New York State Issues Advisory Opinion that Sales of Downloads of Digital Games Are Subject to Sales and Use Tax | Practical Law

New York State Issues Advisory Opinion that Sales of Downloads of Digital Games Are Subject to Sales and Use Tax | Practical Law

In an advisory opinion, the New York State Department of Taxation and Finance determined that sales of downloads of and access to digital game content are subject to New York State sales and use tax.

New York State Issues Advisory Opinion that Sales of Downloads of Digital Games Are Subject to Sales and Use Tax

by Practical Law Intellectual Property & Technology
Published on 23 Jun 2015 • New York
In an advisory opinion, the New York State Department of Taxation and Finance determined that sales of downloads of and access to digital game content are subject to New York State sales and use tax.
On June 3, 2015, the New York State Department of Taxation and Finance (Department) issued an advisory opinion concluding that sales of both electronic downloads of and remote access to digital games and other pre-written computer software were subject to New York sales and use tax (Petition No. TSB-A-15(25)S, N.Y. Dept. of Taxation and Finance (June 3, 2015)).
The petitioner sells digital entertainment content at its retail locations in New York and through its website. It asked the Department if charges related to sales of the different categories of digital products it sells are subject to New York sales and use tax. The Department analyzed each category of products that the petitioner sold and concluded that:
  • Downloadable software and digital game content and remotely accessed software and content are subject to New York State sales and use tax.
  • Subscription and point cards are subject to New York State sales tax.
  • Dollar value cards are not subject to New York State sales and use tax.
Downloadable Software and Digital Game Content
These are subject to New York sales and use tax. The petitioner's sales include both:
  • pre-written software games and related add-ons that are downloaded to the purchaser's computer, gaming console or mobile device; and
  • access codes that are printed on a paper receipt or plastic card provided to the purchaser.
The Department explained that pre-written computer software:
  • is tangible personal property under NY Tax Law § 1101(b)(6) regardless of the means by which it is made available to the purchaser; and
  • retail sales of tangible personal property are subject to sales and use tax under NY Tax Law § 1105(a).
Therefore, the Department concluded, retail sales of software downloads are taxable under New York law based on the customer's location when it receives the download or related access code.
Remotely Accessed Software and Content
These are subject to New York sales and use tax. The Department concluded that retail sales of remote access to pre-written software should be treated like access to downloadable software and therefore:
  • the petitioner's fees for retail customers to access pre-written software are subject to tax;
  • the petitioner must collect tax from its retail customers based upon where the software is delivered, such as a customer's billing address if sold on-line; and
  • the location of the server hosting the software is irrelevant.
Subscription and Point Cards
These are also subject to New York State sales tax. The Department determined that these cards give access to a gaming network so customers may access pre-written gaming software offered by that network. Because these cards provide access to pre-written gaming software, retail charges for the cards are subject to New York State sales tax based on where the card is delivered to the customer.
Dollar Value Cards
These are not subject to New York State sales and use tax. These cards are equivalent to gift cards, the sale of which is not a taxable transaction at the time of purchase, but rather, at the time of redemption (NY Tax Law § 1105).