July 1st, 2015
On June 3, 2015, the New York State Department of Taxation and Finance (NYSDTF) issued an advisory opinion that will have a big impact on New York-based interactive entertainment companies. The opinion concluded that a retailer’s sales of various forms of digital entertainment content, including downloadable software, digital game content, access codes, subscriptions, and point cards, both at retail locations throughout New York State and through its website, are subject to New York’s sales and use tax — regardless of the method used by purchasers to access the content or the location of the hosting server.
The NYSDTF held that the electronic games under review are pre-written computer software products treated as tangible personal property for New York sales and use tax purposes. Similarly, an access code used to download pre-written game software to a customer’s computer, gaming console or mobile device from a third-party server also constitutes tangible personal property subject to sales tax, regardless of whether the access code is printed on a paper receipt or plastic card provided to the customer at the time of sale. In addition, a subscription or point card containing a redemption code or points entitling a user to access pre-written game software from a third-party network for a specified amount of time is treated as tangible personal property subject to sales tax. In a sale of any of the foregoing items, sales tax is required to be collected based on where the software, access code, or subscription or point card is delivered to the purchaser, typically as indicated by the purchaser’s billing address.
The only exception noted by the advisory opinion is for the sale of dollar value cards similar to gift certificates that may be used in full or partial payment of the price of goods or services purchased at a future date. Sales of such cards generally are not taxable at the time of purchase. Rather, the taxable sale occurs when the card is remitted as payment for the purchase of taxable property or services.
What to do. While a NYSDTF advisory opinion technically is limited to its facts and is binding on the NYSDTF only as to the person to whom it is issued, it does represent the NYSDTF’s position on application of the law, regulations and NYSDTF policies then in effect. The NYSDTF’s clearly articulated position on the application of New York’s sales tax to downloaded electronic games, access codes, and subscription or point cards is consistent with a number of its prior rulings and opinions governing sales of pre-written computer software delivered electronically. Accordingly, any New York retailer selling downloadable software, digital game content, access codes or subscription or point cards — whether provided to customers electronically or on paper or plastic —would be well-advised to collect New York sales tax on sales of those items to customers with New York billing addresses. It may also be necessary to change price disclosures to inform customers that New York sales tax will be collected and to modify accounting policies.