SaaS “Vendor Management System” Access Is a Taxable License to Prewritten Software When Software Is the Core of the Transaction

1. Introduction

Matter of Beeline.Com, Inc. v State of N.Y. Tax Appeals Trib. (App Div 3d Dept, Jan. 15, 2026) addresses when fees charged for access to a web-based platform are subject to New York sales tax as receipts from a license to use prewritten computer software.

The petitioner, Beeline.Com, Inc. (a Florida company), provides vendor management services that match clients with contingent/temporary labor suppliers and manages onboarding, retention, and invoicing. Those services are delivered through a proprietary web-based “vendor management system” (“VMS”) made available to clients and suppliers under written agreements.

The Department of Taxation and Finance audited Beeline for the period June 2010 through May 2016, concluding that Beeline’s charges were taxable because they were receipts from licenses to use prewritten software (Tax Law article 28). After administrative proceedings, the Tax Appeals Tribunal sustained the sales tax assessment. Beeline then brought this CPLR article 78 proceeding (initiated under Tax Law § 2016).

The key issues were: (i) whether Beeline transferred a taxable “license to use” software notwithstanding a SaaS delivery model and no transfer of source code; (ii) whether the VMS was “prewritten” despite client-specific configuration; and (iii) whether a “true object”/primary function analysis could render the receipts non-taxable as service receipts where software and services are bundled.

2. Summary of the Opinion

The Third Department confirmed the Tribunal’s determination and dismissed the petition. The court held that substantial evidence supported the Tribunal’s findings that:

Beeline granted clients a license to use the VMS within the meaning of the Tax Law and implementing regulation, even though access was via the web and no source code was delivered.
The VMS was prewritten computer software because client “tailoring” did not involve code changes and contracts described use “in a standard fashion.”
The Tribunal effectively performed the functional equivalent of a “true object” analysis and rationally concluded the software was central—not incidental—to the bundled offering, making receipts taxable as sales of tangible personal property.

3. Analysis

A. Precedents Cited

The opinion situates its holding in two lines of authority: (1) the deferential standard of review applicable to Tribunal determinations, and (2) the “incidental versus central” framework used to decide whether a transaction is taxable as a sale of property/software when services are also provided.

1) Standard of review / deference to the Tribunal

Matter of Galileo Intl. Partnership v Tax Appeals Trib. of Dept. of Taxation & Fin. of State of N.Y., 31 AD3d 1072 (3d Dept 2006), lv denied 7 NY3d 715 (2006): reaffirmed that the court must confirm a Tribunal determination if it is rational and supported by substantial evidence, even if another conclusion is possible. This case is the backbone for the court’s restrained role in reviewing tax classifications.
Matter of Dynamic Logic, Inc. v Tax Appeals Trib. of the State of N.Y., ___ NY3d ___, 2025 NY Slip Op 02262: cited for the same review principle and, more broadly, as a contemporary reference point for Tribunal deference in software/service tax disputes.
Matter of Parikh v Schmidt, 200 AD3d 1237 (3d Dept 2021) (quoting Tax Law § 1132[c][1]): emphasized the statutory presumption that receipts from items described in Tax Law § 1105 are taxable until the taxpayer proves otherwise. The presumption frames Beeline’s evidentiary burden.
Matter of Strata Skin Sciences, Inc. v New York State Tax Appeals Trib., 225 AD3d 953 (3d Dept 2024), lv denied 42 NY3d 906 (2024): cited both for the presumption/burden and as a substantive comparator on bundled offerings where software has distinct market value.
Matter of Zuckerman v Tax Appeals Trib. of the State of N.Y., 174 AD3d 1073 (3d Dept 2019), and Matter of Flair Beverages Corp. v New York State Tax Appeals Trib., 229 AD3d 1012 (3d Dept 2024), appeal dismissed 42 NY3d 1068 (2025), lv denied 44 NY3d 902 (2025): cited to reinforce deference to the Tribunal’s credibility determinations and weighing of evidence—critical because Beeline attempted to explain away “license” language as IP-protective boilerplate.

