NY Court: Bundled Transaction Taxable, Charges Not Separately Stated

The New York Supreme Court, Appellate Division, recently ruled that sales of staffing/matching services bundled with a software license constitute the taxable sale of tangible property.¹ The court’s reasoning was that the core function of the transaction was the provision of the license. In a footnote, the court added that such services could be exempt if they were reasonable and separately stated, but that, in this instance, the seller did not separately state the charges.

Beeline.com (“the taxpayer”) provides contingent and labor-matching services to its clients through a license of its proprietary prewritten software. The Department of Taxation and Finance issued a sales tax assessment, contending that the taxpayer was selling a taxable license to use prewritten software, whereas the taxpayer claimed that the true object of the transaction was nontaxable employee-matching services. Both an administrative law judge and the Tax Appeals Tribunal upheld the tax assessment.

The court upheld the assessments, relying on the tribunal’s examination of the agreements between the taxpayer and its customers, noting that the customers were granted a nontransferable license to use the software, and that the services were listed in an accompanying addendum. The court agreed with the tribunal that the licensure language was not “merely incidental” language to protect the taxpayer’s intellectual property. The court rejected the taxpayer’s claims that the software was not in fact prewritten software because it was harmonized to the needs of the particular customer; there were no changes to the software coding, and the contractual language called for the software to be used in its “standard fashion.” Lastly, the taxpayer argued that the tribunal “eschewed a primary function analysis,” which is necessary for any bundled transaction. The court concluded that the tribunal applied the functional equivalent by assessing whether the provision of the software license was incidental to the staffing services. Accordingly, the court declined to overturn the tribunal’s determination that the license was the “core function of the transactions at issue, thus rendering them subject to a tax as a sale of tangible personal property.”

Ryan’s Take and Action Steps

It is interesting that the main body of this decision does not refer to the fact that the taxpayer did not separately state the charges for the software license and its staffing services on its invoices. This fact was relegated to a footnote, as was the reference to New York Tax Law §1115 (o), which provides an exemption for taxable services performed on “computer software of any nature” where such services are “provided ... in conjunction with the sale of tangible personal property,” if such service charges are reasonable and separately stated.

This decision should prompt service providers that also license software to analyze their customer invoices to determine whether they are entitled to the stated exemption.

¹ Beeline.com Inc. v. New York State Tax Appeals Tribunal, N.Y. Sup. Ct., App. Div. (3d), No. CV-24-1494, January 15, 2026.

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