2

Sales tax for paid apps is somewhat well defined depending on state tax code, things like downloadable or boxed software seem to be covered, and most states will require a sales tax for sold / downloadable apps.

However a grey area is Freemium model apps that rely on in app purchases.

Lets take the simplest scenario as an example, where the app shows Ads and the user can pay $0.99 to remove ads via in app purchase. Now there wasn't any software exchanged at that point, as in no additional screens or in-app / in-game items were added or unlocked.

In this scenario where just ads are removed, is there a need to charge sales tax? Is that considered a software sale ?

This is for US, NY.

  • What country are you asking about? Laws vary. – littleadv Apr 26 '16 at 16:28
  • This is for US, just clarified in the question. Thanks for catching that. – AlexVPerl Apr 26 '16 at 16:29
  • In the US, there's no sales tax on the Federal level, each State has its own, and the rates may differ between municipalities. – littleadv Apr 26 '16 at 16:33
  • Added state info the question – AlexVPerl Apr 26 '16 at 16:36
  • "Somewhat well defined depending on state code" is this referencing the NY state code? – quid Apr 26 '16 at 17:36
4

It seems to me that an in app upgrade to ad free is a prewritten change to the software license and would effectively constitute an upgrade of prewritten software. Below is what seem to be the relevant link and excerpts.

https://www.tax.ny.gov/pubs_and_bulls/tg_bulletins/st/computer_software.htm

Sales of software upgrades

Generally, the sale of a revision or upgrade of prewritten software is subject to tax as the sale of prewritten software. If, however, the software upgrade is designed and developed to the specifications of a particular purchaser, its sale to that specific purchaser is exempt as a sale of custom software.

Remotely accessed software

A sale of computer software includes any transfer of title or possession or both, including a license to use.

When a purchaser remotely accesses software over the Internet, the seller has transferred possession of the software because the purchaser gains constructive possession of the software and the right to use or control the software.

Accordingly, the sale to a purchaser in New York of a license to remotely access software is subject to state and local sales tax.

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