New York: Sales Tax Opinions Address Email Services; Educational Streaming

The New York State Department of Taxation and Finance recently issued two advisory opinions, concluding in both that certain online services were not subject to sales tax.  The first opinion addressed the taxability of a service that allowed customers to remotely send large volumes of e-mails through the service provider’s platform. Payment for the e-mail services was entirely based on the quantity of e-mails sent. The provider also charged a separate fee for consulting services, which consisted of assisting customers with account set-up, managing contact lists, and e-mail strategies. The provider also offered, free of charge, plug-ins and “wrappers,” that allowed the customers’ websites and systems to communicate with the provider’s e-mail platform. The Department of Taxation and Finance concluded that the primary function of the provider’s integrated service was to provide remote access to its servers and to enable its customers to effectively send large volumes of emails. Accordingly, in the Department’s view, New York was prohibited from taxing this service under the Internet Tax Freedom Act. The Department next concluded that while the plug-ins and wrappers provided free to customers may constitute prewritten computer software, they allowed customers to use the provider’s service. As the primary function of the taxpayer’s service was emailing and the plug-ins and wrappers were integral to that service, they did not affect the non-taxable nature of the email service. Separate charges for reports related to the email campaign results were not taxable information services because the reports were personal and individual in nature and the information in one customer’s report was not incorporated into a report furnished to others.  An additional fee that the provider charged certain customers for multiple dedicated IP addresses was also considered an Internet access service preempted from tax under the ITFA. Finally, the Department determined that charges for consulting services were also not subject to sales and use tax.

In its second advisory opinion, the Department addressed whether a service provider’s provision of online courses that included pre-recorded lectures, syllabi, modules, quizzes, and a grading procedure were subject to sales tax. The courses could be accessed remotely or downloaded to a user’s device. Most courses were provided to general users free of charge, but the provider also offered certificates and streaming video for a fee. The certificates identified the customer as having completed the course. The provider also offered, for a fee, “university-recognized” degrees through a university partnership.  The Department held that while the educational courses likely constituted prewritten computer software, it was provided free to all users and was not subject to tax.  The Department further held that the certificates, streaming videos, and university-recognized courses provided for a cost were neither tangible personal property nor a taxable service because their primary function was educational. Thus, the fee charged by the service provider was not subject to sales tax. For more information about TSB-A-20(30)S or TSB-A20(33)S please contact Judy Y Cheng at 212-872-3530.