New York digital product tax and affiliate nexus, explained

What to take away

New York Department of Taxation and Finance rules on digital goods

The New York Department of Taxation and Finance treats many digital products as tangible personal property for sales tax purposes. Article 28 of the New York Tax Law imposes the tax: § 1101(b)(6) defines tangible personal property, and § 1105(a) taxes retail sales of it. That means a download of prewritten software, an e-book, or a digital music file is generally taxable when delivered to a New York customer. The rule turns on what the product is, not how it is delivered.

A custom-built website or a consulting call is usually a service, so it falls outside sales tax. A recorded course that you sell as a downloadable file is closer to a digital good. The department looks at whether the buyer gets a product that can be stored and used repeatedly.

If you sell both, you need to separate the taxable from the nontaxable on your invoices. Bundling a course with live coaching can create a mixed transaction. In that case, the tax treatment depends on the true object of the sale.

Digital goods taxability in New York also covers digital codes that open software or content. Selling a code by email does not change the analysis. The customer receives a taxable product.

For a broader look at how states differ, see this guide to digital product sales tax by state.

What counts as a digital good

The department lists the taxable digital products in its sales tax guidance, including Publication 750, A Guide to Sales Tax in New York State. The list covers prewritten software, digital books, digital audio works, digital video works, and digital codes. Each is treated as tangible personal property.

A digital video work includes a recorded webinar or a course module delivered as a file. A digital audio work includes a podcast episode sold as a download. A digital code includes a serial number that opens a game or an app.

Services are different. A live webinar that a customer attends at a set time is generally a service, not a digital good. The same content recorded and sold later is a digital good.

Exemptions and exceptions

Some digital products are exempt. Newspapers and periodicals are exempt under Tax Law § 1115(a)(i), and digital versions can qualify for that treatment. College textbooks bought for coursework may also be exempt in limited cases under Tax Law § 1115(a).

You should not assume an exemption applies. Check Publication 750 and the department's digital products guidance before you decide not to collect tax. If you get it wrong, you owe the tax plus interest.

If you are unsure whether to charge sales tax on digital products, review the product's characteristics before you set up checkout.

Marketplace provider obligations and who collects the tax

A marketplace provider is a platform that facilitates sales for third-party sellers, and Tax Law § 1101(e) defines the term. New York law, including § 1132, requires the provider to collect and remit sales tax on those sales. The obligation applies even if the individual seller is below the economic nexus threshold.

The marketplace provider collects the tax from the customer and sends it to the state. The seller does not collect it on that transaction. This shifts the compliance burden to the platform for sales made through it.

If you sell on your own site, you are the seller and you collect the tax. If you also sell on a marketplace, the marketplace handles those sales. You need to keep the two channels separate in your records.

Marketplace provider obligations also include reporting. The provider registers for a Certificate of Authority, files a sales tax return such as Form ST-100, and remits the tax it collected. It may also need to give sellers a statement of gross receipts.

Who is a marketplace provider

The definition covers any person who facilitates a sale by a marketplace seller. Facilitating means listing, advertising, or processing payments. A platform that only hosts a classified ad and takes no payment is usually not a provider.

The provider must have a physical presence or economic nexus in New York. Most large platforms meet that test. If they do, they must collect on all facilitated sales to New York customers.

What sellers must do

As a seller on a marketplace, you still need to register if you have nexus. You may need to file returns showing the marketplace sales as exempt or as sales made through a provider. The exact treatment depends on your account setup.

You should keep records of what the marketplace collected. If the state audits you, you need to show that the tax was paid by the provider.

Affiliate nexus thresholds and how a link can create a filing duty

Affiliate nexus in New York can be triggered when you have an agreement with a New York resident who refers customers to you. The resident can be an affiliate, a blogger, or any other person who sends you business, and the FTC affiliate disclosure rules for US digital products apply to how those referrals are disclosed.

The threshold figure is $10,000 in annual sales of tangible personal property to New York customers through that agreement, measured over the four preceding quarters. Tax Law § 1101(b)(8) sets out the test. If you cross the threshold, you are presumed to have nexus, and you must register and collect sales tax.

The rule applies even if you have no office, employee, or inventory in New York. A single active affiliate in the state can create a filing duty once sales reach the threshold.

The agreement does not need to be written. A commission link on a blog is enough. The key is that you pay for referrals and the referrals generate sales.

For background on how nexus concepts work across states, see this overview of Sales taxes in the United States - Wikipedia.

How the threshold is measured

The $10,000 figure is based on gross sales of tangible personal property to New York customers. It is not limited to the commission you pay. If your affiliate drives $10,000 in sales, you cross the threshold.

The sales are measured over the previous four quarters. Once you cross, you are required to register within a set period. You then collect tax on all taxable sales to New York customers.

Affiliate agreements and compliance

Your affiliate agreement should require the affiliate to follow state and federal rules. It should also let you terminate the relationship if it creates a tax problem. Many sellers add a clause that pauses commissions if nexus is triggered.

