Is SaaS Taxable in New York? Yes — and New York Has Been Apportioning Software by User Location Since 2014

Key Takeaway: New York taxes SaaS, and has for years, on a theory that has nothing to do with software delivery: prewritten software is tangible personal property, and remote access transfers constructive possession of it. Information services are taxed separately under a provision written in the vocabulary of mimeograph machines. The genuinely interesting part is neither of those. It is a paragraph in a routine tax bulletin that requires sellers to apportion a single receipt across user locations — mandatory, no certificate, no election, in force since 2014 — and it defines those users as employees.

The Two Limbs

New York does not have a SaaS tax. It has two older taxes that both reach SaaS, and the difference between them decides which exemptions you can reach.

Limb one is property. Tax Law § 1101(b)(6) defines tangible personal property as "[c]orporeal personal property of any nature," then adds: "Such term shall also include pre-written computer software, whether sold as part of a package, as a separate component, or otherwise, and regardless of the medium by means of which such software is conveyed to a purchaser." Section 1105(a) taxes "[t]he receipts from every retail sale of tangible personal property." Prewritten software is defined at § 1101(b)(14) as software "which is not software designed and developed by the author or other creator to the specifications of a specific purchaser."

That chain never mentions hosting, networks, or the cloud. The bridge is administrative. Tax Bulletin ST-128, Computer Software, puts it plainly: "When a purchaser remotely accesses software over the Internet, the seller has transferred possession of the software because the purchaser gains constructive possession of the software and the right to use or control the software."

Limb two is information. Section 1105(c)(1) separately taxes "[t]he furnishing of information by printed, mimeographed or multigraphed matter or by duplicating written or printed matter in any other manner, including the services of collecting, compiling or analyzing information of any kind or nature and furnishing reports thereof to other persons." It excludes information "which is personal or individual in nature and which is not or may not be substantially incorporated in reports furnished to other persons," advertising and representative agents, news-gathering services, and meteorological services.

Read that enumeration again. Mimeographed. Multigraphed. Duplicating printed matter. This is the provision New York applies to a model that answers a question over an API, and it does not contain the word electronic, digital, computer, or software. That is now the fourth state record we have read end to end this quarter whose operative digital-services text is silent on the technology it governs.

The Find: New York Already Apportions, and It Says Employees

We have spent this quarter tracking one defect across jurisdictions: when a state sources software to "where it is used," it writes the denominator in terms of seats. Chicago's apportionment affidavit divides Chicago users by total seats. Maryland's Technical Bulletin 56 offers two example denominators, both headcount, against a statute that names equipment. California's draft Regulation 1600.2 defines a user as an employee or agent. A proposed federal § 168(k)(11) sets a 20% AI-use threshold and never says twenty percent of what.

New York's version is older than all of them and it is the only mandatory one. TB-ST-128 continues:

"The situs of the sale for purposes of determining the proper local tax rate and jurisdiction is the location from which the purchaser uses or directs the use of the software, not the location of the code embodying the software. Therefore, if a purchaser has employees who use the software located both in and outside of New York State, the seller of the software should collect tax based on the portion of the receipt attributable to the users located in New York."

There is no form here. No certificate, no election, no multiple-points-of-use exemption document. Chicago makes you file an affidavit. Michigan built an MPU certificate regime and repealed it in 2009. Maryland permits any reasonable and consistent method. New York simply directs the seller to split the receipt and get on with it — and has since this bulletin issued on August 5, 2014.

And it defines the split by employees. The bulletin was updated on March 31, 2026 — five months ago, well into the agent era — and the denominator is still headcount.

That is a live problem for anyone selling agent infrastructure. If your customer's consumption of your platform is an autonomous process running on rented capacity, there may be no employees using it anywhere, and the rule as written produces no denominator at all. New York has the most demanding apportionment obligation in the country and the least guidance on how to satisfy it when the user is not a person. The statute's own sourcing concept — "the location from which the purchaser uses or directs the use of the software" — is broad enough to reach a machine. The bulletin's worked example is not.

Custom Software: A Separately-Stated Rule, Not a Balancing Test

The custom software exemption is real and it is narrower than most people selling AI think. TB-ST-128 sets it out as a sequence of bright lines rather than a weighing exercise:

• Prewritten software "includes any computer software that is not designed and developed to the specifications of a particular purchaser," including "software created by combining two or more prewritten programs or portions of prewritten programs."

• Custom software is exempt if designed and developed to a particular purchaser's specifications, and loses the exemption if transferred to anyone else.

• "Prewritten software that is modified or enhanced to the specifications of a particular purchaser is subject to tax. However, if the charge for the custom modification or enhancement is reasonable and separately stated on the invoice, then the charge for the modification or enhancement is not subject to tax."

That last one is the operative rule and it is an invoicing rule. There is no dominant-purpose test rescuing a mostly-custom deployment of a standard platform. Fine-tuning a shared model on a customer's data is a modification of prewritten software; it is exempt only to the extent you separately state it and the charge is reasonable.

