New York & New Jersey and Sales Tax – SaaS, Software & Other

Article update: August 2024

Our blogs about SaaS and software issues get a lot of attention from our readers. So, we are refreshing some of our more popular states in our “compare and contrast” series. This month, we continue our blog series with a contrast of a couple of Northeast states – New York and New Jersey – specifically their treatment of technology items for sales tax purposes. While there are some similarities in these neighbouring states, there are also some significant differences.

Here’s what you can find out:

1. New York Sales Tax:

• SaaS is taxable in New York.
• Cloud Computing Services are subject to sales and use tax.
• Prewritten computer software is considered tangible personal property and is taxable.
• Custom software delivered electronically is exempt from tax.

2. New Jersey Sales Tax:

• SaaS is exempt from sales and use tax unless it is an information service.
• Cloud computing services where software is accessed but not delivered are not taxable.
• Prewritten computer software delivered electronically is taxable unless used exclusively in business.
• Custom software delivered electronically is exempt from tax.

3. SaaS Taxation:

• SaaS is taxable in New York as a license to access software remotely.
• SaaS is exempt in New Jersey unless classified as an information service.

4. Digital Goods Taxation:

• New York: Digital products are generally nontaxable; NYC follows state taxation rules.
• New Jersey: Specified digital products transferred electronically are taxable; accessed but not delivered products are exempt.

5. Sales Tax Holidays:

• New York: No sales tax holiday.
• New Jersey: Sales tax holiday from August 26 to September 4, covering school supplies, art supplies, instructional materials, and computers.

6. Economy:

• New York: Major financial center; significant agricultural production.
• New Jersey: Significant agricultural production; important shipping and port location; mineral mining and forestry are vital industries.

Wait! Already know you need help with New York or New Jersey issues? Please reach out to us at info@milesconsultinggroup.com.

1. New York Sales Tax

Software as a Service (SaaS) is subject to sales tax in several jurisdictions across the country. Approximately half of states do tax the SaaS revenue stream. As you’ll see below, both states differ regarding their treatment of sales tax.

Cloud Computing Services are subject to sales and use tax in New York and New York City. The sale to a New York purchaser of a license to remotely access prewritten software is subject to tax and the sale is sourced to the jurisdiction in which the purchaser uses or directs the use of the software.

2. New Jersey Sales Tax

SaaS is exempt from sales and use tax in New Jersey unless it meets the definition of an information service. SaaS is not considered a transfer of tangible personal property and is not an enumerated taxable service. Of course, as with most things sales tax, the devil is in the details with respect to when a company’s revenue stream might be classified as an information service.

New Jersey statutes and regulations do not specifically address the taxability of cloud computing. However, the New Jersey Division of Taxation has published a letter ruling addressing the taxability of cloud computing. The division stated web-hosted services where software is only accessed by the user and not delivered or transferred to the user, are not subject to sales and use tax. Thus, the division advised that sales and use tax is not due on a taxpayer’s charge for software as a service, where a user pays a monthly fee in exchange for use of a web application or website hosted on the taxpayer’s computer systems that allows users to create puzzles using the taxpayer’s service to transform their input on the taxpayer’s servers, so long as the software is only accessed by the user and there is no transfer or delivery of the software to the user.

The retail sale of prewritten computer software delivered electronically is subject to tax in New Jersey. However, prewritten software delivered to a purchaser electronically for use exclusively by the purchaser in the purchaser’s trade or business, is not taxable.

The sale of custom software to the purchaser for whom it was designed and delivered electronically is exempt from tax in New Jersey.

3. SaaS Taxation

SaaS is subject to sales tax in New York but is exempt in New Jersey unless it meets the definition of an information service. In New York, SaaS is taxed as a license to access software remotely, whereas, in New Jersey, it is not taxed unless it qualifies as an information service.

4. Digital Goods Taxation

States vary in their treatment of electronically delivered goods including e-books, music, and streaming video. Some states consider all of these types of products to be taxable or not, while others call out specific taxability depending upon the product.

In New York, digital products are nontaxable. New York City generally imposes tax on the same sales and services taxed at the state level. New York does not consider digital products to be tangible personal property subject to tax.

In New Jersey, specified digital products that are transferred electronically are subject to sales and use tax. Tax applies whether the specified digital product is for permanent or less than permanent use and regardless of whether continued payments are to be made for the products. However, specified digital products that are merely accessed but not delivered electronically to the purchaser are exempt from New Jersey sales and use tax.

5. Sales Tax Holidays

States often offer sales tax holidays during specific times of the year, during which certain items are sold tax free. These vary greatly by state. Here’s how New York and New Jersey shake out.

New York does not have a sales tax holiday.

New Jersey previously had a sales tax holiday (in 2022 and 2023), which lasted about 10 days near the beginning of the school year. During this time, school and art supplies, instruction materials, and computers are sold tax free. However, it was repealed in 2024 as part of the state’s budget.

