Does New York sales tax apply to executive-education course materials, textbooks, and licensing fees charged alongside teaching services?

Plain-English summary

O'Keefe & Company asked the Department to analyze 17 different scenarios describing how a hypothetical executive-education provider ("the Smith Company") charges its clients for course textbooks, custom or generic course materials, and teaching services. The scenarios vary the billing structure: sometimes Smith reproduces and sells physical copies for a per-copy fee; sometimes it hands over one master copy (paper or electronic) and charges a licensing fee based on the client's own reproduction of the material; sometimes the fee is a flat annual charge, a lump sum, or tied to future access rights.

The Department's analysis boils every scenario down to three underlying transaction types, each with its own tax treatment: selling a physical textbook or copy is a taxable sale of tangible personal property under § 1105(a) -- true in scenarios where Smith itself reproduces copies for the class and bills for them. Teaching the class is a nontaxable service, full stop, in every scenario. And licensing a true reproduction right -- where Smith transfers a single master copy but the written agreement makes clear only reproduction rights are sold, not the underlying property itself -- is nontaxable, following the same reproduction-rights doctrine used for artwork and renderings (20 NYCRR § 526.7(f)). The key line: if the original document is permanently transferred to the customer, or the agreement doesn't clearly limit the transfer to reproduction rights only, the whole transaction becomes a taxable sale of tangible personal property instead.

A few of the 17 scenarios also work through timing and resale rules: tax is due when the books are actually transferred, regardless of when Smith bills for them; a sale of generic materials to a retailer for resale is exempt with a resale certificate; and a license for mere future access to materials -- with no current exchange of anything -- has no tax due until an actual transaction occurs.

What this means for you

Training companies, course developers, and content licensors

Whether your course-material charges are taxable turns on the paperwork, not just the business reality. If you want a licensing arrangement to be treated as a nontaxable reproduction right rather than a taxable sale, your written agreement needs to say so explicitly and the underlying document must not be permanently handed over -- ambiguity or permanent transfer converts the whole fee into a taxable sale.

Corporate clients buying training programs

Separately itemizing the teaching-service fee from any materials fee matters. If your provider is actually selling you copies (or the master document outright) rather than merely licensing you to reproduce it, expect sales tax on that portion regardless of how the invoice bundles it with instruction.

Accountants and tax professionals

This ruling is a useful decision tree for any bundled content-plus-service fact pattern: identify whether each fee component is (1) a service (nontaxable), (2) a sale of tangible personal property (taxable under § 1105(a)), or (3) a true reproduction-rights license meeting all of 20 NYCRR § 526.7(f)'s conditions (nontaxable) -- and remember that ambiguous licensing language defaults to taxable.

Common questions

Q: Is a licensing fee for course materials automatically exempt from sales tax?
A: No. It's only exempt if the written agreement clearly limits the transfer to reproduction rights and the original document isn't permanently transferred. Otherwise the fee is taxed as a sale of tangible personal property.

Q: When is tax due if a provider reproduces books all year but bills for them once annually?
A: Tax is due for the reporting period in which each book is actually transferred to the customer, not the period in which the annual invoice is sent.

Q: Does this ruling apply to my training or content-licensing 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. It shows how the Department reasons through many scenarios, but your facts may differ.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4) (resale exclusion)
• Tax Law § 1105(a) (tax on retail sales of tangible personal property)
• Tax Law § 1132(c) (resale certificate requirement)
• 20 NYCRR § 525.2(a)(2) (sales tax as a "transactions tax")
• 20 NYCRR § 526.6(c) (resale exclusion)
• 20 NYCRR § 526.7(f) (reproduction rights)
• 20 NYCRR § 532.1(a)(2) (reporting tax on deferred-payment sales)
• 20 NYCRR § 532.4 (resale certificates)

Cases referenced: Howitt v. Street and Smith Publications, Inc., 276 N.Y. 345; Matter of Frissell v. McGoldrick, 300 N.Y. 370.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1998.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a98_36s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(36)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S971118C

On November 18, 1997, the Department of Taxation and Finance received a
Petition for Advisory Opinion from O’Keefe & Company, 115 Broadway, Hicksville,
New York 11801.
The issue raised by Petitioner, O’Keefe & Company, is whether any part of
the charges for executive education courses, as described in the scenarios below,
is subject to sales and use tax.
Petitioner submits the following facts as the basis for this Advisory
Opinion.
Common facts for scenarios 1-8

