Tax insight

New York Supreme Court, Appellate Division, affirms sales tax on SaaS licenses

Insight
5 minute read
February 02, 2026

What happened?

The New York Supreme Court, Appellate Division, on January 15, 2026, affirmed a sales tax assessment against a Florida-based service provider that matches its clients with contingent labor suppliers. The taxpayer asserted it was providing non-taxable services through the use of its technological platform, along with several other arguments, including the primary function test. The court held that the clients’ access to and use of its proprietary vendor management system (VMS) constituted a taxable sale of prewritten software under New York law and was central to those services, rather than incidental.

Why is it relevant?

The decision highlights the importance of contractual terms granting a software license, as the “plain language” in the agreements was the focus of the Tribunal and upheld by the court. Additionally, New York’s use of the primary function (true object) test only applies to a bundle of services, whereas the test for “mixed bundles” (i.e., services and taxable tangible property (SaaS)) requires the taxable component to be incidental to the overall service.

Actions to consider

Companies licensing or otherwise providing prewritten software to New York customers should assess the centrality of the software in the client’s overall service offering, taking actions to align with the intended New York software tax position, especially where SaaS access is bundled with services.

In re Beeline.com, Inc. v. N.Y. Tax App. Trib. , N.Y. App. Div., 3d Dep’t, No. CV-24-1494 (1/15/26)