93(3)S,
supra.
Petitioner provides consulting services to customers related to marketing, promotional
programs, program management, public relations, event planning, placing radio or television
advertisements, Web site design, and structuring digitized content for search engine
optimization. Such consulting services are optional and separately stated on a customer’s
invoice. Section 1105(c) of the Tax Law imposes sales tax on certain enumerated services. The
consulting services described by Petitioner are not among the enumerated services subject to
sales or use tax; therefore, Petitioner’s charges for consulting services are not subject to sales tax
provided that they are not performed in conjunction with the sale of tangible personal property or
other taxable services. See KPMG LLP, Adv Op Comm T&F, February 2, 2000, TSB-A-00(7)S;
Virtual Systems Group, Adv Op Comm T&F, October 9, 1998, TSB-A-98(71)S; Salomon &
Leitgeb CPA's, LLP, Adv Op Comm T&F, July 23, 1997, TSB-A-97(44)S.
Petitioner also designs a customer’s Web site upon request. The Web site development
services provided by Petitioner, which involve consulting, designing, and creating Web sites, do
not constitute the sale of tangible personal property and are not included among the enumerated
services that are subject to New York State and local sales or use tax. See Liquid Digital
Information Systems Inc., Adv Op Comm T & F, May 30, 2002, TSB-A-02(7)S; Alan J.
Goldstein/The Computer Studio, Adv Op Comm T & F, July 31, 2001, TSB-A-01(21)S; David
H. Posmantier, Adv Op Comm T&F, June 7, 1999, TSB-A-99(31)S. Accordingly, Petitioner’s

- 10 ­
TSB-A-07(16)S
Sales Tax
June 22, 2007

charges for Web site development are not subject to sales tax provided they are not performed in
conjunction with the sale of tangible personal property or taxable services.
Petitioner also offers a graphic design service. The resulting artwork is always
transmitted electronically to a customer or a customer’s designee. Digitized artwork transmitted
electronically is not subject to sales tax provided it is not performed in conjunction with the sale
of tangible personal property or taxable services. If such artwork is transmitted by other means,
such as tape, disk, CD, etc., such sales may constitute sales of tangible personal property subject
to tax. See Doyle Partners, Adv Op Comm T&F, December 29, 2006, TSB-A-06(32)S; Debra
Horn Stachura, Adv Op Comm T&F, November 22, 2004, TSB-A-04(26)S; Gentile, Wiener,
Penta & Co. CPA's PC., Adv Op Comm T&F, December 27, 1996, TSB-A-96(91)S.
Customers have the option to purchase print management services. Petitioner will work
with a customer’s designated printer to ensure that the customer’s digitized files, delivered
electronically, meet the printer’s specifications. Such services are not among the enumerated
services subject to New York State and local sales or use tax; therefore, Petitioner’s charges for
such services are not subject to sales tax provided they are not performed in conjunction with the
sale of tangible personal property or taxable services.
Petitioner provides a service to assist customers with special projects by editing digitized
audio, video, or music files into a cohesive presentation, which is then delivered electronically to
the customer or placed in Petitioner’s online library. Section 1105(c)(2) of the Tax Law taxes
the services of producing, fabricating, or processing tangible personal property. However, since
digitized audio, video, and music files delivered electronically or online are, with the exception
of prewritten software, not tangible personal property, charges for the editing services
electronically delivered to the customer are not subject to sales tax. 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.
Petitioner charges the public a fee to download audio, video, or music content from
Petitioner’s online library that is populated by Petitioner’s customers’ content. Charges for
music, audio recordings, or artwork delivered electronically for download on customers’
computers or other devices are not sales of tangible personal property and are thus not subject to
sales tax. See Debra Horn Stachura, supra; Universal Music Group, supra. Therefore,
Petitioner's charges for such electronic transfer of its digital products for download, whether per
download or by subscription, are not subject to sales tax provided they are not in conjunction
with the sale of tangible personal property or taxable services.
Petitioner also sells general merchandise like electronic equipment, clothing, books, etc.
to both its customers and the public. Charges for the sale of tangible personal property are
generally subject to sales tax. See section 1105(a) of the Tax Law. However, Petitioner is not
required to collect sales tax on sales to organizations exempt under section 1116(a)(4) of the Tax

- 11 ­
TSB-A-07(16)S
Sales Tax
June 22, 2007

Law provided Petitioner receives a properly completed Exempt Organization Exempt Purchase
Certificate, Form ST-119.1, within 90 days of the sale. It should be noted that sales of clothing
costing less than $110 per article of clothing are exempt from State sales tax and may be exempt
from local sales tax. See section 1115(a)(30) of the Tax Law and Technical Services Bureau
Memorandum entitled Year-Round Sales and Use Tax Exemption of Clothing, Footwear, and
Items Used to Make or Repair Exempt Clothing, March 29, 2006, TSB-M-06(6)S and Local
Sales and Use Tax Rates On Clothing and Footwear, Publication 718-C (2/07). When taxable
items are delivered within New York State, the point of delivery (i.e., the shipping address)
dictates the tax rate used to compute the appropriate State and local sales tax. Since the point of
delivery determines taxability of a sale, only the charges attributable to sales delivered in
New York State are subject to sales tax.

DATED: June 22, 2007

NOTE:

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

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the
person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.