Are subscription fees a company charges health plans and hospitals to access its online database of physician credentialing information taxable as an information service, even though the underlying data comes from each physician individually?

Plain-English summary

GeoAccess, Inc. is a Kansas data-services company building a database of physician credentialing information — demographics, licensing/board certification, and litigation history — that health care plans (HCPs) and hospitals require before letting a physician participate or hold privileges. Normally, each physician fills out a lengthy paper questionnaire separately for every HCP and hospital they work with. GeoAccess instead lets a physician complete one online questionnaire; GeoAccess then stores the data on its out-of-state servers and lets subscribing HCPs and hospitals log in with a password to download it. Customers pay a set-up fee, an annual subscription fee, a per-participating-physician fee, a separately stated marketing fee (passed through to a trade group), and an optional extra fee for additional dedicated "plan administrator" staff.

New York taxes "the furnishing of information ... including the services of collecting, compiling or analyzing information of any kind ... and furnishing reports thereof to other persons" — but excludes information that is "personal or individual in nature" and not substantially incorporated into reports given to others. GeoAccess argued its data started out as personal information about each individual physician. The Department disagreed with the exclusion applying here: because any of GeoAccess's customers can access the same physician's data through the shared database, the information isn't kept personal or individual — it's exactly the kind of data "substantially incorporated in reports furnished to other persons" that the exclusion was designed to not protect. GeoAccess's own stated purpose (let a physician file once, then make that filing available to multiple HCPs and hospitals) confirmed the data is meant to be delivered to many purchasers, not treated as confidential to one.

Because none of the fees are deductible "expenses" under the receipt definition, every component — set-up, subscription, marketing, per-physician, and extra-staffing fees — becomes part of GeoAccess's taxable receipts for the underlying information service, whether billed as one line item or broken out into several.

What this means for you

Data and information-service providers

Whether information counts as "personal or individual" for tax purposes depends on how it's distributed, not just how it was originally collected. Data that starts as one person's own information can lose that protection once it's pooled and made available to multiple paying customers.

Healthcare credentialing and verification platforms

A subscription model that saves physicians from filling out redundant paperwork is valuable, but from a New York sales-tax perspective it's still a taxable information service — the efficiency benefit to physicians doesn't change how the charges to HCPs/hospitals are taxed.

Accountants and tax professionals

Note that ancillary fees (marketing pass-throughs, extra staffing charges) don't escape tax just because they're separately stated or partly remitted to a third party — under § 526.5(e), vendor expenses incurred in making a taxable sale aren't deductible from receipts regardless of billing structure.

Common questions

Q: Does information stay "personal or individual" just because it originally came from one person?
A: Not necessarily. If the same information can be accessed by multiple paying customers rather than kept exclusive to one recipient, the personal/individual exclusion from the information-services tax doesn't apply.

Q: Is a pass-through fee (like the marketing fee remitted to a trade group) taxable too?
A: Yes — expenses a vendor incurs in making a taxable sale aren't deductible from receipts, regardless of whether they're separately stated or ultimately paid out to someone else.

Q: Does it matter that the seller's servers are located outside New York?
A: No — the opinion doesn't turn on where the data is physically stored; what matters is that the customers (HCPs and hospitals) are purchasing the information service and using it in New York.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(2) (purchaser); § 1101(b)(3) (receipt)
• Tax Law § 1105(c)(1) (information services); § 1105(c)(9) (information/entertainment services via telephony)
• 20 NYCRR § 526.5 (receipt; nondeductible expenses)
• TSB-M-90(10)S (Taxability of Entertainment and Information Services Provided by Means of Telephony or Telegraphy, Oct. 10, 1990)

Prior rulings and cases referenced:

• Allstate Ins. Co. v. State Tax Commission, 115 A.D.2d 831
• Towne-Oller and Assoc. v. State Tax Commission, 120 AD2d 873
• Twin Coast Newspapers, Inc. v. State Tax Commission, 101 AD2d 977

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2003.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a03_21s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-03(21)S
Sales Tax
May 8, 2003