1. The Smith Company teaches executive education courses.
   The Smith Company has a 100-page document, which serves as a textbook for its
   intensive course. The Smith Company has the copyright to this document.
   SCENARIO 1: The Smith Company reproduces one copy of this document for each class
   participant. It charges its customers a fee for each 100-page document reproduced
   for the participants of the class and charges its customers a fee for teaching
   the class. The fee for teaching the class and the fee for the number of textbooks
   reproduced for the class are billed jointly on the invoice for a particular
   class.
   SCENARIO 2: The Smith Company reproduces one copy of this document for each class
   participant. It charges its customers a fee for each 100-page document reproduced
   for the participants of the class and charges its customers a fee for teaching
   the class. The fee for teaching the class is billed concurrently with the
   teaching of each class. The fee for the number of textbooks reproduced for all
   the classes taught for the customer during the year is billed separately once a
   year.
   SCENARIO 3: The Smith Company provides its client with one paper copy of this
   document and charges an annual licensing fee based on an estimated level of usage
   by class participants in addition to a fee for teaching the class. The client
   reproduces the text for its employees who participate in the class.
   SCENARIO 4: The Smith Company provides its client with one electronic copy of
   this document and charges an annual licensing fee based on an estimated level of
   usage by class participants. The client reproduces the text for its employees who
   participate in the class.
   SCENARIO 5: The Smith Company provides its client with one paper copy of this
   document and charges an annual licensing fee based on the size of the client in
   addition to a fee for teaching the class. The client reproduces the text for its

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employees who participate in the class but also has the right to reproduce as
many copies as the client requires, regardless of the number of class
participants.
SCENARIO 6: The Smith Company provides its client with one electronic copy of
this document and charges an annual licensing fee based on the size of the client
in addition to a fee for teaching the class. The client reproduces the text for
its employees who participate in the class but also has the right to reproduce
as many copies as the client requires, regardless of the number of class
participants.
SCENARIO 7: The Smith Company provides its client with either one hard copy or
one electronic copy of the document. It charges a one-time lump-sum fee for the
right to use and reproduce the document provided the client continues to use the
Smith Company to teach the course. The agreement can limit the reproduction to
current participants in courses, or future participants in courses, or client
employees. The Smith Company also charges a fee for each class taught.
SCENARIO 8: The Smith Company provides its client with either one hard copy or
one electronic copy of the document. It charges a one-time lump-sum fee for the
right to use and reproduce the document regardless of whether the client
continues to use the Smith Company to teach the course. The agreement can limit
the reproduction to current participants in courses, or future participants in
courses, or client employees. The Smith Company also charges a fee for each class
taught.
Common facts for scenarios 9-11:
1.
The Smith Company custom develops unique executive education courses or
unique course materials for use by its clients. Course materials could consist
of exercises, problems, and questions to be answered by class participants
relating, for example, to areas such as business ethics. It is important for
these scenarios to emphasize that these materials are custom developed for a
particular client. The Smith Company has the copyright to these materials.
2.

The Smith Company does not teach these courses.

3.
The value of the courses does not relate to a generic arrangement of
material but rather to the unique intellectual insight and experience of the
course and material developers. The document is tailored to the individual needs
of clients.
SCENARIO 9: The Smith Company reproduces these materials for the number of
participants required by the client for a per copy fee.
SCENARIO 10: The Smith Company licenses the right to use its materials for a fee
and then charges the client an additional fee for each copy of the material
provided.
SCENARIO 11: The Smith Company provides the client with either one hard copy or
one electronic copy of materials. The client pays either:

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a)

A fee for each copy reproduced by client.

b)

An annual licensing fee plus a per copy fee for each copy reproduced
by client.

c)

A flat annual licensing fee based on estimated usage.

d)

A one-time lump-sum fee for the right to use and reproduce the
materials subject to negotiated restrictions.
Common facts for scenarios 12-17:

1. The Smith Company develops generic executive education courses or generic
   course materials for use by its clients. Course materials are defined as
   previously indicated.
   The Smith Company has the copyright to the course
   materials.
2. The Smith Company does not teach these courses.
3. The value of the courses does not relate to a general arrangement of material
   but rather to the unique intellectual insight and experience of the course and
   material developers.
   The document is tailored to the individual needs of
   clients.
   SCENARIO 12: The Smith Company reproduces these materials for the number of
   participants required by the client for a per copy fee.
   SCENARIO 13: The Smith Company licenses the right to use its materials for a fee
   and then charges the client an additional fee for each copy of the material
   provided.
   SCENARIO 14: The Smith Company provides the client with either one hard copy or
   one electronic copy of materials. The client pays either:
   e)
   f)
   g)
   h)

A fee for each copy reproduced by client.
An annual licensing fee plus a per copy fee for each copy reproduced
by client.
A flat annual licensing fee based on estimated usage.
A one-time lump-sum fee for the right to use and reproduce the
materials subject to negotiated restrictions.

SCENARIO 15: The Smith Company licenses to its client and provides an electronic
copy which the client publishes on an internal Website which its employees can
access and either read or print out. The client is billed either:
a)

A flat fee for the use of materials.

b)

A fee for each download by the clients employees.

