Taxpayer‘s Online Webcasting and Virtual Communication Solution Not Subject to New York Sales Tax

The New York Department of Taxation and Finance issued an advisory opinion that found that a taxpayer’s online webhosting solution was not subject to New York sales tax. The taxpayer offers a cloud-based solution that provides customers a platform to conduct audio and video meetings, conferences, webinars, and live presentations. The taxpayer’s customers generally pay an annual fee to use the solution, which guarantees that the customers’ events will be hosted and maintained as well as stored digitally for on-demand viewing. Product fees also include technical support and training.

The taxpayer also offers a variety of additional stand-alone services to its customers such as delivery of data related to customer webcasts, creative services like branding, professional services like event management and recording services, and rental of production equipment. These services are optional, and each service is separately stated in a customer’s subscription agreement.

For the purposes of facilitating the hosting of an event, the Department of Taxation and Finance stated that the product is not taxable – no hardware or software is required to use the taxpayer’s product to host an event, only an Internet connection is needed. Other product features beyond simply hosting an event, such as the ability to create registration pages, control the player/console interface, and build webinar features into events, would be taxable as the sale of prewritten software if they were sold separately. However, because the taxpayer includes all of these features as part of the product at no additional charge, they are considered “ancillary to the main function of the product and their tax status is not separable from it.”

The taxpayer did not provide enough detail for the Department to effectively determine the taxability of each of the additional stand-alone services. However, the Department highlights that production equipment rentals and creative and recording services provided to New York customers on tangible media would be considered taxable. Even if certain stand-alone services of the taxpayer are taxable, as long as they are separately stated, billed separately, and the charges are reasonable in relation to the main webhosting product fee, they do not affect the taxability of the main webhosting product. (TSB-A-20(45)S, New York State Department of Taxation and Finance Office of Counsel)

Posted on May 11, 2021