United States:
Video Games And New York Sales Tax
05 January 2022
Frankfurt Kurnit Klein & Selz
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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.
www.fkks.com
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provide it with the understanding that Frankfurt Kurnit Klein &
Selz is not engaged herein in rendering legal advice, and shall not
be liable for any damages resulting from any error, inaccuracy, or
omission. Our attorneys practice law only in jurisdictions in which
they are properly authorized to do so. We do not seek to represent
clients in other jurisdictions.
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