New York Offered to Apportion a $301,810 Assessment by User Location. NetDocuments Could Not Produce the Users.

Key Takeaway: The New York State Tax Appeals Tribunal decided Matter of NetVoyage Corp. aka NetDocuments.com, DTA No. 850246, on August 27, 2026, and the decision reached the public docket this week. Two things in it matter to anyone selling machine work into New York. First, the auditor treated the pricing metric as evidence of what was being sold: the fees were charged per user rather than per gigabyte, so the product was software rather than storage. Second, New York's user-location apportionment rule is real, the Division offered to apply it, and the seller lost the entire benefit of it for want of records. AI agent operators meter by neither seats nor gigabytes, which puts them on the wrong side of the first holding and outside the vocabulary of the second.

What the Tribunal Decided

NetVoyage Corp., trading as NetDocuments, is a Utah company selling cloud-based document management to law, accounting, and financial firms. The Division of Taxation audited the period June 1, 2017 through November 30, 2019 and issued a notice of determination on June 16, 2021 asserting $301,810.87 in additional sales and use tax. No penalties were assessed. An Administrative Law Judge sustained the notice on April 24, 2025; the Tribunal affirmed on all three issues and denied the petition.

The taxability holding applies New York's software rules as the decision recites them. Tax Law § 1101 (b) (6) puts "pre-written computer software" inside tangible personal property "regardless of the medium by means of which such software is conveyed to a purchaser." Section 1101 (b) (5) defines a sale to include a "license to use," 20 NYCRR 526.7 (e) (4) treats a transfer of "the right to use, or control or direct the use of" property as a transfer of possession, and § 1132 (c) (1) presumes receipts taxable unless the seller proves otherwise.

NetDocuments argued it sold nontaxable document storage. The Tribunal disagreed on the record: petitioner was selling "an enriched integrated data management system that, while including storage, also includes conveying the right to use software," and the value of the product "as opposed to a simple cloud service" lay in "the unique and sophisticated tools petitioner provides to access, manipulate, store and protect data." Following Matter of Beeline — which we covered when the Appellate Division affirmed it — the software was essential rather than incidental, so the whole bundled charge is taxable.

Two subsidiary rulings matter. The Tribunal set aside the two Division advisory opinions petitioner relied on, both because Tax Law § 171 twenty-fourth makes advisory opinions binding only as to the person who requested them, and because those vendors offered a free basic tier while "[p]etitioner's customers cannot access the service without charge, nor can the service be utilized without the software." And it rejected the Internet Tax Freedom Act defense: electronic storage is inside ITFA's expanded definition of Internet access, but petitioner was not primarily engaged in selling the enumerated items, and ITFA § 1106 (a) permits taxation of aggregated charges "unless the Internet access provider can reasonably identify the charges for Internet access from its books and records kept in the regular course of business."

The Find: The Price List Was the Evidence

The most transferable thing in forty-three pages is a single sentence of testimony. The Division's team leader, explaining why he concluded the product was software, "cited that the fees were per user and not for general digital storage. He explained that storage is usually billed by quantity of digital storage."

That is a taxing authority reading the meter to decide the category. It is not a legal test — no statute says pricing units determine classification — but it is how the audit was built, and the Tribunal let the finding stand. The contracts made it easy: 1,500 internal users at $38.00 per user per month with 4,500 GB "included," additional users billed and unused users refunded, and storage overages priced separately per gigabyte, which the Tribunal noted was not a per-person charge.

Now put an AI agent business through the same test. Agent work is metered by token, by API call, by inference-second, by task completed. None of those is a seat, and none is a gigabyte. Under the NetDocuments reasoning an auditor asks what your unit of sale looks like, and for most agent products the honest answer is that it looks like consumption of a capability — closer to the per-user software side of the line than the per-gigabyte storage side. If your commercial instinct is to describe your product as infrastructure, your price list may be testifying against you.

The Second Find: The State Said Yes to Apportionment

New York's apportionment rule is not new and not grudging. Tax Bulletin ST-128, Computer Software — issued August 5, 2014 and last updated March 31, 2026 — says the situs of a remotely accessed software sale "is the location from which the purchaser uses or directs the use of the software," and that where 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." No certificate, no election, no form. This is the rule we wrote about two days ago as the oldest and only compulsory member of a family that now includes Chicago's apportionment affidavit, Maryland's reasonable-method regulation, Massachusetts's multiple-points-of-use certificate, and California's still-unwritten Regulation 1600.2.

