Is SaaS Taxable in New York? The Prewritten Software Trap, the $686K Beeline Ruling, and More

New York taxes SaaS, and it does not care what you call your product.

If you sell software access into New York, your subscription is treated as a sale of prewritten computer software under Tax Law §1101(b)(14). Prewritten software is classified as tangible personal property in New York, even when it never leaves your servers. The state rate is 4%. With local taxes added, combined rates run from 7% to 8.875% depending on the customer's address.

In January 2026, a New York appellate court upheld a sales tax assessment of $686,570 plus $306,698 in interest against Beeline.com, a vendor management platform that argued its product was a service, not software. The court ruled that paying for access to a software platform is paying for prewritten software, full stop. The "we're a service company" defense is officially dead in New York.

Most SaaS founders find this out the wrong way: a Series A diligence team flags four years of uncollected New York revenue, or a NY-based enterprise customer pushes back on an invoice that doesn't include tax.

This guide explains how New York actually taxes SaaS, why the service-tax rules don't save you, and how to size your exposure if you've been selling in without collecting.

Is SaaS Taxable in New York?

Yes. New York Department of Taxation and Finance has consistently ruled, going back to TSB-A-08(62)S in 2008, that SaaS is taxable as prewritten computer software. The position has been reaffirmed in at least six subsequent advisory opinions and most recently in the January 2026 Beeline appellate decision.

The classification matters because of how New York defines prewritten software. Under Tax Law §1101(b)(14), prewritten software is "any computer software that is not designed and developed by the author or other creator to the specifications of a specific purchaser." If your product is sold to more than one customer, it's prewritten. If it's prewritten, it's taxable. Method of delivery does not change the classification. The software can be:

• Downloaded
• Installed from physical media
• Accessed through a web browser (SaaS)
• Accessed via API
• Accessed through a vendor portal

All four are taxed identically under New York law as remotely accessed software. SaaS products are considered taxable remotely accessed software in New York, regardless of whether they are sold to businesses (B2B) or consumers (B2C). However, related services such as customer training can be non-taxable if they are separately stated on the invoice.

A short list of products New York has explicitly classified as taxable prewritten software in published advisory opinions:

• Vendor management systems (Beeline.com)
• Email marketing and analytics platforms
• CRM and customer data platforms
• Cloud storage and file sharing
• E-signature and document workflow
• Information services where the data is not wholly personal
• Most B2B SaaS platforms

New York's list of taxable items includes SaaS as remotely accessed software, but excludes certain digital goods. Digital goods such as e-books and movie downloads are not considered tangible personal property and are not subject to sales tax in New York.

What's the Exception? Custom Software and IaaS

Two categories of digital product are not taxable in New York.

Custom software. Software designed and developed to the specifications of a single, specific purchaser is exempt. The exemption is narrow. If you take a prewritten product and configure it for a customer, that's still prewritten software with a custom configuration. To qualify as custom, the software has to be built from scratch for one named buyer. If that custom software is later sold to a second customer, it becomes prewritten software and is taxed from that point forward. Related services, such as customer training or consulting, are generally tax-exempt when billed separately, but providers must explicitly itemize these services on invoices to maintain their exempt status.

Infrastructure-as-a-Service (IaaS). New York has ruled in multiple advisory opinions that pure infrastructure access (compute, storage, networking, without a software application layer) is not taxable. The distinction is technical: if the customer accesses computing resources and runs their own software on them, that's IaaS and it's exempt. If the customer accesses your software running on your infrastructure, that's SaaS and it's taxable.

The line gets blurry. Most "platform" products that founders think are PaaS or IaaS turn out to be taxable SaaS on closer inspection. When in doubt, assume taxable.

Are IT Services Taxable in New York?

This is where most SaaS founders go wrong. They've heard that New York generally does not tax services, and they assume that protects them.

It does not.

New York's default rule is that services are exempt from sales tax unless specifically enumerated as taxable. The enumerated taxable services list is short: information services, protective services, certain installation and maintenance services, parking, hotel occupancy, restaurant meals, and a few others.

Most professional services are exempt. Consulting, legal work, accounting, design, marketing, software development for a single client (custom software) — all exempt.

But here's the trap: when SaaS is bundled with otherwise-exempt services, the entire bundle becomes taxable unless the charges are reasonable and separately stated on the invoice. From the NY DOR's published guidance on computer software:

When 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 on the invoice or billing statement given to the customer.

If you sell SaaS at $5,000/month bundled with "customer success services" or "implementation support" or "training" and don't itemize, the full $5,000 becomes taxable. Itemize the bundle into "$4,000 software access" and "$1,000 implementation services," and only the $4,000 is taxed.

This is the single biggest invoice change a SaaS company can make in New York. Itemize everything.

The Beeline.com Ruling: Why "We're a Service" Doesn't Work

The January 2026 appellate decision in In the Matter of the Petition of Beeline.com is the most important SaaS sales tax case in New York history.

Beeline operated a vendor management system. Customers paid Beeline a fee to access a software platform that automated vendor onboarding, time tracking, and invoicing. Beeline argued that its product was a service: customers were paying for the workflow management, not for the software. The platform was incidental.

