Sales/Use/Indirect:
New York: ALJ Holds that Fees Charged Were for Nontaxable Services Rather than Taxable Software

Determination No. 829434, N.Y. Div. of Tax App., ALJ Division (11/10/21). An administrative law judge with the New York Division of Tax Appeals held in a taxpayer’s favor that when viewing its healthcare navigation service offering in its entirety, the primary function is to provide nontaxable services associated with the administrative part of its members’ medical needs and thus its charged membership fees were not subject to state sales tax – reasoning that just because its customers may utilize the offerings through its software by accessing them through its web portal or mobile application does not make the services taxable. In doing so, the judge explained that the standard for determining the taxability of integrated services with multiple components is to determine the primary function of the service – clarifying that “something can be integral to a service without being the primary function.” The New York Division of Taxation unsuccessfully claimed that the taxpayer is selling taxable prewritten software for use of its mobile application and web portal, and that such use of the prewritten software is the primary function of its service offering. Please contact us with any questions.