A New York Division of Tax Appeals administrative law judge determined that a California-based company’s sale of memberships to access its on-line medical technology platform was the provision of a nontaxable service rather than a taxable sale of prewritten software. The company offered membership-based “care navigation services” to patients of physician-owned medical practices through a web portal and a mobile device application, providing various services such as: medical provider selection; referral management; billing and insurance assistance; and access to medical records through a web portal and a mobile application, among others. While agreeing that the care navigation services were nontaxable, the Department of Taxation and Finance nevertheless asserted that the membership fees constituted receipts from sales of software because the memberships gave access to and the right to use the company’s software. The ALJ disagreed, concluding that the primary function of the membership was receiving care navigation services, which were not enumerated as subject to tax. The ALJ held that using software as one means of delivery was insufficient to characterize the overall service as the taxable sale of software. Finally, the ALJ noted that the Department’s assessment did not violate the Internet Tax Freedom Act because the Department was “taxing the prewritten software used in offering [the care navigation] services, as it would if the prewritten computer software was sold by other means.”

Matter of 1Life Healthcare, Inc., DTA No. 829434 (Div. Tax App., Nov. 10, 2021).