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A corporation’s video generating service is prewritten computer software that is subject to New York state and local sales taxes when sold to customers located in New York. The taxpayer offers an on-line product that allows customers to have a video automatically created using uploaded image content that is set to music. These videos are created via the use of a web-based interface. While this interface does not itself create any videos, it gives customers the ability to control the video-generating software by selecting the content of a video, the order in which this content appears, and various other aspects of a video, including what music and logos are used, and the video’s “style.” In addition, this interface allows customers to create text that can be incorporated into a video. Therefore, the taxpayer is selling access to prewritten computer software, which is included within the definition of “tangible personal property” subject to tax. Also, there is no indication that any aspect of the taxpayer’s product, including the web interface that customers use, is designed or developed to the specifications of a specific customer. Rather, it appears that regardless of who uses the taxpayer’s product, the same software is used to produce videos for all customers. Therefore, all of this software is properly considered prewritten computer software that is subject to sales tax.
Further, while the taxpayer’s customers may not directly interact with the video generating software located on the taxpayer’s server, they have access to an online interface that gives them control over that software and what it does. Specifically, as noted above, customers use the taxpayer’s interface to dictate the content of videos, to create text for videos, and to control other significant aspects of a video that gets automatically created, including the order in which content and text appear, the music and logos that are used, and the video’s “style.” This interface software, in other words, gives customers the ability to make the videos that they want. As such, the taxpayer’s customers are given constructive possession of the taxpayer’s video generating software in that they have the “right to use, or control or direct the use” of it. That all videos will be unique in some way due to the software’s algorithms is irrelevant. Therefore, charges for the taxpayer’s product are for the use of software that are subject to tax. Finally, the situs of the sale for purposes of determining the proper local tax rate and jurisdiction is the location associated with the right to use the taxpayer’s software, i.e., the location of the customer or its employees (if applicable). If a customer has employees located both in and out of New York who use the software, the taxpayer should collect tax based on the portion of the receipts attributable to the customer’s users located in New York.
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