Are an internet risk-management education platform, and separate market-risk and credit-risk analysis/forecasting services sold to financial professionals, subject to New York sales tax?

Plain-English summary

The RiskMetrics Group runs three distinct offerings. First, an internet-based interactive educational program teaching risk-management methodology to corporate and academic students, with online courses and exercises that tutors score and provide feedback on, plus monitored online discussions. Second, a market risk analysis and forecasting service for sophisticated financial clients: customers download RiskMetrics-provided software (of no independent value on its own, just an access tool), enter their private portfolio data online, and receive statistical forecasts of the probability distribution of their portfolio's value over time -- an integrated package of software, historical market data (also available from other vendors, but incidental here), and forecasting analysis, updated daily, used for risk management, regulatory reporting, and performance evaluation. Third, an analogous credit risk analysis and forecasting service, using historical default-rate data to forecast a client's exposure to counterparty default risk. Clients of the risk-analysis services also receive free publications supporting the service, never sold separately and given away to anyone who asks, even non-clients.

New York's sales tax reaches only services specifically enumerated in the statute, plus retail sales of tangible personal property. The Department found none of RiskMetrics' three services fits: interactive educational services aren't on the enumerated list regardless of delivery format (online or otherwise); the market risk analysis and forecasting service is, at its core, an electronic financial consulting service -- also not enumerated; and the credit risk analysis and forecasting service is analyzed the same way, since it's likewise a financial consulting/analysis service rather than any of the statute's specific taxable categories. As a result, RiskMetrics isn't required to collect sales tax on any of the three offerings.

What this means for you

Financial risk-management, analytics, and fintech platforms

Genuine financial consulting/advisory services -- portfolio risk analysis, credit risk forecasting, and similar sophisticated financial modeling -- generally sit outside New York's enumerated taxable-service categories, even when delivered through required proprietary software and updated with daily market data. This ruling (from early 2000) and the same-year Measurisk ruling, TSB-A-00(9)S, reach the identical conclusion on very similar facts, making this a reliable pattern for the industry.

Online education and training providers

Interactive, internet-delivered educational courses -- including graded exercises and tutor feedback -- aren't a taxable service in New York regardless of the delivery medium, following the same "enumerated services only" principle.

Accountants and tax professionals

Note the parallel with TSB-A-00(9)S (Measurisk) issued the same year on nearly identical market/credit risk analysis facts -- both rely on the "electronic financial consulting service" characterization to escape the enumerated-services list. Unlike Measurisk, this ruling doesn't separately analyze whether RiskMetrics itself owes tax on purchasing any prewritten software components used to build its own service -- that question wasn't raised here.

Common questions

Q: Are all internet-delivered financial services exempt from sales tax in New York?
A: Not automatically -- it depends on whether the specific service matches one of the statute's enumerated taxable categories. Genuine financial consulting/analysis and educational services generally don't.

Q: Does bundling free publications with the risk-analysis service change the tax treatment?
A: Not here -- the publications are incidental to the main analysis service, never sold separately, and given away even to non-clients, so they don't introduce a separate taxable transaction.

Q: Can another company rely on this ruling?
A: No. It binds the Department only as to this petitioner's facts. Other providers should confirm their own services are genuinely consulting/analysis in character and not structured in a way that matches a different enumerated taxable category.

Citations and references

Statutes:

• Tax Law § 1105(a) (tax on retail sales of tangible personal property)
• Tax Law § 1105(c) (tax on enumerated taxable services)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2000.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a00_2s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-00(2)S
Sales Tax
January 21, 2000

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S991213A

On December 13, 1999, the Department of Taxation and Finance received a Petition for
Advisory Opinion from The RiskMetrics Group LLC, 44 Wall Street, 22nd Floor, New York, New
York, 10260.
The issues raised by Petitioner, The RiskMetrics Group, are:
(1) Whether the interactive educational services provided by Petitioner are subject to sales
and compensating use tax.
(2) Whether the market risk management analysis and forecasting services provided by
Petitioner to clients are subject to sales and use tax.
(3) Whether the credit risk management analysis and forecasting services provided by
Petitioner to clients are subject to sales and use tax.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner provides interactive educational services via an Internet web site to students from
both the corporate and academic worlds. The courses and exercises are designed to train students
in the field of risk management, particularly in understanding the methodologies and techniques of
risk quantification. Students are able to take courses and perform exercises interactively online.
Petitioner’s tutors score the exercises and provide timely feedback to the students. Furthermore, the
tutors also respond to questions and monitor online discussions among the students concerning
different risk management techniques.
As its principal service Petitioner provides, for an annual fee, risk management analysis and
forecasting services to its clients. Petitioner provides its clients with an integrated service of analysis
and forecasting of the risk associated with their portfolios of positions in financial instruments (the
"market risk analysis and forecasting service") or their assumption of credit risk in their business or
investment activities ( the "credit risk analysis and forecasting service"). The clients are typically
high-level, technically sophisticated financial professionals. The analysis provided by Petitioner is
used for management information and reporting purposes, setting limits with regard to risk tolerance,
allocation of resources, performance evaluation of investment portfolios and meeting of current and
future regulatory reporting requirements.
Specifically, Petitioner’s market risk analysis and forecasting service works as follows.
Initially, clients must download software provided by Petitioner. The software is provided via CDROM. This software is of no value in itself but is necessary to access Petitioner’s on-line services.

