New York

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Understanding SaaS Taxability in New York

Is SaaS Taxable in New York?

Yes, In New York, SaaS products are generally subject to sales tax, which is 4% at the state level. The state treats prewritten computer software, including SaaS, as taxable tangible personal property, irrespective of whether it is sold on a physical medium, by electronic transmission, or by remote access.

Distinction for B2B vs. B2C

The taxation of SaaS in New York applies uniformly to both business-to-business (B2B) and business-to-consumer (B2C) transactions. There are no specific exemptions for business-related purchases; thus, all SaaS transactions are subject to sales tax.

Determining SaaS Taxability

To determine if your SaaS product is taxable in New York:

  • Assess the Nature of the Service: Confirm that your service qualifies as prewritten computer software, which is generally considered taxable.
  • Evaluate the Delivery Method: Ensure that the software is delivered electronically or accessed remotely, aligning with the definition of a digital product.
  • Consider the Hosting Location: Unlike some states, New York’s taxation of SaaS is not dependent on the hosting location of the software.

Nexus Thresholds for New York

New York enforces economic nexus, requiring out-of-state sellers to collect sales tax if they meet specific thresholds, such as $500,000 in sales and 100 separate transactions, in the previous four sales tax quarters, within the state.

Sales Tax Compliance Checklist

To ensure compliance with New York tax regulations:

  • Register for a Sales Tax Permit: Businesses with nexus in New York must register with the New York State Department of Taxation and Finance to obtain a sales tax permit.
  • Collect and Remit Sales Tax: Once registered, collect the appropriate sales tax on taxable transactions and remit the collected taxes to the state.
  • File Regular Tax Returns: Depending on your sales volume, you may be required to file monthly, quarterly, or annual sales tax returns. Timely filing is crucial to avoid penalties.

Examples of Taxable vs. Non-Taxable SaaS

  • Taxable:
    • Business Use: A company subscribes to a cloud-based accounting software for its operations. This transaction is subject to New York sales tax.
    • Personal Use: An individual subscribes to a cloud-based accounting software for personal budgeting. This transaction is subject to New York sales tax.

Local Tax Considerations in New York

New York imposes a state sales tax rate of 4%, but local taxing jurisdictions (cities, counties, special purpose districts, and transit authorities) can also impose additional sales and use tax. Depending on the location within New York, the combined state and local sales tax rate for SaaS could range from 4% to around 8.875%.

Penalties for Non-Compliance in New York

Non-compliance with New York tax laws can result in:

  • Financial Penalties: Fines and interest on unpaid or late taxes.
  • Legal Consequences: Potential audits and legal actions by the New York State Department of Taxation and Finance.
  • Reputational Damage: Negative impact on your business’s credibility and customer trust.

Additional Resources

For more information, refer to:

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