By Nick Fiore
In an advisory opinion, the New York State Department of Taxation and Finance has concluded that a California seller's sales of e-books are not subject to sales and use tax (TSB-A-11(20)S).
Facts. A California company stores a digitized catalog of e-books, available for sale to customers inside and outside New York through its on-line bookstore. E-books purchased are then delivered electronically to customers via the Internet, and are stored on the customer's personal electronic devices (including tablets and smart phones). Customers are then able to view and read these e-books on these devices; e-books purchased through the electronic bookstore are not generally available for printing and are not transferable for viewing on a computer. Purchases are made by customers using a credit card serviced by a third-party financial institution, or other methods.
The e-books available for download are primarily copyrighted materials, licensed for distribution by the seller. While formatting and layout of the text in the e-books may differ from the printed version, the informational content will not differ in any substantial respect. Like the printed counterparts, the e-books may be updated in subsequent printings (e.g., to correct typos), but are otherwise static. Also like the printed versions, the e-books may be republished in future editions, but the purchase of updated copies is generally a separate transaction, unrelated to the prior purchases of earlier editions.
Analysis. New York state law imposes a sales and use tax on tangible personal property (including prewritten software) and certain information (and other) services.
Because these e-books are not tangible and do not include any prewritten software, they are not tangible personal property.
A recent announcement of policy (TSB-M11S) sets forth the state Department of Taxation's definition of an e-book:
- The purchase of the product does not entitle the customer to additional goods and services, and any revisions made to the e-book are for the limited purpose of correcting errors
- The product is provided in a single download
- The product is advertised or marketed as an e-book (or similar term)
- If the intended or customary use of the product requires that it be updated, or that a new or revised edition be issued (e.g., an almanac), the revisions are not issued more frequently than once each year, and
- The product is not designed to work with software other than the software necessary to make the e-book legible on a reading device.
Because the seller's e-books meet this definition, New York State concludes that they are not taxable as informational services.
Conclusion. Because the e-books are neither tangible personal property nor information services, they are not subject to New York State's sales and use tax.
Note: While an Advisory Opinion is limited to the facts set forth and is binding only for the person or entity to whom it is issued (and only if the person or entity fully and accurately described all relevant facts), it may provide some indication of the reasoning and rationale the state would apply in similar situations and for other similar taxpayers.