NY State: Free Mobile App is Sales-Tax-Free

Here’s some good news for mobile app developers: Revenue from some of your apps may be sales-tax-free in New York.

The state’s Department of Taxation and Finance issued a decision earlier this year stating that a mobile app that matches users with available restrooms will not be subject to sales tax. At the heart of the department’s decision is that only services – and not the app itself – are being sold.

The app cited in the department’s decision can be downloaded for free by anyone, but then charges users $1 or $2 each time a user wants to be matched with a restroom at a nearby bar or restaurant. That revenue collected by the mobile app company will not be subject to sales tax, the department said, because the app itself was never sold.

“While the smartphone application is computer software that falls within the definition of tangible personal property, this software will be given to users free of charge,” the department said. “Thus, there is no consideration and no tax is due.”

The department also noted that the service the mobile app sells – access to restrooms – is not an enumerated service subject to tax.

“The admission charge to use a bathroom at a restaurant, café or bar is not a taxable charge under Tax Law,” the department said.

It’s unclear how many, if any, other states feel similarly, but for anyone in the mobile app business, take note of the sale-tax-free possibilities in New York.

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