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Andy Brice
Successful Software

Doug Nebeker ("Doug")

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BreezeTree Software

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Patrick McKenzie
Bingo Card Creator

state taxes?

My company is located in NJ, and I am licensing some software to a company in NY for $x per month. Do I need to pay any state taxes on that monthly fee? If so, which state? Should the company I licensed the software pay?

xdavidx Send private email
Friday, May 15, 2009
You may need to assess NJ sales taxes.  Ask the NJ department in charge of revenue -- they'll be HAPPY to tell you.

Plus, obviously, income is income and we have an income tax.
Patrick McKenzie (Bingo Card Creator) Send private email
Friday, May 15, 2009
You'll need to determine - and be able to defend - whether you are charging this as a (value added) service or ongoing licensing for a product. Some states make a distinction in how this is handled.

In addition, you should check if you need to pay taxes to NY and whatever local authorities.

After that, you can go back to business.
KC Send private email
Friday, May 15, 2009
NY likes to tax you if you generate income while you are working in that state.  For example, a football player that lives in TX but plays a game in NY will pay taxes for that portion of his yearly salary.  It is abit crazy, but NY is very insistant on it.  Now, if you did not do work in NY and just sold it, I would think that you just pay NJ taxes.  But your accountant will have all the real answers.  Or an accountant that you trust and are willing to pay.

Definately ask the professionals.
SteveM Send private email
Friday, May 15, 2009
I can't speak to New York.

Generally, monthly license/subscription fees are income to you and expenses to the customer.  Most of the time, you would pay the taxes on your income, and the customer would not pay taxes on the monies they pay you; such expenses actually lower their eventual tax bill.

There are exceptions but they're rare enough that for most mISVs, I would recommend simply assuming that you'll have to pay your taxes, and you simply deal with those exceptions as they pop up.  Please understand that in giving this advice, my intent is to suggest that there's no point in figuring out whether Utah (just to pick one example) will be an exception until you actually make a "sale" to Utah.

Now having said that, because so many people work in the City of New York but live outside of the five boroughs, it is well known that NYC relies on some unconventional tax practices that the rest of the country doesn't practice.

Ask an accountant.
TheDavid Send private email
Friday, May 15, 2009

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