New York SaaS Sales Tax: What You Need to Know
Software-as-a-service (SaaS) sales tax management can be a complex matter due to the varying laws across states. This makes the tax collection and filing process more challenging for businesses that offer the services. Unlike other states that offer exempt SaaS taxes, New York’s Department of Taxation and Finance treats prewritten computer software as personal property and charges a fee regardless if the user is provided a physical copy, downloads it through the internet, or accesses it remotely.
SaaS providers are required to assess their tax liabilities accurately in order to be compliant with New York taxation laws. TaxCloud makes tax management easier for businesses with automation, calculation and filing of tax calculation with its features. This offers compliance so businesses can focus on growing financially.
How New York Taxes SaaS and Software
The New York Department of Taxation considers Software as a Service (SaaS) as a taxable product rather than a service.
This means that the payments stored on the vendors become subject to both local and state sales tax regardless of whether the software is delivered to the user physically or not.
The fee is charged regardless of the software’s form of delivery, be it a physical copy, a downloadable file, or accessed through a remote location. This policy ensures that goods and services that can be accessed online are treated in the same way as software purchased in the traditional manner.
The SaaS providers and consumers in New York have to comply with the taxation laws to remain in compliance with the regulations.
New York’s Tax Treatment of Digital Products
When it comes to the taxation of software and digital goods in New York, there are many factors to consider, including the product and service’ nature and how it was delivered to the users.
New York charges sales tax for prewritten software as it is viewed as tangible personal property, and customers will be charged whether the products were delivered in person, electronically, or via remote access.
This means both downloaded software and Software-as-a-Service (SaaS) products are subject to New York sales tax. The Department of Taxation and Finance of New York has made it clear that a customer accessing the software via the internet becomes the owner of the product and controls the software – hence making the transactions taxable.
Unlike physical products, New York generally does not tax downloaded items such as music, videos, and e-books.
Keep in mind that the New York sales tax also applies to software installed on out-of-state servers if the software is accessed in New York – this is known as the sales tax sourcing of the location. Even though the software is stored on remote servers outside New York, customers within the state who use the application get billed.
When Is Software Taxable in New York?
This section will answer the main question of “Is SaaS taxable In New York?” Generally, taxes levied on software here depend greatly on their classification and how it was provided to the customer.
Canned (Prewritten) Software
New York taxes all sales of “canned” or prewritten software regardless of the delivery method, whether it’s through a CD, made available for download, or provided through cloud storage.
The prewritten software is considered tangible personal property, as mentioned by the New York State Department of Taxation and Finance, thus making its sales taxable under the state’s taxation laws.
Custom Software
Personalized or customized software designed for a specific client is not subjected to digital sales tax. This is because these modified products are not intended for sale. However, custom software will be treated as prewritten software and will become taxable if sold to a different person other than the original client.
SaaS, Cloud Computing, and Digital Services
In New York, cloud-based services such as software-as-a-service (SaaS) are usually taxable.
Some B2B transactions may have tax exceptions depending on the specific software usage and the stakeholders. Businesses need to talk to tax professionals or look into state resources to find out whether their specific business situation could qualify for such exemptions.
When Does a SaaS Business Have Nexus in New York?
Figuring out if a Software-as-a-Service (SaaS) business has a tax collection obligation depends on the “nexus” of the business in question. Nexus refers to a substantial connection that is created by the service provider’s physical presence or business activities in the state.
Physical Nexus
A SaaS company will create a physical nexus if they have a physical appearance in the state, meaning they have an operation site with employees that reside within the state.
Regularly making in-person sales or participating in trade shows in New York can solidify a company’s physical presence. The SaaS business can register and start remitting New York sales taxes on taxable sales.
Economic Nexus
A SaaS company might be required to collect sales taxes in New York even without having a physical presence in the state because of the economic nexus policies.
Any out-of-state business is required to collect sales tax if they have crossed the $500,000 threshold of tangible personal property and have more than 100 transactions within the state. Both conditions must be met for the economic nexus to be applicable.
Important Points for Remote SaaS Providers
Remote SaaS providers that meet the economic nexus criteria are required to collect sales tax from their customers in New York because the state regards prewritten software as tangible personal property.
How to Stay Compliant with New York SaaS Sales Tax
For SaaS companies operating in New York, staying up to date with the sales tax regulations is very important. Here are some helpful tips:
Apply for a New York Sales Tax Permit
SaaS companies with substantial economic or physical presence in New York must register as sales tax collectors if their revenue exceeds $500,000 and they have a minimum of 100 transactions within the state.
Consequently, the firm would need to collect sales tax applicable on purchases from New York and remit that to the tax agency.
Identify and Classify All Sales Properly for Taxability
SaaS companies will be required to remit sales tax regardless of the situation. Review your products and services to ensure they are not exempt from sales tax.
Inaccurate categorization may lead to consequences regarding non-adherence to laws or, alternatively, could lead to the paying of excessively large sums in taxes.
Manage Exemptions for Reseller and B2B Sales
Sales made to resellers and other B2B sales might be considered tax-exempt. To grant any tax exemptions, you must acquire authentic exemption certificates from your clients. These documents help validate the exempt sales, especially when audits are carried out, so they are crucial to have.
Automate New York Sales Tax Compliance with TaxCloud
Understanding New York’s sales tax can be daunting, particularly for software taxability in New York for companies. TaxCloud makes sales tax compliance and automation easier with its services.
It calculates sales taxes using a SaaS model and offers accurate real-time sales tax calculations for over 13,000 jurisdictions, including New York. Moreover, TaxCloud also tracks sales for you and lets you know when you are getting close to the economic nexus thresholds. It automates the reporting and filing process with its automated report generation services. You can experience seamless SaaS sales tax compliance with a 30-day free trial.
Final Thoughts
New York’s laws mention that SaaS applications are taxable. Managing taxability obligations, monitoring nexus thresholds, and managing exemptions is challenging. Due to the complicated nature of digital product taxation, companies must track their activities more closely and apply the right taxes to avoid penalties.
Using a platform like TaxCloud will give you peace of mind knowing that you’re staying compliant. Get started with a free 30-day trial of TaxCloud today and simplify your New York SaaS sales tax compliance.