Are a securities self-regulatory organization's mandatory bond-transaction reporting fees and its market-data subscription fees both taxable in New York, or just one of them?

Plain-English summary

A securities self-regulatory organization ("SRO") was directed by its federal overseer to bring transparency to the corporate bond market. It built a system called TRACE that requires member firms trading bonds to report every transaction, and it charges members various fees to cover the cost of collecting, storing, and monitoring that data: System Fees (based on how a member connects — web browser, computer-to-computer interface, or a third-party intermediary), Transaction Reporting Fees (scaled to trade size), Cancel/Correct fees, Late-reporting fees, and Browse/Query fees for members checking their own past submissions. Separately, the SRO also disseminates aggregated, non-confidential bond-transaction data to the public and to its own members through a premium "Level II" web browser tier or a dedicated data-feed subscription service, with different pricing for internal-only use versus reselling/repackaging the data externally.

The Department split the fees into two very different tax buckets. The mandatory reporting fees are like a regulatory filing fee — required by federal mandate, tied to compliance rather than to buying information — and aren't a taxable enumerated service; the same goes for a member simply reviewing its own already-submitted data. But the market-data fees are a different animal entirely: once individual members' transaction reports get compiled into a shared database and sold onward (to members via the premium browser tier or to anyone, member or not, via the dedicated data feed), that's a textbook taxable "information service," because the information is no longer the member's own personal/individual data — it's aggregated into reports furnished to other people, even if some technical formatting is customized. The catch for the SRO: since the premium browser tier bundles ordinary mandatory-reporting access together with market-data access for one combined fee, the incremental amount attributable to market data has to be separately stated and reasonable on the bill — otherwise the WHOLE premium-tier charge becomes taxable, not just the market-data slice.

What this means for you

Regulatory bodies and self-regulatory organizations charging member fees

Fees genuinely tied to satisfying a regulatory filing mandate — collecting the data you're required by law to collect, correcting errors, or letting a filer review their own submission — generally aren't taxable enumerated services in New York, even when charged on a sliding scale or per-transaction basis. But the moment you resell or disseminate that aggregated data (even just to the same members who supplied it, or in a "customized" report), you cross into taxable information-service territory.

Financial data and market-data providers

Compiling individual submissions into a shared, salable database is what triggers the information-service tax — customizing reports, screens, or displays for each customer doesn't make the data "personal or individual" again if it's substantially the same underlying pooled information sold to others.

Businesses bundling a taxable data product with a nontaxable compliance/filing service

If you charge one combined fee covering both a nontaxable filing/compliance service and a taxable information product, separately state and reasonably price the taxable portion on your invoice or contract — otherwise the entire bundled charge becomes taxable, even the genuinely nontaxable filing-fee component.

Common questions

Q: Are regulatory filing or reporting fees generally taxable in New York?
A: No — fees charged purely to fulfill a mandatory regulatory filing requirement (analogous to fees other regulators charge for registering or filing documents) aren't taxable enumerated services.

Q: Does customizing a data report for each customer keep it from being a taxable "information service"?
A: No — if the underlying information comes from a common database and is substantially incorporated into reports furnished to other people, customizing the format, screen, or display doesn't make it exempt "personal or individual" information.

Q: What happens if a taxable market-data fee and a nontaxable filing fee are charged together as one price?
A: The entire combined charge becomes taxable unless the market-data portion is separately stated on the bill and is a reasonable amount relative to the total (as evidenced, for example, by comparable stand-alone pricing for the same data).

Citations and references

Statutes and rules:

• Tax Law § 1105(a), (c)(1), (c)(9) (retail sales tax; information services; telephony-delivered services)
• 20 NYCRR 525.2(a) (transactions/destination tax); 527.1(b) (bundled taxable/exempt items); 527.3(a), (b) (information services imposition and exclusions)

Case law and prior advisory opinions relied on:

• Rich Products Corporation v. Chu, 132 AD2d 175; Towne-Oller & Assoc. v. State Tax Comm, 120 AD2d 873 (customized reports from a common database still taxable)
• Alan/Anthony, Inc., TSB-A-92(51)S, TSB-A-92(47)S, TSB-A-92(6)S; Economic Cycle Research Institute, Inc., TSB-A-97(42)S; Hodgson, Russ, Andrews, Woods and Goodyear, TSB-A-92(31)S (bundling rule for taxable/nontaxable services)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2004.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a04_23s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-04(23)S
Sales Tax
September 22, 2004

