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Tax Law

Deal of a Lifetime: New York Department of Taxation and Finance Rules Coupon Clearing and Processing Products Not Subject to Sales Tax

On June 9, 2020, the New York State Department of Taxation and Finance issued an advisory opinion concluding that coupon clearing and processing products sold to advertisers that issue discount coupons and the retailers that accept them are not subject to New York sales and use tax. The taxpayers’ customers included both advertisers and retailers.  For both types of customers, the taxpayer managed coupon information and the monetary transactions connected with the coupons’ redemptions, including manual screening and transmission of coupon data to its servers for storage. As part of its product, the taxpayer also provided customers with access to prewritten software to enable each customer to run reports to view its coupon and payment data applicable to the customer. For its advertiser customers only, the taxpayer’s product included certain additional features, including review of coupons for fraud prevention, and its embedded software included additional functionality, including promotion planning analyses and a budget management function.

New York imposes sales tax on prewritten software and taxable services, including information services and protective services.  The Department analyzed each of the taxpayer’s products to determine whether they were taxable under these provisions. The Department first concluded that the taxpayer’s coupon clearing product for retailers – which processes coupons and obtains payment from the issuing advertisers – is not subject to sales tax. The product was not a taxable service and the prewritten software component was only an incidental part of the service. The Department then concluded that the multi-component coupon processing service for advertisers – which included fraud prevention services, along with the promotion planning analyses and budget management function benchmark data – also was not taxable. The Department treated the product as a single unit for sales tax purposes because it was sold as a standardized, integrated product and its components could not be purchased from the taxpayer separately. It concluded that the product is not subject to sales tax because it is not a taxable service and the prewritten software is only an incidental part of the entire service.

N.Y. Adv. Op. TSB-A-20(28)S, N.Y.S. Dep’t of Tax. & Fin. (June 9, 2020).