Is an early Internet "presence provider"'s web page development service subject to New York sales tax?

Plain-English summary

Ski Soft, Inc., doing business as Ski Areas of New York Internet Publishing Services, is what the Department calls a "presence provider" -- it builds Web pages for ski-related and non-ski-related clients who want a presence on the Internet, organizing content and electronically publishing it. Once a page is built, Ski Soft uses File Transfer Protocol to send the finished data to an outside Internet Service Provider (ISP), which actually hosts the pages; Ski Soft pays the ISP for hosting and passes that cost through to its own clients along with its development fee. Ski Soft doesn't sell or transfer any tangible personal property to clients, and doesn't perform any service on tangible personal property. It asked the Department whether its web page development fees are subject to sales tax.

The Department said no, for two independent reasons. First, web page development isn't among the services New York specifically lists as taxable under Tax Law § 1105(c) -- it's simply outside the enumerated list. Second, to whatever extent the pages Ski Soft builds are advertising in nature, advertising services are separately and specifically excluded from tax. Either reason is enough on its own, so receipts from Ski Soft's web page development services -- including the pass-through hosting fees -- are entirely untaxed.

This ruling (issued June 25, 1997) became one of the Department's go-to citations for the flurry of early Internet-business advisory opinions that followed it later that same year, including rulings on custom web-site design agencies and individual web-page designers.

What this means for you

Web developers, presence providers, and hosting resellers

Charging clients for building and publishing Web pages -- and passing through third-party hosting fees -- isn't subject to New York sales tax, as long as you aren't also selling or transferring tangible personal property or performing a taxable service on tangible personal property as part of the engagement.

Businesses whose Web content is advertising-oriented

Even setting aside the "not an enumerated service" analysis, web development work that's advertising in nature gets a second, independent basis for exemption under the advertising-services exclusion.

Common questions

Q: Is all Web development work automatically untaxed in New York?
A: This ruling addressed page design/publishing services with no transfer of tangible personal property and no services performed on tangible personal property -- that combination is what kept it out of the tax base. Selling software, hardware, or performing services on tangible property alongside the development work could change the analysis.

Q: Are pass-through hosting fees taxed differently from the development fee?
A: Not in this ruling -- both the development fee and the passed-through ISP hosting charge were treated the same way and found untaxed.

Q: Does this ruling apply to my web development business?
A: Not automatically. An Advisory Opinion binds the Department only for the taxpayer and facts it was issued to, and it can't be relied on by anyone else.

Citations and references

• Tax Law § 1105(c) (enumerated taxable services)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1997.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a97_35s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(35)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S970303A

On March 3, 1997, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Ski Soft, Inc., d/b/a Ski Areas of New York
Internet Publishing Services, 2144 Currie Road, Tully, New York 13159.
Petitioner, Ski Areas of New York Internet Publishing Services, provided
additional information pertaining to the Petition on April 18, 1997.
The issue raised by Petitioner is whether receipts from the sales of its
Web page development services are subject to New York State and local sales and
compensating use taxes.
Petitioner submitted the following facts as the basis for this Advisory
Opinion. Petitioner also provided its Web address (URL) as a link to the Web
pages developed for its clients.
Petitioner is considered a “presence provider.”
That is, Petitioner
develops Web pages for ski and non-ski related clients who wish to have a
presence on the Internet. Petitioner provides its Web page development services
to clients by organizing content for the Web pages and then electronically
publishing the data.
Once the Web pages are created, Petitioner uses File Transfer Protocol
(FTP) to transfer the data via modem to Internet Service Providers (ISP) who host
the Web pages. Petitioner pays fees to the ISPs for these services.
Petitioner does not make any sales or other transfers of tangible personal
property to its clients nor does it perform any services on tangible personal
property as part of its Web page development services.
Clients are charged fees for the development services and Petitioner passes
through to the clients the hosting fees that are charged by the ISPs.
Opinion
The Web page development services that are provided by Petitioner to its
clients are not included among the enumerated services that are subject to New
York State and local sales and compensating use taxes. Moreover, to the extent

-2­
TSB-A-97(35)S
Sales Tax

that the Web pages developed by Petitioner are of an advertising nature, the
services of advertising are specifically excluded from tax.
Accordingly,
receipts from the sales of Petitioner’s Web page development services are not
subject to New York State and local sales and compensating use taxes.

DATED:

June 25, 1997

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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