New York Sales Tax Guide for SaaS and E-Commerce Businesses
2025-07-08
New York generally taxes most goods, and software and generally doesn't tax services and digital goods. On top of state tax of 4%, there are local taxes in most counties that can push the total tax rate to 8.875%. Understanding these rates is critical since incorrect collection can lead to penalties and interest charges.
Nexus in New York
Physical nexus
Physical presence triggers collection duty immediately. Examples:
- Office, warehouse, inventory, or employees located in New York.
- Independent contractors or affiliates soliciting sales on your behalf.
- Attendance at trade shows or temporary pop-ups within the state.
- “Click-through” affiliates: > $10 000 in referral sales in the last four quarters creates nexus.
Source: NY Tax Law § 1101(b)(8)(vi).
Economic nexus
You must register and collect if, during the four most recent quarters, both conditions are met:
- Gross receipts into NY exceed $500 000, and
- You make more than 100 separate sales into NY.
Register within 30 days of crossing the threshold; begin collection 20 days later.
Source: NY DTF Notice N-19-1.
Registration and Filing
- Apply for a Certificate of Authority through New York Business Express. Submit at least 20 days before your first taxable sale.
- Display the certificate in any NY place of business.
- Filing frequency (monthly, quarterly, annually) is assigned by NY DTF and may change with volume.
- Returns are due on the 20th of the month following the period. Zero returns are mandatory when no tax is due.
- Penalties for operating without a certificate range from $500 on day 1 to $10 000 maximum.
Source: Publication 750.
Taxability of Goods and Services
Tangible personal property
Default rule: taxable unless specifically exempt. Key exemptions:
- Most unprepared food.
- Clothing or footwear priced < $110 per item (state tax exempt; local tax exempt in most jurisdictions).
Reference: Publication 718-C.
Digital goods and software
| Category | NY Taxability | Notes |
|---|---|---|
| Prewritten software (downloaded, disk, cloud, SaaS) | Taxable | Treated as tangible property regardless of delivery method. |
| Custom software written exclusively for one client | Exempt | Must be separately stated and reasonable. |
| Music, videos, e-books delivered electronically | Not taxable | NY does not classify general digital content as tangible property. |
Sources: NY Tax Bulletin ST-128, Avalara state matrix.
Services
Services are exempt unless enumerated. Relevant taxable category: information services (e.g., database access, credit reporting) unless data is wholly personal or individualized. Implementation, training, and consulting tied to software remain exempt when separately invoiced.
Shipping and handling
If any item in the shipment is taxable and you charge one delivery fee, the entire shipping charge is taxable. Allocate only when practical documentation exists.
Source: NY Tax Bulletin ST-838.
SaaS
| Requirement | Detail |
|---|---|
| Tax status | SaaS is “prewritten software” → taxable. |
| Sourcing | Destination-based. Use the location where the purchaser uses or directs the software. Billing address is acceptable if user locations are not provided. |
| Customizations | Separately stated custom work is exempt; subscription fee remains taxable. |
| Exempt purchasers | Accept Form ST-119.1 (exempt org) or ST-120 (resale) to forego tax. |
| IaaS/PaaS | Provision of raw computing power or storage is generally not taxed. Verify each model individually. |
E-Commerce
5.1 Economic nexus recap
Out-of-state sellers surpassing $500 000 / 100 transactions must collect NY tax on web-store sales. Marketplace sales count toward the threshold even though the marketplace collects and remits.
5.2 Marketplace facilitator rule
Marketplaces (Amazon, Etsy, eBay, Walmart, Shopify Marketplace) must collect NY sales tax on facilitated transactions. You remain responsible for:
- Tracking gross NY sales for nexus determination.
- Registering once nexus exists, even if marketplaces remit all tax.
- Filing returns that report marketplace sales as “marketplace-collected”.
Reference: NY DTF TSB-M-19(2.1)S.
NY sales tax rates
- State rate: 4 %.
- Local add-ons push combined rates to 7 %–8.875 % (NYC highest).
Use NY DTF address-based lookup or automated tools like Stripe Tax.
Product specific rules
| Product | Tax status |
|---|---|
| Clothing/footwear < $110 | Exempt (state and most local) |
| Dietary supplements | Exempt as food |
| Physical software (game cartridges, boxed software) | Taxable |
| Digital download of software | Taxable |
| E-book | Not taxable |
8 References
- NY DTF — Publication 750 (general guide).
- NY DTF — TSB-M-19(4)S (economic nexus memo).
- NY DTF — ST-128 (software tax bulletin).
- NY DTF — ST-838 (shipping charges).
- Stripe — Stripe Tax Documentation.