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TSB-A-00(2)S
Sales Tax
January 21, 2000

Clients also receive a password which enables them to connect to Petitioner’s Internet website.
Clients enter private portfolio data online into Petitioner’s server. The service then utilizes statistical
modeling techniques to forecast various measures of the probability distribution of the value of that
portfolio over time in order to measure the risk associated with that portfolio. The forecasts are
based on Petitioner’s forecast of the probability distribution of various financial time series whose
value is highly correlated with the value of the portfolio, and the forecasts are updated daily as new
data become available. Further, the service permits the client to display various measures of the risk
associated with the portfolio in a format accessible to client management and government regulators.
Petitioner’s service is an integrated analysis of portfolio risk that includes software, historical
data and forecasting services. The historical financial data provided to subscribers are commonly
available through other vendors of financial information, and such data sets are incidental to the
basic analysis used in connection with Petitioner’s software to make forecasts of the probability
distributions of various time series. These forecasts are the basis for Petitioner’s analysis of the risk
characteristics of the client's portfolio.
In addition to the market risk analysis and forecasting service described above, Petitioner
provides a credit risk analysis and forecasting service that is designed for analyzing and forecasting
credit risk by electronic format or through interactive Internet exchange. Similar to the market risk
service described above, Petitioner’s credit risk analysis service utilizes historical data on default
rates of various types of entities to forecast the probability distribution of future default rates. These
forecasts are used to analyze the credit risk exposure of a client whose business or investment
activities expose it to credit risk. In other respects, the credit risk analysis service is similar to the
market risk analysis service, the difference being that the credit risk analysis service deals with
analysis of credit risk from entities that may default on obligations. The market risk analysis service
deals with analysis of market risk arising from changes in the market price of positions in financial
instruments.
Clients also receive publications prepared by Petitioner that assist them in using the services
and that keep them up to date with developments in the field of risk management analysis. There
is no additional or separately stated fee for these publications, and they are provided incidental to
Petitioner’s integrated risk analysis. It would be unusual for a client to buy Petitioner’s service
unless it had a specific portfolio whose risk characteristics it wanted to analyze. The publications
are never sold separately. In fact, they are given away free of charge, upon request by any non­
clients of the Petitioner.
Applicable Law
Section 1105 of the Tax Law provides in part:
Imposition of sales tax. On and after June first, nineteen hundred
seventy-one, there is hereby imposed and there shall be paid a tax of four percent
upon:

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TSB-A-00(2)S
Sales Tax
January 21, 2000

(a) The receipts from every retail sale of tangible personal property, except
as otherwise provided in this article....
Section 1105(c) of the Tax Law imposes the sales tax upon the receipts from every sale,
except for resale, of certain enumerated services.
Opinion
Issue #1
Petitioner provides interactive educational services in the field of risk management via the
Internet. Educational services, whether or not provided in an interactive format over the Internet,
are not among the services enumerated as taxable under Section 1105(c) of the Tax Law.
Accordingly, Petitioner is not required to collect sales tax on charges for Internet educational
services.
Issue #2
Petitioner’s market risk analysis and forecasting service is an integrated service of analysis
and forecasting of the risks associated with their client’s position in financial instruments. Such
service, in essence, is an electronic financial consulting service, which is not one of the services
enumerated as taxable under Section 1105(c) of the Tax Law. Accordingly, Petitioner is not required
to collect sales tax on charges to its clients for the market risk analysis and forecasting service.
Issue #3
Petitioner’s credit risk analysis and forecasting service provides the service of analyzing and
forecasting its client’s credit risk. Such service is not one of the services enumerated as taxable
under Section 1105(c) of the Tax Law. Accordingly, Petitioner is not required to collect sales tax
on charges to its clients for the credit risk analysis and forecasting service.

DATED: January 21, 2000

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.