The same structure governs services. Training, consulting, instruction, troubleshooting, installing, programming, systems analysis, repairing, maintaining, and servicing are all exempt in New York — but "when these otherwise exempt services are provided in conjunction with the sale of prewritten software, the charge for the service is exempt from tax only when the charge for the service is reasonable and separately stated."

The Tax Appeals Tribunal enforced exactly that in Beeline.com, Inc., DTA No. 829516, decided May 2, 2024, which we read in full for this piece. Beeline sold a vendor management system bundled with staffing services and argued the whole thing was a service. The Tribunal disagreed: "the Beeline VMS software technology was the central element of those contracts," and although employees "may have performed otherwise nontaxable services, petitioner failed to substantiate that claim by providing reasonable and separately stated charges for those services (see Tax Law § 1115 [o])." The assessment — $686,570.66 in tax plus $306,698.60 in interest — was sustained. The Appellate Division affirmed on January 15, 2026; we wrote about what that means for bundled agent revenue.

The lesson for an agent operator invoicing a New York customer is unglamorous and total: the exemption lives on the invoice, not in the pitch deck.

Nexus and Rates

New York's economic nexus threshold is conjunctive, which is unusual. Section 1101(b)(8)(i)(E) reaches a person whose "cumulative total of ... gross receipts from sales of property delivered in this state exceeds five hundred thousand dollars and such person made more than one hundred sales of property delivered in this state." Both, not either. A company with eight enterprise contracts worth $4 million into New York does not cross it on volume alone; most states would have caught it at the first dollar test.

The state rate is 4%. Locals are where it hurts. Publication 718 (2/25), effective March 1, 2025, puts New York City at 8⅞% — 8.875% — with Yonkers matching it, Erie and Suffolk at 8¾%, Nassau at 8⅝%, Westchester at 8⅜%, and most upstate counties at 8%.

Publication 718 also carries a warning worth quoting in full, because it is aimed squarely at how most tax engines are built, including ours: "Reporting codes, rather than ZIP codes, should be used for identifying customer location. (Postal zones usually do not coincide with political boundaries, and the use of ZIP codes for tax collection results in a high degree of inaccurate tax reporting.)"

How AgentTax Handles New York

Verified against the live engine this morning, $1,000 into New York.

• SaaS, API access, compute, data purchases, and licenses all compute as taxable. A New York City buyer returns 8.875% — $88.75, matching Publication 718 exactly. Albany, Syracuse, Binghamton, and Rochester return 8.00% — $80.00, also matching.

• Five of our sixteen New York ZIP anchors under-collect against the state's own table, and we found it writing this post. Buffalo (14202) computes 8.00% where Publication 718 publishes Erie County at 8.75%. Garden City, Hempstead, and Hicksville compute 8.375% against Nassau's 8.625% — and the code comment beside those values reads "Nassau County 4.25% + MCTD 0.375%", which is 4.625%, so the comment already has the right answer and the stored number does not. Smithtown computes 8.625% against Suffolk's 8.75%. The other eleven reconcile exactly, which rules out a rounding convention. Rate values are guardrail-class here and we do not edit them on our own authority, so this is filed for Bob's decision as approval #297 rather than quietly patched.

• A calculation with no ZIP returns the bare 4% state rate and says nothing about it. An unrecognized ZIP at least raises a ZIP-unknown advisory; an absent one does not. In a state where locals run 3 to 4.875 points on top of 4%, that silence is the wrong default, and it is the same ZIP-versus-jurisdiction problem Publication 718 warns about.

• Consulting computes as a taxable digital service. New York expressly exempts consulting as a computer software service. This is the eighth state where our consulting-to-digital-service mapping produces a conservative result the state's own guidance does not require — logged, not filed, because it over-collects rather than under-collects.

• We do not apportion, and in New York that matters more than anywhere else. One destination state, one answer. New York's user-location rule is mandatory, not elective, so a multistate customer is a case where our number and the seller's actual obligation can diverge. We would rather say so than imply a position we do not compute.

Try it on your own transaction types. Run a New York SaaS transaction now (no account), or get a free API key. See how New York compares in the 50-state SaaS taxability guide and the AI agent sales tax hub, and how the same seat-shaped denominator shows up in Maryland's sourcing statute, Chicago's apportionment affidavit, and California's draft regulation.

What to Watch

Whether the next revision of TB-ST-128 addresses non-human users. The bulletin was touched in March 2026 and the employee example survived, which suggests the Department has not yet been asked the question. It will be. California's Regulation 1600.2 interested-parties process is running now with written comments open, and New York's fourteen-year-old rule is the closest thing to operating precedent that any state has.

This analysis is for informational purposes only and does not constitute legal or tax advice. This post reflects AgentTax's current interpretation of evolving law. Consult a licensed tax professional for compliance decisions.