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Website Designer or Software Developer? You Could Qualify for This Sales Tax Exemption

September 29, 2016

The last quarter of the year is a time when savvy freelance business owners look at upgrading their computer systems in order to take advantage of tax relief related to capital expenditures and/or equipment depreciation. If you’re planning to purchase a new computer system soon, there’s also a sales tax saving opportunity that you should consider if you have a freelance website design or software development business in New York State.

According to The New York State Department of Taxation and Finance (NYSDTF) website, a state and local sales tax exemption is available on the purchase (or qualifying rentals or leases) of computer hardware when it’s used more than 50% of the time to:

  • Design and develop computer software for sale;
  • Provide website design and development services for sale; or
  • Provide a combination of the two uses described above.

Examples of sales tax exempt hardware include laptops and external hard drives. The NYSDTF defines designing and developing services as those which “include system analysis, program design, coding, testing, debugging, and documentation activities.”

Keep in mind that the NYSDTF also stipulates that “the use of computer system hardware for administration, production, or distribution activities isn’t eligible for this exemption.”

To claim the exemption, you must provide Form ST-121.3 to the computer hardware seller. For additional information, check out the NYSDTF website.

Jonathan Medows, CPA

Jonathan Medows is a certified public accountant licensed in New York, New Jersey, Maryland, and Pennsylvania. He is also a recognized expert in taxation for freelancers and the self-employed—often tapped for his expert knowledge and perspective on self-employment taxation by national and regional publications such as The New York PostBusinessWeek, Forbes taxation blog, WebCPA, CPA Practice Advisor, and others. You can read some of Jonathan’s press coverage here.

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