Are a document-processing company's charges for scanning surveys and extracting raw data into computer files subject to New York sales tax?

Plain-English summary

Optimum Solutions processes paper surveys and questionnaires for market research companies. It scans a client's completed paper forms into electronic images, then uses custom software to read the responses and output raw data into computer files, which it delivers to clients either through its own FTP site or as zipped email attachments — never in physical form. Occasionally a client wants to keep a copy of the original survey images, so Optimum Solutions (having already scanned them for its own use) will provide a disk of the images at no extra charge, since the marginal cost is minimal. For a separate fee, some clients also request a "data analysis" service, where Optimum Solutions sorts the same client's own raw data into tables per the client's instructions — without writing any report or drawing conclusions.

The Department found the core scanning/extraction service is NOT a taxable information service. It's simply a format conversion — paper to electronic — without any interpretation, integration, or recasting of the information into new intelligence for the client, following a controlling appellate case (Finserv Computer Corp. v Tully). Because everything is delivered electronically, the charges are entirely nontaxable. The Department flagged that if Optimum Solutions instead delivered the data in TANGIBLE form (like a disk sold for a price) rather than exclusively electronically, the answer could be different. Here, though, the occasional free disk of scanned survey images is just an incidental courtesy with no separate charge — so it doesn't create a taxable sale, though Optimum Solutions itself owes tax on buying the blank disks (since that purchase isn't for resale).

The separate data-analysis service (sorting a client's own data into tables) IS technically an "information service" — collecting, compiling, or analyzing information — but it's still untaxed here because the information is "personal or individual in nature": it goes back only to the same client that supplied the original data, not compiled into reports for other customers. If the same analysis were instead incorporated into reports sold to OTHER clients, it would become a taxable information service.

What this means for you

Document-scanning and data-extraction service providers

Keep your delivery exclusively electronic if you want to preserve nontaxable treatment — the moment you deliver on physical media for a charge, that specific transaction becomes a taxable sale of tangible personal property. Free, incidental physical copies (with no separate charge, minimal cost) don't change your customer-facing tax treatment, but you'll owe use/sales tax yourself on the media you buy to make them.

Market research and data companies buying extraction/analysis services

A vendor's charge for converting your own paper forms into your own electronic data, and for organizing that same data into tables for your own use, generally isn't taxable — but if you're buying a service where the vendor compiles or analyzes data for resale to third parties (not just back to you), expect a different, taxable result.

Accountants and tax professionals

This ruling is a clean template for the "format conversion vs. new intelligence" line that separates nontaxable digitization services from taxable information services, and reinforces the personal/individual-information exclusion (data returned only to its original source, not compiled into reports for others) already seen in other NY rulings on similar facts.

Common questions

Q: Is scanning paper forms and delivering the extracted data electronically taxable?
A: No — it's a nontaxable format-conversion service, since no new information or intelligence is created for the client.

Q: What if the data were delivered on a physical disk instead?
A: That could be a taxable sale of tangible personal property, per the Department's own caveat in this opinion.

Q: Is a separate "data analysis" service (sorting the same data into tables) taxable?
A: Not here — because the analysis is delivered back only to the same client that supplied the raw data (personal/individual information), not compiled into reports sold to others.

Q: Can another data-processing company rely on this Advisory Opinion?
A: No. It binds the Department only for the petitioner and facts described; another company's delivery method and client relationships need to match to reach the same result.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4) (retail sale)
• Tax Law § 1105(a), (c)(1) (retail sale; information services)
• 20 NYCRR 527.3 (information services exclusions)

Cases and prior rulings referenced:

• Finserv Computer Corp. v Tully, 94 AD2d 197, aff'd 61 NY2d 947
• Moore Business Forms, TSB-A-95(6)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2006.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a06_30s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-06(30)S
Sales Tax
December 8, 2006

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S060303A

On March 3, 2006, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Optimum Solutions Corp., 266 Merrick Road, Lynbrook, New York
11563. Petitioner, Optimum Solutions Corp., provided additional information pertaining to the
Petition on April 5, 2006, and May 24, 2006.
The issue raised by Petitioner is whether the fees charged for Petitioner’s “custom data
extraction” services are subject to sales and use tax.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner is in the business of processing written documents such as surveys and
questionnaires. Petitioner’s clients, mainly market research companies, send Petitioner paperbased forms. Petitioner extracts the data on these forms and outputs the data to computer files.
These computer files are sent to Petitioner’s clients.
Petitioner’s service is an automated scanning-based solution eliminating the need for
manual data entry. When a paper survey is received, Petitioner uses high speed scanners to scan
the paper survey form and convert the survey form to an electronic image. Once the image is
stored, the paper survey form is no longer needed. After scanning, software designed by
Petitioner specifically for the client reads the responses on the electronic image and outputs the
information to electronic files. The information supplied by Petitioner is raw data. The raw
data, once extracted, is delivered to the client in one of two methods. The first method is through
the use of Petitioner’s File Transfer Protocol (FTP) site. The files are uploaded, the client is
notified, and the client downloads the file. The second method is by compressing (zipping) the
files and sending them as attachments to an e-mail. These are the only methods of delivery.
Market research companies use the raw data to compile reports, to analyze trends, and for other
related business purposes.
Once a survey is scanned by Petitioner, an electronic image of the survey is captured and
stored for Petitioner’s use in creating the electronic file. While most clients do not require copies
of the survey responses, occasionally a client may need to store the response information for a
period of time. Storing the images on a disk and destroying the paper-based survey reduces
storage costs for these clients. Having already scanned the images for its own use, Petitioner
may provide a disk with the electronic images to the clients upon their request. There are few
requests to provide a disk and there is no additional charge to the client as the cost of the disk
and Petitioner’s time and resources expended to provide it are minimal.