2) “Incidental versus central” (functional equivalent of “true object”)

Matter of Mendoza Fur Dyeing Works, Inc. v Taylor, 272 NY 275 (1936); Matter of Business Statistics Org. v Joseph, 299 NY 443 (1949); and Dun & Bradstreet, Inc. v City of New York, 276 NY 198 (1937): classic authorities establishing that where property and services are combined, the transaction is taxable as a sale of property when the property is not merely incidental to the services and has independent value. The court invoked these cases to validate the Tribunal’s approach even if it did not label it a “true object” test.
Matter of Strata Skin Sciences, Inc. v New York State Tax Appeals Trib., 225 AD3d 953: used as the modern analogue. As in Strata, the Tribunal examined whether software access was central to what customers paid for and whether the software had market value distinct from accompanying services.
Matter of 21 Club, Inc. v Tax Appeals Trib. of State of N.Y., 69 AD3d 996 (3d Dept 2010): cited as additional support for evaluating whether the taxable component is the core of the transaction.

3) Tribunal/administrative decisions on “primary function” usage

Matter of Principal Connections Ltd., 2004 WL 319283, 2004 NY Tax LEXIS 23 (NY St Div of Tax Appeals DTA No. 818212, Feb. 12, 2004), and Matter of SSOV '81 Ltd., 1995 WL 36181, 1995 NY Tax LEXIS 18 (NY St Div of Tax Appeals DTA Nos. 810966, 810967, Jan. 19, 1995): referenced to explain the Tribunal’s historical use of the “primary function test” mainly in the context of classifying services under Tax Law § 1105(c)(1). The court distinguished that context from the “mixed bundle” here.
Matter of Strata Skin Sciences, Inc., 2022 WL 1667874, 2022 NY Tax LEXIS 55 (NY St Div of Tax Appeals DTA No. 828704, May 5, 2022), affd 225 AD3d 953: cited as the relevant “mixed bundle” comparator supporting taxation where software is central.

4) Cases supporting reliance on contract language over taxpayer characterization

Matter of Apple, Inc. v Tax Appeals Trib. of the State of N.Y., 204 AD3d 1173 (3d Dept 2022); Matter of Emerald Intl. Holdings Ltd. v Tax Appeals Trib. of the State of N.Y., 181 AD3d 1003 (3d Dept 2020); and Matter of Ingle v Tax Appeals Trib. of the Dept. of Taxation & Fin. of the State of N.Y., 110 AD3d 1392 (3d Dept 2013): cited to support the Tribunal’s discretion to credit documentary evidence—particularly contractual “license” grants—over testimony attempting to reframe the deal.

B. Legal Reasoning

1) SaaS access can be a taxable “license to use” software

The court grounded its analysis in the statutory definition of taxable sales of tangible personal property and the explicit inclusion of “pre-written computer software” regardless of delivery medium (Tax Law §§ 1101[b][5], [6]; 1105[a]). Critically, it treated the SaaS model as compatible with a taxable license because the relevant inquiry is whether the customer receives the “right to use” the software.

The regulation defining a transfer of possession in a license context includes “the right to use, or control or direct the use of, tangible personal property” (20 NYCRR 526.7[e][4][iii]). The Tribunal and the court relied heavily on:

Contract terms defining the VMS as “a web based application delivered through a software-as-a-service model” and expressly stating that Beeline “grants to [c]lient a limited, nonexclusive, nontransferable license to use and access the Beeline VMS solutions.”
Public-facing descriptions on petitioner’s website calling the VMS “the software that automates the hiring process of contract workers” and stating that clients and suppliers are afforded a license to use it.

From this, the court concluded there was substantial evidence of a taxable license: the customer’s right to access and use the VMS functionalities is itself the taxable transfer, even absent delivery of source code or installable media.

2) “Tailoring” without code changes does not defeat “prewritten” status

Beeline argued that the software was not prewritten because it was tailored to each client. The court focused on what “tailoring” meant in practice: reconfiguration of forms and harmonizing document formats, without amending software code. Contracts reinforced this, stating use would be “in a standard fashion . . . without customization or change of software code.”

Under Tax Law § 1101(b)(14), software is not “prewritten” if it is “designed and developed . . . to the specifications of a specific purchaser.” The court accepted the Tribunal’s conclusion that configuration without code changes did not meet that threshold; thus the VMS remained “prewritten computer software.”