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S020510A

On May 10, 2002, the Department of Taxation and Finance received a Petition for Advisory
Opinion from GeoAccess, Inc., 8345 Lenexa Drive, Suite 300, Lenexa, Kansas, 66214. Petitioner,
GeoAccess, Inc., provided additional information relating to the petition on September 20, 2002.
The issue raised by Petitioner is whether subscription fees, which include associated
marketing fees, additional employee surcharges and annual practitioner fees, allowing access by
health plans and hospitals to its database on health care practitioners are subject to sales and use tax
as charges for an information service.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner is a Kansas company that is engaged in data storage and processing services.
Petitioner plans to build a new data warehouse that will house physicians' credentials related to
information that physicians are required by health care plans (HCPs) and hospitals to provide as a
basis for allowing the physicians to participate in the HCP or to have privileges at the hospital. The
data will include, among other things, demographic, licensing board certification, and litigation
information on each physician. Physicians are now required by each HCP or hospital to complete
an extensive questionnaire in hard copy which forms the basis for receiving approval by the HCP
or hospital to participate in the HCP or to have privileges at the hospital. Each questionnaire is
forwarded by the HCP or hospital to a credential verifying organization and, once the information
provided has been verified, is returned to the submitting HCP or hospital. The HCP or hospital can
then determine whether the physician will be allowed to participate in the HCP or to have privileges
at the hospital. Since each physician may participate in several HCPs in addition to having
privileges at one or more hospitals, the same credential questionnaire may need to be verified
several times at the request of numerous HCPs and hospitals.
Petitioner offers a service of collecting the physician information once and subsequently
making the information available to HCPs and hospitals by subscription. This permits the physician
to complete a single questionnaire on line rather than preparing a separate questionnaire for each
HCP and hospital.
The information provided by the physicians is stored on Petitioner’s servers outside of
New York State. At regular intervals, Petitioner will create an extract of the data for each of the
physicians participating in each health plan. The information is then placed on Petitioner’s servers,
and Petitioner’s customers (HCPs and hospitals), pay a subscription fee to obtain a password and
access the information via a secure Internet connection. Once the information is accessed, it is
downloaded in electronic form and verified by Petitioner’s customers or by an independent
third-party verifying organization engaged by Petitioner’s customers. Petitioner does not currently
provide the verification service.

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May 8, 2003
Petitioner breaks down its charges to its customers into an initial set-up fee and annual
subscription fee. The set-up and subscription fees cover the cost of enrolling and maintaining
Petitioner’s customers in the system. The subscription fee is designed to help cover the costs of
product development, and to eventually lead to a profit. Each fee will be separately billed.
Petitioner will charge a separately stated marketing fee that will be remitted monthly with
the other fees. The marketing fee paid to Petitioner by its customers will be passed through to a
trade group that will use the money to promote further participation in Petitioner’s system.
Petitioner will also charge a separately stated fee to the HCP or hospital for each physician
participating in the system which is remitted monthly with the other fees.
Each of Petitioner’s customers will have an employee of Petitioner (located in Kansas)
assigned as the “primary plan administrator,” along with one back-up administrator. Petitioner’s
employees provide a “help desk” function in this “primary plan administrator” capacity. The
customer can, for an additional monthly fee, request additional employees to be dedicated to such
customer.
Applicable Law and Regulations
Section 1101(b) of the Tax Law provides, in part:
When used in this article for the purposes of the taxes imposed by
subdivisions (a), (b), (c) and (d) of section eleven hundred five and by section eleven
hundred ten, the following terms shall mean:
*

*

*

(2) Purchaser. A person who purchases property or to whom are rendered
services, the receipts from which are taxable under this article. . . .
(3) Receipt. The amount of the sale price of any property and the charge for
any service taxable under this article . . . valued in money, whether received in
money or otherwise, including any amount for which credit is allowed by the vendor
to the purchaser, without any deduction for expenses or early payment discounts and
also including any charges by the vendor to the purchaser for shipping or delivery
. . . regardless of whether such charges are separately stated. . . .
Section 1105(c) of the Tax Law provides, in part, for the imposition of tax upon:
The receipts from every sale, except for resale, of the following services:
(1) The furnishing of information by printed, mimeographed or multigraphed
matter or by duplicating written or printed matter in any other manner, including the
services of collecting, compiling or analyzing information of any kind or nature and

