New York Appeals Court Weighs $1M Sales Tax Dispute Over Beeline’s Bundled Services

A case in New York appeals court is deciding whether Beeline.com owes about $1 million in state sales tax.
The case is In the Matter of Beeline.com Inc. v. State of New York Tax Appeals Tribunal et al., case number CV-24-1494, in the
Supreme Court of the State of New York,  Appellate Division, Third Judicial Department.

In this case, Beeline assisted large businesses with gathering, organizing, and assembling their contingent labor force.
In doing so, Beeline provided consulting services, arguably nontaxable services, and a software license to access the
company’s proprietary software technology, which is taxable. Significant to the lower court decision to uphold the
assessment was the Tribunal’s refusal to apply the primary function or true object test to determine whether the company
was selling nontaxable services or taxable prewritten computer software. Rather, the lower court concluded that when a
single fee is charged for both taxable tangible property and non-taxable services (as opposed to integrated services),
the entire fee is subject to sales tax, unless the taxable element is merely ancillary or incidental to
the sale of the nontaxable service. The court found that the software was a “core element” of the company’s services, and
therefore, was not incidental or ancillary to the services. As such, the court held that the entire fee
was taxable.

Advice for taxpayers in similar situations where the line between taxable and non-taxable is blurred is, to the extent
possible, break out and separately state the different items being sold – such as a charge for a software license and a
(separate) charge for the consulting services – on the invoice. Don’t pay a single fee for the bundled backage of
services, as the tax on such fee will likely include tax on non-taxable items.