New York Issues Tax Advisory Opinion Regarding Cloud Computing Product

May 26, 2015

The new guidance addresses the New York sales and use tax treatment of cloud computing services.


On April 14, the New York State Department of Taxation and Finance (the Department) issued Advisory Opinion TSB-A-15(2)S (the Advisory Opinion) in response to a taxpayer’s inquiry as to whether its cloud computing product (the Product) is subject to New York sales and use tax. Generally, New York imposes sales and use tax on the retail sale of tangible personal property, including for prewritten computer software and the sale (except for resale) of certain enumerated services.[1] The Advisory Opinion determined that the taxpayer’s sales of the Product are not subject to sales and use tax in New York.[2]

The Product at issue with regard to the Department’s Advisory Opinion is an Internet infrastructure used by businesses for a variety of functions, including running applications for internal purposes or hosting commercial websites. Use of the taxpayer’s open-source operating system software (or a designated third-party operating system that the taxpayer has licensed) is required to interact with the taxpayer’s server network. The taxpayer provides free application tools or software development kits—including application programming interfaces (APIs)—which give customers the information necessary to build programs that run seamlessly on the taxpayer’s infrastructure services.

Department Opinion

The Department determined that the taxpayer’s customers purchase the Product for the primary purpose of accessing the taxpayer’s computer power (i.e., processor, memory, and storage) to run their own software applications, not to use the taxpayer’s operating system, software development kits, or APIs. Although the operating system provided with the product represents prewritten software, the Department found that the transfer of the right to use the operating system software is incidental to the Product, which primarily consists of the sale of the taxpayer’s computing power. Similarly, to the extent that the software development kits and APIs constitute prewritten software, the transfer of the right to use these APIs is an incidental part of the taxpayer’s Product. The Department concluded that the provision of computing power is not an enumerated taxable service, and, as such, is not subject to sales and use tax in New York.


Like many states, New York continues to deal with the challenge of adapting its application of sales and use tax provisions to evolving cloud computing technologies and software services. Taxpayers that provide these types of services should continue to closely monitor the developments in New York and other states to ensure compliance and avoid unexpected tax exposures.


If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:                         

New York
Cosimo A. Zavaglia                                                                           

San Francisco
Barton W.S. Bassett                                    

[1]. N.Y. Tax. Law §§ 1101(b)(6), 1105(a)-(c).

[2]. N.Y. Dep’t of Tax. & Fin., TSB-A-15(2)S (2015).