The Division of Tax Appeals rejected the argument, and on appeal the decision was upheld. The court's reasoning was direct:

• The customer paid for access to the software platform
• The platform itself was prewritten software not designed for a single purchaser
• The bundled services did not change the substance of what was being sold
• Calling the product a "service" did not change the tax classification

New York pursues the taxation of SaaS vigorously, making it crucial for sellers to comply with New York's sales tax regulations to avoid audits and penalties.

Result: $686,570 in back tax assessment plus $306,698 in interest. Total: just under $1 million on what Beeline thought was a non-taxable service business.

Compare this to the contemporaneous In the Matter of the Petition of 1Life Healthcare, where the OTA revoked a $1.9 million assessment. 1Life provided members a healthcare platform that included specialist referrals, primary care, and procedure booking. The OTA agreed the membership fees were for "care navigation services" with software as an incidental component, not for software access.

The line between Beeline and 1Life is the line every SaaS founder selling into New York needs to understand. If your customer is paying to use your software, you're selling prewritten software. If your customer is paying for human professional judgment that happens to involve software, you may be selling a service. The bar for the second category is high, and the burden of proof is on you.

New York Sales Tax Nexus

You only have to collect New York sales tax if you have nexus in New York. Nexus in New York is established when a business has either a physical or economic presence in the state, and both types of nexus can trigger the obligation to collect sales tax.

Economic nexus applies to remote sellers with no physical presence in New York. Economic nexus is triggered when both of the following conditions are met within the immediately preceding four sales tax quarters:

• More than $500,000 in taxable sales of tangible personal property delivered into New York, and
• More than 100 sales transactions delivered into New York

Both thresholds must be crossed in the same four-quarter period. The evaluation period for these thresholds is the previous calendar year or the immediately preceding four quarters. Both taxable and exempt sales may count toward the threshold, but nontaxable sales are excluded. Sales made through a marketplace facilitator may also be included in the threshold calculation. For example, a SaaS company with two New York enterprise customers paying $300,000 each ($600,000 total, 24 transactions over 12 monthly invoices) has not crossed the threshold because the transaction count is too low. A SaaS company with 200 New York customers paying $10 each per month ($24,000, 2,400 transactions) has not crossed because the dollar threshold is too low.

This dual threshold makes New York one of the few states where small-ticket B2C SaaS may stay below the line for longer than founders expect, and large-ticket enterprise SaaS may have to track transaction count carefully.

Physical nexus in New York is created by having a business location, office, warehouse, vehicle, employee, or other representative operating in the state. Physical nexus is triggered by any of the following:

• An office, warehouse, or place of business in New York
• A single employee, contractor, or sales rep working from New York (including a fully remote employee)
• Inventory stored in New York (including third-party warehousing)
• Soliciting sales in New York through canvassing, mail, or telephone
• Maintaining an affiliate that solicits sales on your behalf

The remote employee trigger is the one that catches modern SaaS hardest. A single engineer working from Brooklyn creates physical nexus regardless of where your headquarters is, and regardless of whether you have any New York customers yet.

Once you establish nexus in New York—either physical or economic—you must register for a Sales Tax Certificate of Authority to collect and remit sales tax. After registration, you are required to collect sales tax from customers, remit sales tax to the state, and file returns for each reporting period to remain compliant.

How New York Calculates Local Tax

New York is a destination-based state, meaning you must charge sales and use tax based on where the customer is located, not where your business is. New York imposes a statewide sales and use tax rate of 4%, and local tax rates are added on top, resulting in a combined sales tax rate that varies by jurisdiction.

Combined rates vary by jurisdiction due to different local tax rates:

The Metropolitan Commuter Transportation District (MCTD) surcharge applies to NYC and seven surrounding counties (Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk, Westchester). If your customer is in any of those eight counties, you add 0.375% on top of state plus local.

Practical implication for your billing system: rate the tax by the customer's billing or service address, not by your own location and not by a flat statewide rate. Charging every New York customer the same 8.875% NYC rate is the second most common billing mistake (after not charging tax at all).

Businesses must file sales tax returns for each reporting period—monthly, quarterly, or annually—as assigned by the state, ensuring compliance with New York's sales and use tax regulations and accurate calculation of all applicable tax rates.

A Worked Example

A SaaS provider based in San Francisco has the following New York customers:

• 80 customers in Manhattan paying $200/month
• 30 customers in Buffalo paying $200/month
• 10 customers in Rochester paying $200/month
• 5 customers in Albany paying $200/month

All customers are businesses. None have exemption certificates on file.

Monthly New York taxable revenue: 125 × $200 = $25,000

Annual New York sales tax collected and remitted: ~$26,000.

If this provider has been operating for three years without collecting, the back-exposure is approximately $78,000 in tax plus penalties (10%–30% depending on whether the failure is judged as negligent or willful) plus interest at the Tax Department's published rate (currently 7.5% compounded). Total worst-case: $100,000–$120,000 on what looks like a modest New York footprint.

How to Register and File

Registration runs through New York Business Express.