6. Economy

Anchored by Wall Street in the Financial District of lower Manhattan, New York City has been called the most economically powerful city and the leading financial center of the world. Lower Manhattan is the third-largest central business district in the world. New York is also the principal commercial banking center of the United States.

New York is the nation’s third-largest grape producing state, and the second largest wine producer by volume, behind California. The southern finger lakes hillsides, the Hudson Valley, the North Fork of Long Island, and the southern shore of Lake Erie are the primary grape- and wine-growing regions in New York, with many vineyards. New York is a major agricultural producer overall, ranking among the top five states for agricultural products including maple syrup, apples, cherries, cabbage, dairy products, onions, and potatoes. The state is the largest producer of cabbage in the U.S. The state has about a quarter of its land in farms. The south shore of Lake Ontario provides the right mix of soils and microclimate for many apple, cherry, plum, pear and peach orchards. Apples are also grown in the Hudson Valley and near Lake Champlain. A moderately sized saltwater commercial fishery is located along the Atlantic side of Long Island.

New Jersey ranks second among states in blueberry production, third in cranberries and spinach and fourth in bell peppers, peaches and head lettuce. The state harvests the fourth largest number of acres of asparagus.

Shipping is a key industry in New Jersey due to the state’s strategic geographic location. The port of New York and New Jersey is the busiest port on the east coast. The Port Newark-Elizabeth Marine Terminal was the world’s first container port and today is one of the world’s largest.

Franklin Furnace is a famous mineral mining location for zinc, iron and manganese. Another natural resource that is vital to the economy of New Jersey is forestry. Forests cover 45% or approximately 2.1 million acres of New Jersey’s land area.

New York Fun Facts

• Lake Placid, New York is the only U.S. city to have hosted the Winter Olympics twice, first in 1932 and again in 1980.
• With 54,556 square miles, New York is the 27th largest state in the United States. The state of Rhode Island would fit into New York more than 35 times.
• Adirondack park in Northeast New York has 6 million acres, making it the largest park in the United States. It is larger than Yellowstone, Glacier, Everglades, and Grand Canyon National Parks combined.
• With 18,000 cattle and calf farms, New York State is the third leading producer of dairy products in the United States.
• From 1886 to 1924, over 4 million immigrants entered through New York harbor into the United States. About 40% of Americans can trace at least one ancestor to Ellis Island.
• In 1971, the bloodiest prison rebellion to ever take place in the United States happened at the Attica State Correctional Facility in Attica, New York. A total of 43 inmates and officers lost their lives during the riot.
• If the state of New York were its own country, its economy would rank 15th in the world, being slightly smaller than the economies of Canada and Spain. New York’s economy ranks 3rd in the U.S. after California and Texas.
• France gifted the Statue of Liberty to the United States in 1886 as a celebration of 100 years of U.S. independence and continued allegiance between the two countries. The statue was shipped as 350 pieces in 214 crates and took 4 months at its current home on New York’s Ellis Island.
• The New York Stock Exchange is the largest exchange in the world, with a trading volume of 5.5 million. The second largest is the NASDAQ, which is also located in New York.
• Chittenango, NY is the home of Wizard of Oz author L. Frank Baum. The town has yellow brick sidewalks that lead up to The Wizard of Oz themed businesses, such as Auntie Em’s, as well as an annual Munchkins parade.
• New York was the 11th state in the United States and was a part of the original 13 colonies. New York City was the first capital of the nation from 1789 to 1790, and George Washington was inaugurated as the first U.S. president in the city’s federal hall on Wall Street on April 30, 1789.

New Jersey Fun Facts

• Approving the Constitution on December 18, 1787, New Jersey became the third state to join the union, following Delaware and Pennsylvania.
• Cape May is the oldest seashore resort city in the United States and was declared a national Historic Landmark City in 1976.
• Thomas Edison’s laboratory was located in Menlo Park, New Jersey where he invented the light bulb, the phonograph and the motion picture projector.
• The George Washington Bridge is a double decker suspension bridge spanning the Hudson River between the Washington Heights neighborhood of Manhattan in New York City, and the borough of Fort Lee in New Jersey. In 2018, the Bridge carried over 100 million vehicles, making it the busiest motor vehicle bridge in the world.
• The state boasts an impressive musical legacy- Bruce Springsteen, Jon Bon Jovi and Frank Sinatra all hail from New Jersey.
• The state has a spoon museum featuring over 5,400 spoons from every state and almost every country.

We invite you to get in touch with Miles Consulting Group to ensure compliance with the evolving sales tax laws in New York and New Jersey. Whether it’s understanding specific tax implications for SaaS or navigating the complexities of digital goods taxation, our team of experts is here to help. Reach out to us today at info@milesconsultinggroup.com  for personalized assistance with your sales tax compliance needs.