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May 8, 2003
furnishing reports thereof to other persons, but excluding the furnishing of
information which is personal or individual in nature and which is not or may not be
substantially incorporated in reports furnished to other persons, and excluding the
services of advertising or other agents, or other persons acting in a representative
capacity, and information services used by newspapers, radio broadcasters and
television broadcasters in the collection and dissemination of news, and excluding
meteorological services.
*

*

*

(9) (i) The furnishing or provision of an entertainment service or of an
information service (but not an information service subject to tax under paragraph
one of this subdivision), which is furnished, provided, or delivered by means of
telephony or telegraphy or telephone or telegraph service (whether intrastate or
interstate) of whatever nature, such as entertainment or information services
provided through 800 or 900 numbers or mass announcement services or interactive
information network services. Provided, however, that in no event (i) shall the
furnishing or provision of an information service be taxed under this paragraph
unless it would otherwise be subject to taxation under paragraph one of this
subdivision if it were furnished by printed, mimeographed or multigraphed matter
or by duplicating written or printed matter in any other manner. . . .
Section 526.5 of the Sales and Use Tax Regulations provides, in part:
(a) Definition. The word receipt means the amount of the sale price of any
property and the charge for any service taxable under articles 28 and 29 of the Tax
Law, valued in money, whether received in money or otherwise. The following
subdivisions of this section discuss elements of a receipt.
*

*

*

(e) Expenses. All expenses, including telephone and telegraph and other
service charges, incurred by a vendor in making a sale, regardless of their taxable
status and regardless of whether they are billed to a customer are not deductible from
the receipts.
Opinion
Petitioner collects and compiles credential information on physicians for use by its customers
who are health care plans (HCPs) and hospitals. Petitioner charges its customers an initial set-up
fee and subscription fee to cover the costs of enrolling and maintaining a participant in the system,
a fee for each physician who is part of the plan, and a marketing fee which is passed through to a
trade group to promote further participation in the system. The “primary plan administrator” (help

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May 8, 2003
desk employee assigned to a customer) is included in these fees. Should Petitioner’s customer
require additional help desk personnel, an additional amount is charged to the customer.
Petitioner collects and compiles information into a database as described in Section
1105(c)(1) of the Tax Law. Petitioner charges its customers various fees to access its database. By
accessing this database, Petitioner's customers obtain information regarding the credentials of
participating physicians. This service would be subject to tax under Section 1105(c)(1) of the Tax
Law if it were furnished in a manner provided by that section. See Allstate Ins. Co. v. State Tax
Commission, 115 A.D.2d 831. Information services delivered by means of "telephony or telegraphy
or telephone or telegraph service" are subject to tax under Section 1105(c)(9) of the Tax Law. See
Technical Services Bureau Memorandum entitled Taxability of Entertainment and Information
Services Provided by Means of Telephony or Telegraphy, October 10, 1990, TSB-M-90(10)S.
Therefore, the service provided by Petitioner is subject to New York State and local sales or use
taxes pursuant to Section 1105(c)(1) or 1105(c)(9) of the Tax Law. Furthermore, this service does
not come within the exclusion from tax under Sections 1105(c)(1) and 1105(c)(9) for information
which is "personal or individual in nature." Since any of Petitioner’s customers has access to any
data in Petitioner’s database, the information downloaded by any one customer is not personal or
individual in nature and may be substantially incorporated into reports furnished to other customers
by Petitioner. See Towne-Oller and Assoc. v. State Tax Commission, 120 AD2d 873, Twin Coast
Newspapers, Inc., v. State Tax Commission, 101 AD 2d 977. In fact, Petitioner’s stated purpose in
allowing a physician to file a single set of credential information which will then be made available
to multiple customers (HCPs and hospitals) demonstrates that the same information is expected to
be provided in reports to multiple purchasers.
In order to avail themselves of the information on physicians’ credentials on Petitioner’s
Web site, customers must pay the initial set-up and annual subscription fees, marketing fee, fees for
each participating physician, and the fee for additional “plan administrators,” if requested. These
fees represent expenses incurred by Petitioner in making a sale of information services as described
above. See Section 1101(b)(3) of the Tax Law and Section 526.5(e) of the Sales and Use Tax
Regulations. Accordingly, the total charges for access to information on Petitioner’s Web site are
subject to sales or compensating use tax.

DATED: May 8, 2003

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

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