You need:

• Federal EIN
• Business location (or your remote-seller address)
• Estimated annual New York taxable sales
• North American Industry Classification (NAICS) code (511210 for software publishers, 518210 for SaaS hosting)
• Names and SSNs of responsible persons (yes, NY requires personal identification of officers)
• Bank account for electronic filing

After registering, businesses are legally required to collect and remit sales tax on taxable transactions in New York to remain compliant.

The Certificate of Authority must be applied for at least 20 days before your first taxable sale. Penalties for operating without one start at $500 per day and cap at $10,000.

Filing frequency (monthly, quarterly, or annual) is assigned by the DTF based on your estimated taxable sales:

• Annual filer: under $3,000 per year in taxable sales
• Quarterly filer: $3,000 to $300,000 per year
• Monthly filer: over $300,000 per year, or any vendor required to file electronically

Accurate and timely filing of sales tax returns is essential for sales tax compliance and helps minimize audit risk. Returns are due on the 20th of the month following the period. Zero returns are mandatory even when no tax is due. Automating the sales tax filing process can help businesses save time and reduce the risk of errors.

What to Do If You Already Have New York Customers

Score your situation:

Under $500K in New York revenue OR under 100 New York transactions, no New York employees, no physical presence. No collection obligation. Monitor both thresholds quarterly. The "AND" requirement is your friend until it isn't.

Over both thresholds, no registration, charging zero tax. You have an exposure. The size depends on how long this has been going on and what percentage of customers can produce exemption certificates after the fact (R&D users, qualifying nonprofits, manufacturers). Certain sales, such as those to nonprofits or manufacturers, may be exempt from sales and use tax requirements if proper exemption certificates are provided. Failing to address this exposure increases your audit risk and the potential for penalties. A typical $3M ARR SaaS with 15% of revenue from New York over three years is looking at back-collection of approximately $30K–$50K plus penalties and interest.

You have a New York employee, regardless of customer base. Register now. You have physical nexus and will need a Certificate of Authority before your next sale to a New York customer. The single-employee trigger does not require crossing any revenue threshold.

Charging tax on the full bundled price. You are over-collecting if your invoice doesn't separate the SaaS portion from any bundled services. Restructure invoices going forward to itemize. Customers can claim refunds for past overpayments directly from the NY DTF for up to three years.

In all cases, the cheapest time to fix this is before a buyer's diligence team finds it.

Direct Links to New York DOR Sources

Every claim in this guide is sourced. Verify any of it yourself:

• Tax Law §1101(b)(14) – Statutory definition of prewritten computer software
• NY DOR Tax Bulletin: Computer Software (TB-ST-128) – The plain-language summary
• TSB-M-93(3)S – Original technical memorandum on software taxability
• Advisory Opinions on SaaS – TSB-A-08(62)S, TSB-A-09(15)S, TSB-A-09(25)S, TSB-A-09(44)S, TSB-A-13(22)S, TSB-A-15(2)S
• In the Matter of Beeline.com, Inc., DTA No. 829516 – The January 2026 appellate decision

The 30-Second Self-Check

Answer these four questions:

1. Do you have any New York customers?
2. Have you crossed BOTH $500K in New York revenue AND 100 New York transactions over the last four quarters, or do you have any New York employees?
3. Are you currently charging New York sales tax on those invoices?
4. If you bundle SaaS with services (training, implementation, support), are the line items separately stated on each invoice?

If you answered "yes, yes, no, no/N/A," you have a back-exposure to size before your next raise. If you answered "yes, yes, yes, no," you are over-collecting on bundled invoices and your customers may be entitled to refunds.

Frequently Asked Questions

Is SaaS taxable in New York in 2026?

Yes. New York taxes SaaS as prewritten computer software at the state rate of 4% plus local taxes, for a combined rate of 7% to 8.875% depending on the customer's location.

Is software taxable in New York?

Yes. New York classifies all prewritten software as taxable tangible personal property, whether downloaded, installed from media, or accessed remotely as SaaS. Only custom software designed for a single specific purchaser is exempt.

Are services taxable in New York?

Generally no. Most services are exempt from New York sales tax unless specifically enumerated as taxable. Taxable services include information services, protective services, parking, hotel stays, restaurant meals, and certain installation services. Consulting, legal, accounting, and professional services are exempt.

What services are exempt from sales tax in New York?

Most professional services (legal, accounting, consulting, design, education), medical services, financial services, transportation, and personal services. The full taxable services list is enumerated in Tax Law §1105(c).

What is New York's economic nexus threshold for SaaS?

$500,000 in gross receipts from delivered tangible personal property AND more than 100 transactions, both over the preceding four sales tax quarters. Both conditions must be met.

How far back can New York audit me for uncollected SaaS tax?

The standard statute of limitations is three years from the return due date. For unfiled returns, the statute does not begin to run, making the lookback effectively open-ended. For fraud or willful evasion, there is no statute of limitations.

Need a Real Number on Your New York Exposure?

New York is one state. Most SaaS companies with this problem have it in three to seven. The free 30-minute Exposure Review pulls your top 5 revenue states, maps your specific exposure with DOR citations, and sends you a one-page summary you can hand to your CFO, board, or buyer.

No sales pitch. Either you have exposure or you don't.

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