New York Issues Advisory Opinion Pertaining to Personal Exclusion for Taxable Information Services

A recent New York Advisory Opinion examines whether certain information services qualify as exempt from sales and use tax.

By Tina Chunn, SALT senior manager

Some states will impose sales and use taxes on a specific service but may apply various exclusions such that the service would not be taxable. For example, a number of states imposed sales and use taxes on information services, but many of those provide an exclusion where the information is personal or individual in nature and/or is not provided to others. So what kind of information satisfies the requirements for the exclusion? Recently, New York issued an Advisory Opinion addressing whether certain products would qualify for this personal or individual exclusion from the sales and use tax on information services. [1]

New York imposes sales and use taxes on information services – the furnishing of information by printed, telephonic or other electronic means (including via the Internet), including the services of collecting, compiling or analyzing information of any kind or nature and furnishing reports thereof to other persons. However, New York provides an exclusion where the information provided is personal or individual in nature and is not substantially incorporated into reports furnished to other persons. [2]

The facts of the Advisory Opinion are as follows: the petitioner sells products to hotels and hotel management groups that provide feedback and information to its customers to facilitate their marketing and sales to their prospective guests. There are four different products that are available: 1) online reputation management services (Product A); 2) post-stay surveys (Product B); 3) on-site surveys (Product C); and 4) Guest Suite which is an integration of Products A, B and C (Product D).

Product A provides online access to a database of hotel reviews compiled from over 60 hotel review websites. The customer can log in to view all of the reviews in one location. The petitioner can provide analysis which may include comparing these ratings to the customer’s hotel competitors and providing average rankings for various categories. There is also an interface to assist the customer in responding to these reviews directly on these various websites.

Product B provides online access to a database of survey responses from the customer’s guests that are sent and compiled by the petitioner after the guests have completed their stay. These questions can be customized by each of the petitioner’s customers. The results of these surveys are then analyzed by the petitioner for the customer’s review. The customer can create or edit surveys and edit any content sent to its guests through this product.

Product C is similar to Product B; however, these surveys are completed by guests at the time of their stay on iPads provided to the guest. These results are similarly analyzed, and the results are available to petitioner’s customer for review.

Finally, Product D is a package product which includes the functionality of Products A, B and C integrated into a single interface for the customer’s use. No additional services are included in this package.

Interestingly, the Advisory Opinion notes that some of the services, such as the customer’s ability to respond to reviews and to customize survey questions, have attributes similar to the sale of prewritten software. However, when the services are viewed as a whole, these products primarily provide a database of information that is collected from review websites or directly from hotel guests and is made available to the petitioner’s customer. This database includes access to the raw data collected and reports or analysis prepared by the petitioner for its customer. Therefore, the Advisory Opinion concludes that this process of collecting, compiling and analyzing information meets the definition of information services.

The Advisory Opinion then reviewed the products to further determine if the information was personal or individual in nature so that the petitioner’s information services would be excluded from sales and use taxes. New York notes that information cannot be personal or individual in nature if it comes from a common source or a data repository that itself is not confidential. Based on the that guidance, the state concluded that the information that is provided for products B and C is not from a common or non-confidential source, and these products would qualify for the “personal or individual” exclusion from sales and use taxes as long as the information was not provided to other customers or used by the petitioner in providing information to other customers. [3]

However, the state then determined that Product A provides information that is compiled from review websites operated by third parties and does not appear to be unique to the petitioner as it is available to the general public via different websites. Even though the reports and displays of the information may be tailored to the petitioner’s customer’s requests, this product would not be personal or individual in nature and is subject to sales and use taxes.

Finally, Product D is a bundled service offering of these three products and would, therefore, include both taxable and nontaxable components. If the petitioner provides Product D for a single charge, it must collect tax on this charge since it is a bundled charge. However, if these charges are separately stated on the invoice and are reasonably charged in relation to the total amount for Product D, the petitioner may collect sales tax only on the separately-stated charge for Product A.

This opinion serves as a reminder to carefully consider any qualifying exclusions when making determinations of taxability for sales and use taxes. Additionally, the bundling of products should also be reviewed to determine if invoice presentation may be impacting whether the products sold are subject to sales and use taxes.

The SALT team at Aprio is experienced with reviewing sales transactions and invoice presentation for taxability determinations in the various states. We are here to assist you with any concerns you may have regarding the proper sales and use tax treatment for your specific situation. We constantly monitor these and other important state tax issues, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Tina Chunn at tina.chunn@aprio.com or Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at jeff.glickman@aprio.com for more information.

This article was featured in the November/December 2016 SALT Newsletter. To view the newsletter, click here.

[1] TSB-A-16(26)S, New York Advisory Opinion.

[2] NY Tax Law § 1105(c)(1), (c)(9).

[3] It is unlikely that survey responses from Products B and C would specifically be provided to other hotels.

Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.