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SCENARIO 16: The Smith Company privately publishes and sells its generic
materials to retail establishments for resale.
SCENARIO 17: The Smith Company licenses the right to future access to its
materials or courses. This means that the client has the right to approach the
Smith Company in the future and arrange a mutually agreeable price for copies of
materials or courses. The license fee does not contemplate any current exchange
of materials or courses.
Applicable Law and Regulations
Section 1105(a) of the Tax Law imposes a tax upon “[T]he receipts from
every retail sale of tangible personal property, except as otherwise provided in
this article.”
Section 525.2(a)(2) Of the Sales and use Tax Regulations provides:
The sales tax is a “transactions tax,” liability for the tax
occurring at the time of the transaction. Generally speaking, the
taxed transaction is an act resulting in the receipt of
consideration for the transfer of title, or possession or both to
property or the rendition of services from one person to another.
The time or method of payment is immaterial, since the tax becomes
due at the time of transfer of property or rendition of service.
(Emphasis supplied)
Section 526.6 of the Sales and Use Tax Regulations provides:
(c) Resale Exclusion. (1) Where a person, in the course of his
business operations, purchases tangible personal property or
services which he intends to sell, either in the form in which
purchased, or as a component part of other property or services, the
property or services which he has purchased will be considered as
purchased for resale, and therefore not subject to tax until he has
transferred the property to his customer.
Section 526.7 of the Sales and Use Tax Regulations provides:
(f) Reproduction rights. (1) The granting of a right to reproduce
an
original
painting,
illustration,
photograph,
sculpture,
manuscript or other similar work is not a license to use or a sale,
and is not taxable, where the payment made for such right is in the
nature of a royalty to the grantor under the laws relating to
artistic and literary property.
(2)
Mere temporary possession or custody for the purpose of making
the reproduction is not deemed to be a transfer of possession which
would convert the reproduction right into a license to use. (See
Howitt v. Street and Smith Publications, Inc., 276 N.Y. 345 and
Matter of Frissell v. McGoldrick, 300 N.Y. 370.)

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Sales Tax

(3)
Where some use other than reproduction is made of the original
work, such as retouching or exhibiting a photograph, the transaction
is a license to use, which is taxable.
Section 532.1(a)(2) of the Sales and Use Tax Regulations provides:
(2) Where a vendor makes a sale for which payment is not received at
the time of delivery, such sale must be reported on the return
covering the period in which the sale is made. Thus, if the sale is
a taxable sale, the full amount of tax must be remitted with the
return whether or not any money was collected at the time of sale.
Opinion
Petitioner’s scenarios contain three basic transactions: the sale of
tangible personal property which is subject to sales tax, the sale of a right to
reproduce which is not subject to sales tax, and the sale of a teaching service
which is not subject to sales tax.
Scenario 1 contains a sale of books subject to tax under section 1105(a)
of the Tax Law and a sale of a teaching service which is not subject to tax.
In scenario 2, the Smith Company is required to report and remit the sales
tax due on the sale of the books on the return covering the period in which the
books are transferred to its client regardless of when the Smith Company bills
its client. See Sections 525.2(a)(2) and 532.1 (a)(2) of the Sales and Use Tax
Regulations.
Scenarios 3, 4, 5, 6, 7 and 8 are sales of a nontaxable teaching service,
and may also be nontaxable sales of a right to reproduce tangible personal
property if the conditions described below are met.
The transfer of the
document, whether in the form of a paper copy or diskette, in these cases by the
Smith Company to its customer will not be subject to tax if the written agreement
with the customer clearly indicates that only reproduction rights are being sold
and the document is being transferred for reproduction purposes only. If the
original document is permanently transferred to the customer, or the agreement
with the customer does not state that only reproduction rights are being sold,
the transaction will be subject to tax as a sale of tangible personal property.
See Section 526.7(f) of the Sales and Use Tax Regulations.
Scenarios 9, 10, 12 and 13 are sales of tangible personal property, the
receipts from which, including the license fee and fee per copy, are subject to
tax under section 1105(a) of the Tax Law.
Scenarios 11, 14 and 15 are sales of a right to reproduce which are not
subject to sales or use tax, provided the requirements of Section 526.7(f) of the
Sales and Use Tax Regulations, as described above, are met.

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Scenario 16 is a sale for resale as provided under Section 1101(b)(4) of
the Tax Law and Section 526.6(c) of the Sales and Use Tax Regulations. The Smith
Company must receive from its customer a properly completed resale certificate
(Form ST-120) within 90 days of the date of sale. See Section 1132(c) of the Tax
Law and Section 532.4 of the Sales and Use Tax Regulations.
In scenario 17, there is no tax due at the time the Smith Company licenses
the right to future access to its materials or courses. See Section 525.2(a)(2)
of the Sales and Use Tax Regulations.

DATED: May 19, 1998

NOTE:

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

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