New York State ALJ Determines Vendor Administration Companies Supplied in Conjunction with Software program are Topic to Gross sales Tax because the Sale of Prewritten Software program | Clean Rome LLP

An Administrative Regulation Choose (“ALJ”) just lately discovered {that a} taxpayer’s vendor and labor administration providers, which have been offered along with the grant of a software program license, have been topic to gross sales tax because the sale of prewritten software program. Matter of Beeline.com, Inc., DTA Nos. 829516 (N.Y.S. Div. of Tax App., Feb. 9, 2023).

The Info: Beeline.com, Inc. (“Beeline”) offered a “matching” service to match massive nationwide and international clients that desired to buy the providers of momentary employees with suppliers of momentary labor. Beeline offered its providers by acquiring important quantities of data from the purchasers about their wants and processes which it then matched with accessible suppliers. Lots of of Beeline staff spent tons of or hundreds of hours gathering buyer info in reference to these providers. Beeline additionally offered authorized compliance providers to its clients and had staff devoted to researching labor, tax, and different legal guidelines that have an effect on contingent labor on a world foundation. Every of Beeline’s particular person clients additionally had staff and groups that have been devoted to managing that buyer’s contingent labor program.

As a part of the providers it offered, Beeline granted clients a license to make use of its pre-written software program program. Beeline’s web site described the software program as “automat[ing] the hiring means of contract employees,” and “assist[ing] to handle and procure staffing providers from requisition via billing.” Not one of the providers offered by Beeline have been individually billed and invoices despatched to clients didn’t include a separate software program license payment.

On audit, the auditor decided that Beeline offered licenses to make use of pre-written software program and that such gross sales have been topic to gross sales tax. The auditor issued a Discover of Willpower on that foundation.

The Choice: The ALJ famous that whereas gross sales of pre-written software program are topic to gross sales tax, the providers Beeline offered have been usually not topic to gross sales tax. The ALJ additional famous that in Beeline’s case, the sale of taxable pre-written software program was bundled along with nontaxable providers and offered as one product. Whereas the ALJ acknowledged the existence of the first operate take a look at, below which gross sales of bundled taxable and nontaxable providers are taxed primarily based on their major operate, he famous that the Tax Appeals Tribunal “has reserved judgement” on whether or not the first operate take a look at applies to blended bundles of providers and tangible private property. Though the ALJ didn’t explicitly apply the first operate take a look at, he discovered that the software program was “something however incidental” to what was offered and was “fully intertwined” with the providers offered. The ALJ decided that what was being offered was taxable pre-written software program and upheld the Discover of Willpower.

This case is in sharp distinction to Matter of Yesware, et al., DTA Nos. 829638, 829639 & 829640 (N.Y.S. Div. of Tax App., Sep. 29, 2022), wherein the ALJ held that the sale of bundled nontaxable providers and software program was not taxable because the sale of pre-written software program. In Matter of Yesware, the ALJ utilized the “major operate take a look at” to software program bundled with a nontaxable info service and located that the first operate of what was being offered was a nontaxable info service. The Division didn’t enchantment Matter of Yesware in order that case stays nonprecedential. It stays to be seen if Beeline will enchantment the ALJ’s dedication on this case.

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