- Providing access to and the right to use software-as-a-service (“SaaS”) or other web-based platforms to deliver otherwise nontaxable services may be treated as a taxable license to prewritten computer software under New York sales tax law.
- New York may treat an entire transaction as taxable if a software component is central rather than incidental to the overall transaction.
Background
Beeline.com Inc. (“the Company” or “Beeline”) is a Florida based business that connects its customers with suppliers of contingent and temporary labor and provides services related to the management, retention and invoicing of such labor. The Company delivers these services through its proprietary online Vendor Management System (“VMS”). Access to the VMS is controlled through contracts with each client and labor supplier.
Following an audit, the New York Department of Revenue determined that the Company was selling licenses to prewritten computer software, transactions which are subject to sales tax in New York. The Company appealed the determination to an Administrative Law Judge and subsequently to the New York Appeals Tribunal. Beeline argued that it did not sell prewritten computer software, and even if it did, the “true object” of its business was to provide the labor-matching services, not to sell software. The Tribunal disagreed, holding that Beeline was selling licenses to use its VMS. It found that the software was the “core element” of Beeline’s business and was central to the contracts and not merely incidental.
Decision of the New York Supreme Court Appellate Division1
The key issue before the New York Supreme Court Appellate Division was whether Beeline’s charges for client access to its VMS software constituted taxable sales of prewritten computer software, or whether the charges were nontaxable charges for labor management and matching services.
In January of 2026, the Appellate Division affirmed the Tribunals decision. It first found that Beeline granted its customers the right to use the VMS software and therefore transferred a license to tangible personal property for sales tax purposes. The Court relied heavily on the plain language of Beeline’s client agreements, which confirmed that the Company made retail sales of a software license.
Beeline asserted that its VMS was not prewritten software because it was tailored to meet clients’ specific needs. However, the agreements expressly stated that the clients would use the software in a standard fashion without customization or modifying the software code. Accordingly, the Appellate Division agreed to the finding of the Tribunal Court that the VMS was prewritten computer software.
The Company further argued that because the transaction included both a sale of tangible personal property bundled with nontaxable services, the Tribunal should have applied the “primary function” test, or “true object” test, to determine the predominant purpose of the transaction. The Tribunal explained that the “true object” test is typically used in cases that involve classifying taxable and nontaxable services rather than bundled transactions which include tangible personal property and services. Instead, the Tribunal assessed whether the VMS license was incidental to the services rendered by Beeline.
The Appellate Court upheld the Tribunal’s conclusion that the VMS was central, not incidental to the services provided. After the onboarding process, the VMS software was the primary means through which clients requested labor, selected candidates for consideration, and processed billing. Additionally, the clients were entitled to credits or contract termination rights if the core functions of the VMS software became unavailable, further demonstrating the software’s importance. The Appellate Court ultimately held that the license to use the VMS was the core component of the transaction and therefore taxable as a sale of tangible personal property. Interestingly, although the petitioner explained that the VMS was never sold separately from the Company’s services, those facts did not alter the Tribunal’s determination that the software “had market value distinct from the services rendered.”
How Forvis Mazars Can Help
Providing access to and the right to use software-as-a-service (“SaaS”) or other web-based platforms may be treated as a taxable license to prewritten computer software under New York sales tax law. Furthermore, when non-taxable services are bundled with taxable software, New York may treat the entire transaction as taxable if the software component is central rather than incidental to the overall transaction. Forvis Mazars can assist your organization in evaluating whether your offerings constitute taxable products and help ensure appropriate sales tax collection and compliance.
- 1Matter of Beeline.Com, Inc. v. State, No. CV-24-1494, 2026 BL 13021, 2026 Lexis 183 (App Div, 3d Dept Jan. 15, 2026).