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S040227B

On February 27, 2004, the Department of Taxation and Finance received a Petition for
Advisory Opinion from the Bernstein Law Firm, PLLC, 1634 I Street N.W., Suite 805, Washington,
DC 20006.
The issue raised by Petitioner, the Bernstein Law Firm, PLLC, on behalf of its client which
is a self-regulatory organization (“SRO”), is whether the fees charged by SRO are subject to sales
tax under the circumstances described below.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
SRO is a self-regulatory organization charged with the responsibility of regulating the
securities industry in accordance with federal legislation. As part of its oversight duties, SRO was
mandated by its federal overseer to enhance the transparency and integrity of the corporate debt
market. Specifically, SRO was asked to: (i) adopt rules to require that all transactions in U.S.
corporate bonds be reported to SRO and develop systems to receive and distribute transaction prices
on an immediate basis; (ii) create a database of transactions in corporate bonds to enable SRO, as
well as other regulatory bodies, to take a proactive role in supervising the corporate debt market; and
(iii) create a surveillance program to better detect misconduct and foster investor confidence in the
corporate debt market.
In 2001, SRO’s federal overseer approved the organization’s proposed rules requiring SRO’s
member firms to report over-the-counter secondary market transactions in eligible securities (those
meeting the description of a debt security) to SRO. Moreover, the rules also required certain
transaction reports to be disseminated in the form of market data. The vehicle developed by SRO
to facilitate the mandatory reporting required by the rules is the Trade Reporting and Compliance
Engine (“TRACE”).
SRO member firms that engage in trading of TRACE-eligible securities are obligated to
submit a transaction report to SRO directly, or must enter into an arrangement with a third party
(such as a service bureau or a clearing broker/dealer), which authorizes the third party to submit
transaction reports on the member’s behalf.
In order for SRO to offset the costs associated with collecting, storing, and surveillance of
these transactions, member firms are required to pay fees for TRACE usage. These reporting fees
are categorized as System Fees and Transaction Reporting Fees. The System Fees are fees
applicable to the methods by which the member accesses the TRACE system to report the required
transaction information whereas Transaction Reporting Fees apply to the quantity and size of
transactions reported (and corrections thereto).

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September 22, 2004

The methods by which a member firm must report corporate bond transactions are: (i) a
TRACE Web browser either over the Internet or a secure private data network; (ii) a Computer-toComputer Interface (“CTCI”), either dedicated solely to TRACE or a multi-purpose line; or (iii) a
third-party reporting intermediary. Different fees are charged based on the reporting methodology
selected by the member.
If a member chooses to report data via Web browser access, there are two levels of access.
Level I Browser Access allows the member to report and edit its transaction information via the
TRACE Web site, and Level II Browser Access provides the same functionality as Level I but also
allows access to TRACE market data that as such is allowed to be disseminated. Fees for Level II
Browser Access are higher than Level I, reflecting the incremental charge or cost for disseminated
information.
There is a stand-alone charge for CTCI access, and another different fee for reporting
TRACE information through a third party. With respect to both CTCI and third-party reporting,
members do not have the option to purchase access to the disseminated information from SRO.
The fees paid by members are applicable to each transaction reported to SRO. The fees
assessed are: (A) Trading Reporting Fees, which are based on a sliding scale depending on the size
of the reported transaction; (B) Cancel or Correct Trade Fees, which are assessed on a per canceled
or corrected transaction; (C) “As of” Trade Late Fees, which are assessed on those transactions that
are not timely reported as required by the rules; and (D) Browse and Query Fees, which are assessed
on members who review their own previously reported transaction data. All of the foregoing fees
are charged independently of any additional charges to a member firm for access to disseminated
information from TRACE.
Market data fees apply to the dissemination of TRACE data. The dissemination of bond
transaction data is subject to strict limitations, and only certain information deemed not to be
confidential is available for dissemination. The dissemination of information is accomplished
through the Bond Trade Dissemination Service (“BTDS”).
TRACE market data is offered through two different service types: (1) via Level II Browser
Access or (2) through subscriptions to the BTDS data feed. Level II Browsers are charged a
monthly fee per user ID whereas BTDS service is subject to a fee schedule depending on how the
data is used. BTDS subscription charges fall into two types (Real-Time and Delayed-Time) across
three usage categories: (a) desktop subscribers which are charged a monthly fee per desktop user;
(b) Internal Usage Authorization, which carries a different fee, allows an organization to internally
disseminate TRACE transaction data for any or a combination of the following activities: internal
operation and processing systems, internal price validation, internal portfolio valuation services,
internal analytical programs leading to purchase or sale or other trading decisions, and other related
activities; and (c) BTDS External Usage Authorization, which carries a separate fee, and allows

