Are enrollment fees for a private airport 'Registered Traveler' expedited-security program subject to New York sales tax?

Plain-English summary

Verified Identity Pass, Inc. launched "Clear," a Registered Traveler Program (RTP) at JFK Airport's Terminal 7, authorized under federal aviation security law. Travelers who want expedited airport security screening voluntarily give the company their biometric and biographic information; the company forwards it (through a separate commercial data-formatting entity) to the federal Transportation Security Administration, which runs a security threat assessment and tells the company whether the traveler is approved. Approved travelers get a "Clear Card" they use to speed through security. The company charges enrollees an annual fee that bundles its own service charge with the fee it pays TSA for the government's screening review; if TSA later revokes someone's privileges, the company refunds its own pro-rated portion but not TSA's fee.

The Department ruled that enrollment fees for this program are NOT subject to sales tax. The company isn't selling tangible personal property, and collecting/transmitting personal information and facilitating a federal security screening isn't one of the specific services New York's sales tax law enumerates as taxable — so the charge falls outside the tax entirely, regardless of how the enrollment/verification/card-issuance steps are geographically split across states.

The opinion adds one caution for the company itself: while its charges to travelers aren't taxable, that doesn't mean everything the company buys to run the program is tax-exempt. Purchases of tangible personal property or taxable services used to deliver this nontaxable service to customers are not "purchases for resale," so the company may still owe sales or use tax on its own inputs (equipment, software, etc.) even though it isn't collecting tax from its own customers.

What this means for you

Companies running enrollment-based or identity-verification programs

If your service is limited to collecting information, transmitting it for processing, and facilitating access to a government or third-party benefit (rather than selling goods or an enumerated taxable service), your enrollment fees may fall outside New York's sales tax entirely — this ruling is a useful template for that fact pattern. But don't assume your own purchases used to run the program are automatically tax-exempt just because your customer-facing fee isn't taxed; only a genuine resale (of the exact item/service, unaltered, to the customer) qualifies for the resale exemption.

Airport and transportation-security vendors

The multi-state, multi-step nature of the enrollment process (application in one state, biometric capture in another, card issuance and use in a third) didn't change the outcome here — the Department focused on whether the underlying service was an enumerated taxable service at all, not on where each individual step occurred.

Accountants and tax professionals

Since the opinion found no taxable service, it didn't need to reach questions about sourcing tax to specific delivery locations — a good reminder to check the threshold taxability question first before analyzing multistate sourcing rules.

Common questions

Q: Do enrollment fees for an airport expedited-screening program count as a taxable sale in New York?
A: No — collecting personal information and facilitating a federal security assessment isn't a sale of goods or an enumerated taxable service.

Q: Does it matter that part of the fee reimburses a government agency's own screening cost?
A: No — the whole charge to the enrollee, including the pass-through portion covering TSA's fee, falls outside the tax because the underlying service itself isn't taxable.

Q: Are the company's own purchases of equipment and software tax-exempt?
A: Not automatically. Purchases used to deliver a nontaxable service to customers generally aren't "purchases for resale," so the company may still owe sales or use tax on those inputs.

Q: Can another enrollment-service company rely on this ruling?
A: No. It binds the Department only for the petitioner and facts described in the petition; another company should confirm its own facts match before relying on it.

Citations and references

Statutes:

• Tax Law § 1105(c) (enumerated taxable services)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2007.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a07_12s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-07(12)S
Sales Tax
April 16, 2007