3) Bundled services did not change the tax outcome because software was the “core element”

Beeline invoked the “true object”/primary function concept, arguing clients primarily purchased labor-matching services and that software was merely a tool. The court accepted the Tribunal’s observation that its historical “primary function” usage often arises in service-classification cases under Tax Law § 1105(c)(1), but it held the Tribunal still performed the functional equivalent of the required analysis by asking whether the license was “incidental to the services rendered.”

Substantial evidence supported the Tribunal’s conclusion that software was central:

After onboarding, the VMS was the primary means to request labor, select candidates, and bill for labor.
Customers were paying for the VMS to accomplish these tasks; interruption of core functions could trigger credits or termination rights in some agreements.
Even if services and software were sold only together, the VMS still had “market value distinct from the services rendered.”

The court therefore upheld taxation of the receipts as sales of tangible personal property (a license to use prewritten software).

4) Consideration and the presumption of taxability

Beeline suggested clients did not pay consideration for the license. The court, tracking the Tribunal’s reasoning, rejected this as inconsistent with the contracts: the client owed Beeline, and the supplier merely accepted reduced payments reflecting the client’s obligation. This supported a finding of “monetary consideration” (20 NYCRR 526.7[b]) and reinforced the statutory presumption of taxability (Tax Law § 1132[c][1]).

5) Separate statement matters for exemption of services performed on software

Footnote 3 underscores a practical compliance point. Tax Law § 1115(o) can exempt certain services performed on software when provided in conjunction with the sale of tangible personal property, but “only when such charge is reasonable and separately stated.” Because Beeline did not separately state charges for other services that might have been non-taxable, the Tribunal concluded the exemption did not apply.

C. Impact

This decision strengthens a clear rule for New York sales tax treatment of SaaS arrangements: where contracts and commercial reality show that customers are granted the right to use software—and that software is the core of what is being purchased—receipts are taxable as sales of tangible personal property even if (i) delivery is purely web-based, (ii) no code is transferred, and (iii) the vendor also provides significant associated services.

Likely effects include:

Contract drafting becomes evidentiary: explicit “license to use and access” language and software-centric descriptions can be decisive, and testimony characterizing the language as mere IP protection may not overcome the documents.
Configuration ≠ custom software: client-specific setup that does not alter underlying code is unlikely to avoid “prewritten” classification.
Bundled offerings face “core element” scrutiny: even without formally applying a “true object test,” the Tribunal may determine software is central based on functional dependence, contractual remedies for downtime, and whether the software has distinct market value.
Invoice design matters: if taxpayers want to preserve exemptions such as Tax Law § 1115(o), charges must be separately stated and reasonable.

4. Complex Concepts Simplified

“Prewritten computer software” (Tax Law § 1101[b][14]): software made for general or repeated sale/use. It can still be “prewritten” even if a vendor configures screens, forms, or outputs for a customer—unless it is designed and developed to that customer’s specifications (often evidenced by code-level development).
“License to use” (Tax Law § 1101[b][5], [6]; 20 NYCRR 526.7[e][4]): you do not need to receive a copy of software or source code. If you obtain the right to access and use the software’s functionality (including through a browser), that can constitute a taxable license.
“True object” / “primary function” concept: a way to decide whether a bundled transaction should be treated as mainly the sale of property/software (taxable) or mainly the provision of services (often not taxable). Here, the court approved evaluating whether the software is merely incidental or instead central and independently valuable.
“Substantial evidence” review: an appellate court does not retry the case. If the Tribunal’s conclusion is reasonable and supported by enough evidence, the court will uphold it even if another interpretation could also be reasonable.
“Separately stated” charges (Tax Law § 1115[o]): some service components may be exempt, but only if itemized separately on invoices/records and reasonably priced.

5. Conclusion

Matter of Beeline.Com, Inc. v State of N.Y. Tax Appeals Trib. confirms that New York will treat SaaS platform fees as taxable receipts from licenses to use prewritten software when the agreements grant a right to use/access the software and the software is the central feature of the customer’s bargain. The decision also signals that “configuration” without code changes will not convert prewritten software into custom software, and it highlights the compliance importance of separately stating potentially exempt service charges. In the broader landscape of software taxation, the case reinforces a document- and functionality-driven approach to characterizing modern, web-delivered software offerings under Tax Law article 28.