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TRACE transaction data to be used in repackaging of market data for delivery and dissemination
outside the subscribing organization, such as for indices or other derivative products.
SRO members may choose to receive market data by means of Level II Browser or BTDS;
whereas non-members (including market data vendors and redistributors) may only access market
data by BTDS. Professional and non-professional data users have separate fee schedules.
Applicable law and regulations
Section 1105 of the Tax Law provides, in part:
On and after June first, nineteen hundred seventy-one, there is hereby imposed and
there shall be paid a tax . . . upon:
(a) The receipts from every retail sale of tangible personal property, except as
otherwise provided in this article.
*

*

*

(c) 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 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. . . .
*

*

*

(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 nor (ii) shall the provision of cable
television service to customers be taxed under this paragraph.
Section 525.2 (a) of the Sales and Use Tax Regulations provides, in part:

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(2) Except as specifically provided otherwise, the sales tax is a “transactions tax,”
with the liability for the tax occurring at the time of the transaction. Generally, a taxed
transaction is an act resulting in the receipt of consideration for the transfer of title to or
possession (or both) of tangible personal property or for the rendition of an enumerated
service. The time or method of payment is generally immaterial, since the tax becomes due
at the time of transfer of title to or possession of (or both) the property or the rendition of
such service. . . .
(3) Except as specifically provided otherwise, the sales tax is a “destination tax.” The
point of delivery or point at which possession is transferred by the vendor to the purchaser,
or the purchaser's designee, controls both the tax incidence and the tax rate.
Section 527.1(b) of the Sales and Use Tax Regulations provides, in part:
Taxable and exempt items sold as a single unit. When tangible personal property,
composed of taxable and exempt items is sold as a single unit, the tax shall be collected on
the total price.
Example: A vendor sells a package containing assorted cheeses, a cheese board and
a knife for $15. He is required to collect tax on $15.
Section 527.3 of the Sales and Use Tax Regulations provides, in part:
(a) Imposition. (1) Section 1105(c)(1) of the Tax Law imposes a tax on the receipts
from the service of furnishing information by printed, mimeographed or multigraphed matter
or by duplicating written or printed matter in any manner such as by tapes, discs, electronic
readouts or displays.
(2) The collecting, compiling or analyzing information of any kind or nature and the
furnishing reports thereof to other persons is an information service.
(3) Among the services which are information services are credit reports, tax or stock
market advisory and analysis reports and product and marketing surveys.
*

*

*

(b) Exclusions. (1) Sales tax does not apply to receipts from sales of information
services which are for resale as such.
(2) The sales tax does not apply to the receipts from the sale of information which
is personal or individual in nature and which is not or may not be substantially incorporated
into reports furnished to other persons by the person who has collected, compiled or
analyzed such information.

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September 22, 2004
Opinion
Petitioner’s client, SRO, is a self-regulatory organization charged with the responsibility of
regulating the securities industry in accordance with federal legislation. As part of its oversight
duties, SRO was mandated by its federal overseer to develop systems to receive and distribute
transaction prices on an immediate basis. The vehicle developed by SRO to facilitate the mandatory
reporting is TRACE. SRO member firms that engage in trading of TRACE-eligible securities are
obligated to submit a transaction report to SRO directly, or must have entered into an arrangement
with a third party which authorizes the third party to submit transaction reports on the member’s
behalf.
Member firms are required to pay reporting fees for TRACE usage when submitting their
federally mandated reports. Member firms can report corporate bond transactions via a TRACE
Web browser over the Internet, a computer-to-computer interface or a third-party reporting
intermediary. The related fees charged to members vary depending on the reporting methodology
selected by the member, and on quantity and size, as well as the type, of each transaction reported
to SRO. Such fees are generally charged independently of any additional charges to a member firm
for access to disseminated information from TRACE. However, fees for Level II Browser Access,
which are higher than Level I, reflect an incremental charge for disseminated information.
Market data fees apply to the dissemination of TRACE data which is deemed not to be
confidential. The dissemination of information is accomplished through the Bond Trade
Dissemination Service (“BTDS”). Market data fees vary depending on whether the data is relayed
in real-time or delayed-time, whether the information will be disseminated internally within the
member’s firm for decision making purposes, or whether the information will be disseminated
externally. SRO allows TRACE transaction data to be used in repackaging of market data for
delivery and dissemination outside the subscribing organization. Members may choose to receive
market data via the Level II Browser or the BTDS; whereas non-members (including market data
vendors and redistributors) may only access market data via the BTDS. Professional and non­
professional data users have separate fee schedules.
All sales of tangible personal property and certain sales of enumerated services are subject
to sales tax. See sections 1105(a) and 1105(c) of the Tax Law. It appears that SRO sells taxable and
nontaxable services.
SRO charges member firms various fees to perform the federally mandated reporting of
information with SRO. Such reporting fees are similar to fees charged by other regulatory
authorities for the filing or registering of documents and such fees are not for enumerated services
subject to sales tax pursuant to section 1105(c) of the Tax Law. Members accessing the TRACE
system to review their own previously reported transaction data are also assessed Browse and Query
Fees. These charges which relate to the customer’s viewing of its own information and a review
of the accuracy of its mandatory regulatory submission to SRO are similarly not fees for a service
subject to tax.