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

PETITION NO. S061024B

On October 24, 2006, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Verified Identity Pass, Inc., 1270 Avenue of the Americas, Suite 508,
New York, New York 10020. Petitioner, Verified Identity Pass, Inc., provided additional
information pertaining to the Petition on January 18, 2007.
The issue raised by Petitioner is whether charges to individual travelers for enrollment in
Petitioner's Registered Traveler Program as described below are subject to sales tax.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner is a Delaware corporation authorized to do business in New York State.
Petitioner will launch its Registered Traveler Program (“RTP”) under the name “Clear” at John
F. Kennedy International Airport, Terminal 7, which is located in New York State. Terminal 7
will become the first facility in New York State to offer Clear RTP.
Clear RTP is authorized under the Aviation and Transportation Security Act as a means
of providing an expedited security screening process for individuals who voluntarily submit
certain biometric and biographic information to an enrollment provider such as Petitioner. The
enrollment provider (in this case Petitioner) forwards this information to the Transportation
Security Administration (“TSA”). TSA, which is a division of the United States Department of
Homeland Security, uses the information Petitioner obtains from an individual to perform a
security threat assessment of the individual. Clear RTP allows expedited access through airport
security checkpoints to those individuals who successfully undergo TSA’s security threat
assessment. Clear RTP is a private sector program that is supported and regulated by TSA with
distinct roles and responsibilities for each participating entity.
Petitioner is an enrollment provider and service provider in Clear RTP and, in that
capacity, is responsible for collecting personal biographic and biometric information from
individuals seeking to enroll in Clear RTP. After collecting the required information, Petitioner
transmits the information to TSA via the Central Information Management System (“CIMS”).
CIMS is a commercial entity that is not associated with Petitioner, the airlines, or the
airports. CIMS is responsible for receiving and formatting the program enrollment data and
transmitting such information to TSA. Based on such information, TSA then conducts a security
threat assessment of the individual and transmits its determination as to whether the individual is
approved or not approved for Clear RTP to Petitioner. Petitioner will then inform the individual
of TSA’s determination, and, if the individual is approved, Petitioner will issue a Clear RTP
membership card (Clear Card) to the individual. The approved individual is then permitted to

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TSB-A-07(12)S
Sales Tax
April 16, 2007

pass through an expedited security screening process at the airport using the biometric
information embedded on the Clear Card as a means of proving the individual’s identification.
Each of the steps described above (enrollment, delivery of the biometric information,
receipt of the Clear Card, and utilization of RTP) may occur at different locations in the United
States. TSA requires all RTP service providers to have interoperable systems. For example, a
California resident may apply online at a business location in New York, provide the biometric
information at Petitioner's enrollment station at the Orlando International Airport, receive the
Clear Card in New York, and use the service at Terminal 7. This may all be done within the
Clear RTP system or in conjunction with other service providers’ systems once such systems are
operational. At this time, Petitioner is the only authorized and operating private sector provider
for RTP.
Petitioner charges individuals who enroll in Petitioner's Clear RTP program an annual fee
for the provision of its service, including the collection and transmittal of the individual’s
personal information to TSA. This annual fee includes the fee to be paid by Petitioner to TSA
for TSA’s provision of its screening services, including the security assessment review. Neither
Petitioner's fee nor TSA’s vetting fee is charged to the individual’s account until the individual
has been accepted into Clear RTP. If, for any reason, TSA revokes the individual’s privileges
under Clear RTP, the Card is deactivated and the individual will receive a pro-rated refund of the
Clear RTP fee; however, the TSA portion of the fee will not be refunded.
Applicable law
Section 1105(c) of the Tax Law imposes sales tax upon the receipts from every sale,
except for resale, of certain enumerated services.
Opinion
Petitioner is an enrollment provider and service provider in Clear RTP and, in that
capacity, collects personal biographic and biometric information from individuals seeking to
enroll in Clear RTP, provides the information to TSA so that TSA may provide a security threat
assessment, and provides the enrolling individuals (Petitioner's customers) with the means to
avail themselves of the advantages offered by enrollment in Clear RTP.
With respect to its described activities as an enrollment provider and service provider,
Petitioner makes no sales of tangible personal property. Further, in performing such activities,
Petitioner is not making sales of any of the enumerated services on which sales tax is imposed by
section 1105(c) of the Tax Law. Accordingly, charges by Petitioner to applicants for enrollment
in Clear RTP are not subject to sales or use tax.

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TSB-A-07(12)S
Sales Tax
April 16, 2007

It is noted that any purchases by Petitioner of tangible personal property or services
described in section 1105 of the Tax Law that are used to provide Petitioner's nontaxable service
to its customers are not purchases for resale and may be subject to sales or use tax.

DATED: April 16, 2007

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