The New York Division of Tax Appeals recently issued its decision In Re SunGard Securities Finance LLC, DTA No. 824336 (2/12/2014), which is worthy of mention because it has refocused attention on the New York Department of Taxation and Finance’s (“Department”) aggressive approach toward taxing cloud based services involving remotely accessed software and treating the service as the direct or constructive possession of pre-written or “canned” computer software. Although the Department has consistently argued that an Application Service Provider’s (“ASP”) receipts are derived from providing customers with access and control of software, the Administrative Law Judge (“ALJ”) carefully considered whether the customers actually use, direct, or control the ASP’s software.
The ALJ ruled that SunGard’s Smart Loan service, which was supported by an ASP agreement and involved the processing and maintaining of ancillary accounting ledgers in connection with the customer’s securities lending and borrowing transactions, did not constitute the sale of prewritten computer software. The ALJ noted that under the ASP agreement, SunGard did not transfer, sell or license its Smart Loan software to its customers, nor did the customers have access to the software. The ALJ also noted that the Smart Loan service was only available during certain hours of the day, which was inconsistent with the purchase of prewritten software. Further, the ALJ concluded that the Smart Loan service was an exempt information service, as the information was personal and individual to the customer and was not furnished to others.
This case is noteworthy because although the New York Division of Tax Appeals previously ruled in In Matter of Voicemate.com, Docket No., 819864 (6/2/2005), that the use of an ASP model to deliver services was not subject to tax as prewritten computer software because the purchaser lacked control over the software, it was followed by a number of TSB’s which set forth the Department’s policy of treating the ASP model as the sale of prewritten computer software. Although the ALJ’s decision in SunGard Securities Finance is not binding, it does provide additional guidance and authority for challenging the Department’s current position.
When faced with this issue, the taxpayer should engage in a careful analysis of whether the purchaser of the ASP service really has any degree of control over the software so as to constitute control and possession as intended by New York sales and use tax statutes.
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Other recent “Cloud, Software & Digital Tax” posts by Carolynn Iafrate Kranz:
- Tennessee’s Situsing of Accessed Software Runs Afoul
- Chicago Taxes the Cloud
- Tennessee Enacts Legislation Taxing Remotely Accessed Software
- New York and Cloud Computing: NY Gets It Right With IaaS
- Arizona: Access to Digital Data is Lease of Tangible Personal Property