New York Rules that Customer Reports are Taxable Information Services

A petitioner was denied an exclusion for information services that are “personal or individual in nature” because the information included in its products was public.

By Alissa Graffius, SALT senior associate

Customer analysis reports are an essential part of understanding one’s customers in certain industries. These reports can include potential customers’ spending habits and Internet traffic patterns, as well as responses to customer surveys. Thus, there are companies who specialize in creating and providing these type of reports for a fee. In some states, these reports can be subject to sales tax. In a recent New York advisory opinion, the state concluded that a report that includes some personal, client-specific data but also some general industry data is subject to sales and use tax. [1]

The petitioner is an online information services company that provides its clients with analysis reports on its clients’ potential customers. The reports included general information pertaining to the industries of its clients and also included specific information relevant to the potential customers. The general information portion contains publicly available data that provides benchmarks and allows the client to see how its website traffic rates compare to others. The petitioner argued that its main service was to provide its clients with information specific to the potential customers, which would also include general information. However, the petitioner argued that the general information was “inconsequential” to the entirety of its service, and as such, should not be subject to sales tax.

New York tax law imposes sales and use tax on information services, which is defined as “the collecting, compiling or analyzing of information of any kind or nature and the furnishing reports thereof to other persons.” [2] However, there is an exclusion for information services that are (i) “personal or individual in nature” and (ii) “which is not or may not be substantially incorporated in reports furnished to other persons.” [3] Since the parties agreed that petitioner’s reports fall under information services, the only remaining question was whether or not the exclusion applied to petitioner’s case.

The Advisory Opinion concluded that petitioner’s reports did not meet the requirements of the exclusion. While the petitioner’s reports include information that is customer-specific (i.e., personal in nature), it is the source of the information that is the dispositive factor. Personal information that comes from public or other non-confidential data sources does not meet that “personal or individual in nature” requirement. For example, one’s credit report or criminal record is clearly personal (i.e., it relates to a specific individual), but not for purposes of this exclusion. In addition, even if the personal requirement was satisfied, the petitioner’s reports fail to meet the second requirement because the general information (e.g., benchmarks and website traffic info) included in the reports are also incorporated into reports that the petitioner furnishes to its other clients in the same industry. Thus, its reports are taxable as information services.

If a de minimis amount of information that is derived from a public data source is incorporated into an information service, that service can still be considered “personal or individual in nature.” Here, the petitioner claims that its use of general data is “inconsequential”; however, a comparison of the clients’ potential customers and the benchmarking would not be possible if the petitioner did not include the general information in its reports. Thus, the general information is essential to the reports and, as such, is not de minimis, and the petitioner’s reports are taxable as information services.

Analyzing the sales and use tax consequences of a company’s product or service requires a thorough understanding of the state’s particular rules and how they would be interpreted as applied to a particular set of facts. Commonly used language, such as “personal or individual” is not always interpreted for sales tax purposes as the everyday meaning of those terms would suggest.
Aprio’s SALT team understands how to analyze the nuances of sales and use tax rules so that our clients can be assured that they will be able to take advantage of any available exemptions and will collect sales tax where required so that they do not create unexpected exposures. 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 Alissa Graffius at alissa.graffius@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 March 2017 SALT Newsletter. To view the entire newsletter, click here.

[1] New York Advisory Opinion TSB-A-16(33)S (Dec. 7, 2016).

[2] NY Tax Law §1105(c)(1).

[3] NY Tax Law §1105(c)(1)

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.

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