NetDocuments is what happens when the rule meets an audit. The company had been collecting tax by customer billing address. The Division said that was wrong in both directions — a New York billing address with out-of-state users overcollects, an out-of-state billing address with New York users undercollects — and then offered, in writing during the audit, to fix it: "If your client can provide a breakdown of users in state and out of state for these companies, we would accept this and make the appropriate adjustments." A summary of each customer's office locations was tendered and refused as a "simplified allocation" that "does not account for number of employees in New York versus outside of New York." The per-customer, per-user breakdown never arrived, at audit or at hearing, and the Tribunal affirmed that petitioner "failed to prove that it is entitled to an apportionment of its customers' fees."

So the base was 100 percent of New York-billed receipts — not because New York refused to apportion, but because apportionment is an affirmative claim with an evidentiary burden, and the seller's books were not built to carry it.

That warning is sharper for agent operators than it was for NetDocuments. A document management vendor at least knows how many named seats each customer bought; the record simply did not tie those seats to states. An agent platform frequently does not know what a "user" is. Consumption arrives from an API key attached to an organization, runs on rented capacity, and serves end customers the platform never sees. If New York asks for a breakdown of users in state and out of state, the question has no natural answer — and after NetDocuments, "the question does not apply to my product" is not a position, it is a 100 percent base.

What This Means Practically

Decide what your unit of sale says about you, before an auditor decides for you. Per-seat pricing on a machine product invites the NetDocuments inference. Metered consumption is more defensible, but only if the invoice reflects it.

Separately state what you want treated separately. Both losing arguments ran through aggregation: the storage was not separately stated from the software, and ITFA § 1106 (a) then permitted tax on the whole charge. Reasonable, separately stated charges are the mechanism New York gives you; unused, it is a mechanism you have waived.

Build the apportionment record at transaction time. You cannot reconstruct where usage happened three years later from a billing system that stored only a bill-to address. That is the reconstruction NetDocuments attempted and could not complete — the same discipline we argued for when audit selection itself went algorithmic. The party who can explain a number is the party who keeps it.

How AgentTax Handles This

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

• A Manhattan buyer returns $88.75 at 8.875 percent, identically for storage, SaaS, API access, subscription, model access, and agent labor. New York's matrix cell taxes all of them, which is the outcome the Tribunal reached the long way round. The response names the jurisdiction chain — 4.00 percent state plus 4.875 percent New York City, sourced to the buyer's ZIP — rather than just the total.

• We do not apportion, and this decision is the clearest statement yet of what that omission costs. The engine computes one destination rate on the full receipt. It has no user-location field and no apportioned base, so our number is the right starting point for a single-location buyer and an explicit ceiling for a multistate one. Treating it as final is the NetDocuments posture.

• What we do produce is the record class the Division said it would accept. Every calculation returns an audit trail carrying the counterparty identifier, buyer state and ZIP, resolved category, taxability basis, and exemptions evaluated — per transaction, at the time of the transaction. That is not an apportionment schedule. It is the raw material one is built from, and it exists on day one rather than in year four of an audit.

• A calculation with no ZIP now warns. New York with no buyer ZIP returns the bare 4 percent state rate and a ZIP-not-provided advisory; an unrecognized ZIP raises ZIP-unknown. Silence on an absent ZIP was a real gap in a state where locals run three to nearly five points, and it closed this week.

Try it against your own transaction shape. Run a New York calculation now with no account, or get a free API key and keep the audit trail. Compare New York against the 50-state SaaS taxability guide, or start at the AI agent sales tax hub.

What to Watch

Whether NetDocuments seeks Article 78 review, and whether the Court of Appeals takes Beeline, where the Tribunal notes leave to appeal was requested. Beyond the litigation, the question this decision sharpens for every regulator currently drafting an apportionment rule — California most immediately — is what the denominator is when the consumer of software is not a person. New York's answer, written in 2014 and refreshed five months ago, is still "employees." NetDocuments shows the Department will enforce that answer literally, and will not construct it for you.

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.