-2­
TSB-A-06(30)S
Sales Tax
December 8, 2006

In addition to extracting data from a client’s form, some clients request additional
services from Petitioner. For a separate charge, Petitioner will provide data analysis. Petitioner
uses the client’s raw data to create tables in which the information is sorted and arranged
according to the client’s instructions. Petitioner does not write a report summarizing the data or
draw conclusions with the data; it only delivers the requested tables of sorted data to the client.
The following is an example of how the services performed by Petitioner would apply to
an automobile survey:
An automobile manufacturer wants to do a satisfaction study on new car
purchasers. To gather impartial information, it contacts a market research company to
perform the study.
The market research company creates a customer survey
questionnaire and mails the surveys to a list of new car buyers provided by the
manufacturer. New car buyers are asked to complete the survey and return it to the
market research company.
The market research company retains Petitioner for its services and sends the
completed surveys to Petitioner. Petitioner creates a custom template using the blank
survey questionnaire. Once the template is created, the surveys are scanned into the
computer and electronic images of the completed survey are created. Petitioner uses
proprietary software to process the scanned images. During processing, the computer
takes the custom template survey and compares it to the completed survey. The new car
purchaser’s responses to the survey questions are electronically read and the data is
output to a computer file. Once the data file is complete, Petitioner sends it to the market
research company.
For this example, the client may also ask Petitioner to provide, in addition to the data
extraction, a table created from the survey data that answers a specific question such as:
How many respondents between 35 and 50 years of age who own two or more
cars read the Sunday New York Times?
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:
*

*

*

-3­
TSB-A-06(30)S
Sales Tax
December 8, 2006

(4) Retail sale. (i) A sale of tangible personal property to any person for any
purpose, other than (A) for resale as such or as a physical component part of tangible
personal property, or (B) for use by that person in performing the services subject to tax
under paragraphs (1), (2), (3), (5), (7) and (8) of subdivision (c) of section eleven hundred
five where the property so sold becomes a physical component part of the property upon
which the services are performed or where the property so sold is later actually
transferred to the purchaser of the service in conjunction with the performance of the
service subject to tax....
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 . . . 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,...
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.
*

*

*

(b) Exclusions. (1) Sales tax does not apply to receipts from sales of information
services which are for resale as such.

-4­
TSB-A-06(30)S
Sales Tax
December 8, 2006

(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.
Opinion
Petitioner is in the business of processing written documents such as surveys and
questionnaires, mainly for market research companies. Petitioner scans a client’s paper-based
survey forms and converts them to an electronic image. Petitioner then extracts data from the
images of the paper surveys, and stores the data in a computer file. Petitioner delivers the data
files to clients via attachments to an e-mail or by sending the client a notification that a file with
its data can be downloaded from Petitioner’s FTP site.
When Petitioner scans a client's paper-based survey forms, extracts data and outputs it to
an electronic data file that is delivered to clients electronically, Petitioner is providing a service
that is not included within the services enumerated in section 1105(c) of the Tax Law.
Therefore, the charges to clients for this service are excluded from sales tax. When Petitioner
provides this service, it is not rendering an information service since Petitioner neither integrates
nor recasts the information so that the client is given back some new information or some new
significant intelligence concerning the data furnished. Rather, Petitioner converts the
information received from the client from one form or medium to another, without interpreting
or recasting it, so that the form of the information changes but not the intelligence contained
therein. See Finserv Computer Corp.v Tully, 94 AD2d 197, affd 61 NY2d 947. It should be
noted that if Petitioner delivered the data files to its clients in tangible form instead of
exclusively electronically as is Petitioner’s practice, the conclusions reached in this Opinion
might be different. See Finserv, supra; Moore Business Forms, Adv Op Comm T & F, Feb 15,
1995, TSB-A-95(6)S.
Occasionally a few of Petitioner’s clients need to retain copies of the survey forms.
When requested by the clients, Petitioner may provide copies of the images of the survey forms
that Petitioner scanned in performing the nontaxable services discussed in the preceding
paragraph. Petitioner copies the images on a disk that it gives to the customer. Petitioner makes
no additional charge since the cost of the disk and Petitioner’s time and resources expended to
provide the disk are minimal. Disks furnished to clients are tangible personal property, and if the
disks were sold to a client for consideration, such sales would be subject to sales tax under
section 1105(a) of the Tax Law. However, since there are no additional charges to the client and
disks are not being sold, the disks are being provided as a courtesy to a small number of clients
as a mere incident to the nontaxable services discussed in the preceding paragraph. It should be
noted that Petitioner’s purchases of disks are not purchases for resale, and Petitioner is required
to pay sales tax on its purchases of the disks. See section 1101(b)(4)(i) of the Tax Law.

-5­
TSB-A-06(30)S
Sales Tax
December 8, 2006

The data analysis service that Petitioner offers for a separate charge organizes a client’s
data into tables, with the data sorted and arranged according to the client’s instructions.
Petitioner does not write a report summarizing the data or drawing conclusions from the data; it
only delivers the requested tables to the client. Petitioner’s data analysis service of compiling
and analyzing information is an information service. However, since the information furnished
is personal or individual in nature because it is furnished to the same client that collected the
data, it is not subject to sales tax. If the data were substantially incorporated in reports furnished
to others, the charges for such service would be subject to sales tax. See section 1105(c)(1) of
the Tax Law and section 527.3 of the Sales and Use Tax Regulations.

DATED: December 8, 2006

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.