Before you sign up affiliates, make sure your common digital product strategy questions cover the tax responsibilities spelled out in a clear contract, which can prevent disputes later.

Registration and filing through the New York sales tax system

New York sales tax registration happens through the New York Department of Taxation and Finance. You apply online through the department's Business Express services on NY.gov, or on paper with Form ST-120, Application for Registration as a Sales Tax Vendor. You need your federal employer identification number and details about your business.

The registration process gives you a Certificate of Authority. That certificate lets you collect sales tax from customers. You must display it at your business location, which for online sellers means keeping it on file.

Once registered, you file returns on a schedule the department assigns. Most small sellers file quarterly on Form ST-100; larger sellers file monthly on the same form, and some qualify for the annual Form ST-101. The return shows your gross sales, taxable sales, and tax due.

You can file online and pay by electronic funds transfer. The department also offers a voluntary disclosure program if you missed registration in the past. That program can reduce penalties.

For the full list of sales tax forms and filing options, see New York State sales and use tax forms and guidance.

How to register

Filing and payment

You must file a return even if you have no sales tax due, and Form ST-100 is due 20 days after the end of the reporting period. The department can assess penalties for late filing. Payment is due with the return.

If you sell through a marketplace, you may report those sales as exempt. You still need to report your direct sales and collect tax on them.

Self-employment and other reporting requirements for New York creators

New York self-employment tax is not a separate state tax. It refers to the federal self-employment tax that covers Social Security and Medicare. If you earn more than a small amount from your digital products, you owe it.

The tax applies to your net earnings from self-employment. You calculate it on Schedule SE with your federal return. The rate is 15.3 percent on earnings up to the Social Security wage base, then 2.9 percent for Medicare.

You may also owe New York State income tax on your profits. The state has its own income tax brackets. You report that income on your New York State personal income tax return: Form IT-201 if you are a resident, or Form IT-203 if you are a nonresident.

If you have employees or contractors, you may owe withholding and unemployment insurance. Those are separate from sales tax and income tax.

For help understanding your federal obligations alongside New York state tax, see the Businesses | Internal Revenue Service hub.

Estimated taxes

You may need to make quarterly estimated tax payments to the IRS and New York State. These payments cover income tax and self-employment tax. If you do not pay enough during the year, you may owe a penalty.

Use your prior year tax or your projected income to calculate the payments. The IRS provides Form 1040-ES and a worksheet, and New York State uses Form IT-2105.

Record keeping

Keep records of all income and expenses. You need them to calculate net earnings and to support deductions. Good records also help if you are audited.

The New York self-employment resource center offers guidance on these topics. See Self-employment resource center for details.

For other taxes and reporting requirements that may apply, see Other taxes and reporting requirements.

Worked examples: a course sale, a download and a marketplace sale

These examples show how the rules apply in common situations. Each assumes the seller has nexus in New York, is registered there, and has no other presence in the state unless noted.

Example 1: a course sale

You sell a recorded online course for $200. The course is delivered as a digital download. A New York customer buys it. You have no marketplace involvement.

The course is a digital good. You must collect New York sales tax. If your local rate is 8.875 percent, you collect $17.75. You report the sale on your quarterly return and remit the tax.

If you also offer live coaching, the tax treatment depends on the true object. If the course is the main product, the whole sale may be taxable.

Example 2: a download

You sell an e-book for $20. The buyer downloads it immediately. The e-book is a digital book, which is taxable. You collect tax at the applicable rate.

If you sell the same e-book through a marketplace, the marketplace collects the tax. You do not collect it on that sale.

Example 3: a marketplace sale

You sell a digital template for $50 on a marketplace. The marketplace is a registered provider. It collects the tax from the customer and remits it.

You still need to report the sale on your return, but you mark it as a marketplace sale. You do not remit tax on it. You must keep records of the marketplace's collection.

For a separate look at the accessibility duties that apply to US digital product sellers, see digital product accessibility for US sellers.

Where New York digital product tax questions usually go wrong

One common mistake is assuming all digital products are exempt. New York taxes many of them. Another is ignoring affiliate nexus until the state contacts you.

A third error is failing to register after crossing the economic nexus threshold. In Tax Law § 1101(b)(8), New York's threshold is more than $500,000 in sales of tangible personal property delivered in the state and more than 100 such transactions over four consecutive quarters. If you cross it, you must register.

A fourth mistake is not separating marketplace sales from direct sales. That can lead to double tax or missed filings. Keep the channels distinct in your accounting.

A fifth error is forgetting self-employment tax. Many creators set aside money for income tax but not for self-employment tax. That can lead to a surprise bill.

Finally, some sellers treat affiliate commissions as non-taxable. Commissions are income. You must report them on your federal and state returns.

For a full playbook on affiliate marketing for digital products, review the linked guide.

Common questions