This month, we continue our state-focused blog series with a look at New York and New Jersey and how each state treats SaaS, software, and digital products for sales tax purposes.
Although these neighboring states share plenty in common, their sales tax treatment of technology products can be quite different. For businesses selling into multiple states, understanding those differences is important for maintaining compliance and avoiding unexpected tax exposure.
Already know you need help with New York or New Jersey sales tax? Reach out to us at info@milesconsultinggroup.com.
SaaS in New York vs. New Jersey
New York: Remote access to prewritten software is generally subject to sales tax. New York treats prewritten computer software as tangible personal property, regardless of whether it is delivered physically, electronically, or accessed remotely.
New Jersey: SaaS is generally not subject to sales tax when the customer simply accesses software remotely and the software is not transferred or delivered to the customer. However, the treatment may differ if the offering qualifies as a taxable information service or includes other taxable components.
This distinction can result in the same type of SaaS offering being taxable in New York but exempt in New Jersey.
Software in New York vs. New Jersey
New York: Prewritten computer software is generally subject to sales tax, regardless of how it is delivered. Custom software designed and developed to the specifications of a particular purchaser is generally exempt.
New Jersey: Prewritten computer software is generally taxable. However, electronically delivered prewritten software may qualify for an exemption when it is used directly and exclusively in the purchaser’s business, trade, or occupation. Custom software created specifically for a purchaser is also generally exempt.
Businesses should pay close attention to whether software is prewritten, customized, or entirely custom, as those distinctions can affect the sales tax treatment.
Digital Goods
States also vary in their treatment of electronically delivered products such as e-books, music, and video.
New York: Many standalone digital products are not subject to sales tax. For example, qualifying e-books that do not include prewritten software or another taxable product are generally not taxable. Prewritten computer software, however, is treated differently and remains taxable.
New Jersey: Specified digital products—including electronically transferred digital audio-visual works, digital audio works, and digital books—are generally subject to sales tax. However, specified digital products that are streamed or otherwise accessed but not electronically delivered to the purchaser are generally exempt.
Sales Tax Holidays
States often offer sales tax holidays during specific times of the year, allowing certain purchases to be made tax-free for a limited period. These programs vary significantly by state—and sometimes change from year to year.
New York: New York does not currently have a statewide sales tax holiday.
New Jersey: New Jersey previously offered an annual back-to-school sales tax holiday for certain purchases, including computers, school supplies, instructional materials, and sports or recreational equipment. However, New Jersey repealed its annual sales tax holiday in 2024. Sellers should now collect sales tax on taxable items that previously qualified for the temporary exemption.
For current state-by-state information on sales tax holidays, visit the Federation of Tax Administrators’ Sales Tax Holidays resource:
https://taxadmin.org/sales-tax-holidays/
What Should SaaS and Software Sellers Watch For?
Companies selling into New York and New Jersey should pay particular attention to:
- Nexus and registration obligations
- Where customers use the software or service
- How products and services are described on invoices
- Whether software is prewritten, customized, or custom
- Whether an offering includes SaaS, information services, software, or a combination of services
- How bundled products and services are structured
Small differences in how a product is structured, delivered, or described can result in very different sales tax treatment. Sellers should review both their products and their customer locations when evaluating their multistate sales tax obligations.
Frequently Asked Questions
Is SaaS taxable in New York?
Generally, yes. New York treats remote access to prewritten software as taxable, so many SaaS products are subject to sales tax when used in New York.
Is SaaS taxable in New Jersey?
Generally, SaaS is not subject to New Jersey sales tax when customers are simply accessing software remotely and no software is transferred to them. However, the treatment may differ if the offering qualifies as a taxable information service or includes other taxable components.
Is prewritten software taxable in both states?
Generally, yes, although exemptions may apply. New Jersey, for example, provides an exemption for certain electronically delivered prewritten software used directly and exclusively in the purchaser’s business, trade, or occupation.
What about custom software?
Custom software designed specifically for a purchaser is generally exempt from sales tax in both New York and New Jersey.
Why does product classification matter for SaaS and software companies?
Small differences in how a product is structured, delivered, described, or bundled with other services can change its sales tax treatment. Proper classification can also affect sourcing, nexus, registration, and collection requirements.
A Little Local Trivia
No state-focused blog would be complete without a little local trivia!
New York: Lake Placid is the only U.S. location to have hosted the Winter Olympics twice, first in 1932 and again in 1980.
New Jersey: Thomas Edison’s famous Menlo Park laboratory was located in New Jersey, where he conducted work on inventions including the phonograph and electric light.
Explore More About New York and New Jersey
We invite you to further explore New York and New Jersey in these earlier blogs we’ve published over the years:
Focus on New York
https://www.milesconsultinggroup.com/blog/2020/04/14/focus-on-new-york/
Focus on New Jersey
https://www.milesconsultinggroup.com/blog/2020/09/09/focus-on-new-jersey-2/
Our team at Miles Consulting Group is always available to discuss the specifics of your situation, whether you’re doing business in New York, New Jersey, or other U.S. states. We can help you navigate the complex sales tax issues that arise from multistate operations and identify opportunities to improve compliance and tax efficiency.
Have questions about your specific situation? Contact us at info@milesconsultinggroup.com.