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A portion of the individual information submitted by each member is ultimately collected,
compiled, analyzed and assembled by SRO into various databases eligible for disclosure to the
public. Where a common database is used to generate reports or otherwise disseminate information,
the information sold is subject to sales tax under section 1105(c)(1) of the Tax Law despite the fact
that the reports, screens or displays of such information may be customized to meet the specific
needs of customers. See Rich Products Corporation v. Chu, 132 AD2d 175; Towne-Oller & Assoc.
v. State Tax Comm, 120 AD2d 873; Alan/Anthony, Inc., Adv Op Comm T&F, June 19, 1992,
TSB-A-92(51)S. Therefore, the SRO databases derived from the individual personal transactions
reported by member firms result in information sold to others which is not personal or individual
in nature to such purchasers, and the information gleaned from the transactions reported by the
members is substantially incorporated in reports furnished to other persons. Charges by SRO to
members and non-members for access to the database constitute charges for information service
subject to tax pursuant to section 1105(c)(1) or 1105(c)(9) of the Tax Law. Therefore, SRO’s
market data fees whether sold to members via the Level II Browser Access or the BTDS, or to non­
members via the BTDS, are charges for information services subject to sales tax when delivered in
New York.
Where sales of taxable and nontaxable items are bundled in a single transaction, the entire
charge is subject to sales tax unless the charges for nontaxable items are separately stated on the
vendor’s bill, such charges are reasonable in relation to the total charges, and the nontaxable items
may be purchased separately. See Economic Cycle Research Institute, Inc., Adv Op Comm T & F,
July 23, 1997, TSB-A-97(42)S; Alan/Anthony, Inc., Adv Op Comm T&F, June 18, 1992,
TSB-A-92(47)S; Hodgson, Russ, Andrews, Woods and Goodyear, Adv Op Comm T&F, April 2,
1992, TSB-A-92(31)S; Alan/Anthony, Inc., Adv Op Comm T&F, January 31, 1992, TSB-A-92(6)S.
In this case, SRO offers the market data as a separate service through the BTDS service.
Member firms (who comply with the mandatory filing requirements via Browser Access) may
obtain the market data services by purchasing SRO’s Level II Browser Access (which reflects an
incremental charge for the information over the cost of the basic Level I Browser Access). Member
firms complying with their mandatory regulatory transaction reporting via agreements with a third
party to report on their behalf may likewise gain access to the market data via the BTDS service.
Clearly SRO’s taxable information services (market data services) are offered for sale and may be
purchased separate from the fees associated with the mandatory regulatory transaction reporting.
The difference in the fees charged for Level I and Level II Browser Access represent an
additional charge for the disseminated information. In order for a portion of the Level II Browser
Access fee to be nontaxable, that differential amount must be separately stated and reasonable in
relation to the fees charged for the mandatory transaction reporting Level I Browser Access and the
fees for the market data as evidenced by SRO’s separate charges for BTDS services. Sales tax must
be imposed on the charges for the disseminated information and separately stated either on SRO’s
invoices or other contractual documents provided to member firms. If the charges for taxable
market data services and nontaxable transaction reporting services purchased in a single transaction
by members utilizing Browser Access service are not separately stated in any such documents, then

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SRO’s entire monthly charge for the Level II Browser Access is subject to tax. See section 527.1(b)
of the Sales and Use Tax Regulations.
Therefore, provided that SRO’s charge to member firms for mandatory transaction reporting
is reasonable in relation to the total charges and separately stated in SRO’s contracts and/or billing
documents, SRO is not required to collect sales tax on such charge. Market data fees for separately
sold information services are subject to sales tax. Separate charges for information services are
taxable.

DATED: September 22, 2004

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.