Is an email-marketing company's fee to run targeted email campaigns for clients subject to New York sales tax?

Plain-English summary

NetCreations, Inc. maintains a database of roughly 45 million internet users' email addresses plus demographic and lifestyle information, gathered through pop-up questionnaires placed on internet service providers' opening screens. Its clients (corporations, ad brokers, and agencies) hire it to send targeted marketing emails: NetCreations reviews the target audience, selects demographics, tests the list, helps craft email content, delivers the emails, and tracks response rates and click-throughs. It bills clients based on emails sent or click-throughs achieved — never handing over the underlying email list itself.

The Department classified this as a nontaxable marketing service, not a taxable "information service" (the category that normally covers selling compiled data/reports). Because NetCreations never delivers the underlying email address list or report data to its clients — it only uses its database internally to execute a campaign on the client's behalf — its client fees escape sales tax entirely, consistent with a 1988 precedent on similar list-based marketing services. The Department flagged an important contrast: if NetCreations ever DID sell an actual mailing list (the names/addresses themselves) to a client, that would be a different, taxable transaction — either a sale of tangible personal property or a taxable information service.

Two related questions got their own answers: (1) the fee NetCreations pays an ISP to host its questionnaire isn't taxable either; and (2) NetCreations' own purchases of the underlying email/demographic databases ARE subject to sales tax, because those databases become part of NetCreations' internal marketing-service tools rather than being resold as-is to clients.

What this means for you

Email marketing, list-brokering, and digital advertising companies

Running a campaign FOR a client using your own proprietary database — reviewing targets, crafting content, delivering messages, tracking results — without ever handing over the underlying list is a nontaxable marketing service. But the moment you sell or license the actual list/database itself to a client, that's a taxable transaction (either tangible personal property or an information service).

Businesses that buy targeted marketing/advertising services

Your marketing vendor's service fee for running a campaign on your behalf using its own proprietary data shouldn't carry New York sales tax, as long as the vendor doesn't also deliver you the underlying contact list.

Accountants and tax professionals

The controlling distinction under § 1105(c)(1) is between (a) a nontaxable marketing/advertising service that merely USES a database internally to execute a campaign, and (b) a taxable information service or tangible-property sale where the compiled data/report itself changes hands. Also flag that a marketing service provider's own database purchases (inputs it doesn't resell) remain taxable to the provider under the standard resale-exclusion rules.

Common questions

Q: Is an email marketing company's campaign fee to a client taxable in New York?
A: Not when the company runs the campaign using its own proprietary database and never delivers the underlying list of names/addresses to the client — that's treated as a nontaxable marketing service.

Q: What if the marketing company also sells its mailing list separately?
A: That would be a different, taxable transaction — a mailing list sale is generally treated as either a taxable sale of tangible personal property or a taxable information service.

Q: Does the marketing company owe tax on its own purchase of the underlying database?
A: Yes. Since the database isn't resold to clients as such but is used internally to perform the nontaxable marketing service, the company's purchase of that database is a taxable purchase, not an exempt purchase for resale.

Q: Can another marketing or list-brokering company rely on this exact ruling?
A: No. This Advisory Opinion binds the Department only as to NetCreations, Inc. and the facts it described. A company that also sells or licenses raw lists to clients would need separate analysis for that part of its business.

Citations and references

Statutes and regulations:

• Tax Law § 1105(c)(1) (information services; advertising agent exclusion)
• 20 NYCRR 526.6(c)(1) (resale exclusion)
• 20 NYCRR 527.3(c)(3) (resale of information services)

Prior opinions and decisions cited:

• Names in News/Direct Response Inc., Adv Op Comm T&F, August 8, 1988, TSB-A-88(39)S
• Alan Drey Company, Dec St Tax Comm, January 27, 1978, TSB-H-78(3)S, aff'd 67 AD2d 1055
• Mike Levy, Adv Op Comm T&F, August 14, 1995, TSB-A-95(33)S
• Ski Soft, Inc., Adv Op Comm T&F, June 25, 1997, TSB-A-97(35)S

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_13s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-07(13)S
Sales Tax
May 17, 2007

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

PETITION NO. S021022A

On October 22, 2002, the Department of Taxation and Finance received a Petition for
Advisory Opinion from NetCreations, Inc., 379 West Broadway, New York, New York 10012.
The issues raised by Petitioner, NetCreations, Inc., are:

1. Whether Petitioner’s charges to its clients for the services described below are subject
   to sales or compensating use tax.
2. Whether the fee paid by Petitioner to an ISP as described below is subject to sales or
   compensating use tax.
3. Whether Petitioner’s purchase of databases for use in providing services to its clients
   is subject to sales or compensating use tax.
   Petitioner submitted the following facts as the basis for this Advisory Opinion.
   Petitioner maintains a database of approximately 45 million e-mail addresses of Internet
   users both within and outside the United States. In addition to an e-mail address, the database
   contains personal information about each user such as interests, hobbies, lifestyle, and
   demographic information. Petitioner obtains this information through a questionnaire placed in
   the opening screen of an Internet service provider (ISP). When the Internet user sees the ISP’s
   opening screen, he or she is invited to complete Petitioner's pop-up questionnaire. Petitioner
   may pay the ISP at the time the Internet user completes the questionnaire or when an Internet
   user is selected by Petitioner to receive e-mail sent on behalf of Petitioner’s clients as described
   below.
   Petitioner’s clients solicit business via messages individually sent over the Internet via
   e-mail (as distinguished from placing an advertisement on a Web page). Petitioner sends e-mails
   containing a client’s offer to those Internet users who meet the client’s selection criteria (based
   on information contained in Petitioner's database). The e-mail sent by Petitioner to those Internet
   users meeting the client’s selection criteria contains a link to the client’s Web site.
   The fees charged by Petitioner to its clients are based either on the number of e-mails sent
   on behalf of the client or, in some cases, the number of Internet users who actually link to the
   client's Web site. Petitioner's e-mails can be sent throughout the world or to a select area, such
   as a particular state, county or city.

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Petitioner does not maintain its clients' Web sites or perform any services other than
those listed below. The list of e-mail addresses used is not given to the client. Only after an
Internet user goes to a client’s Web site and gives an e-mail address does the client obtain it.
Petitioner performs the following services for its clients (major corporations, advertising
brokers, and advertising agencies):

1. Reviews the target audience,
2. Selects demographics,
3. Tests selected list,
4. Assists in creating the content of the e-mails,
5. Delivers the e-mails, and
6. Tracks the number of responses and the number of hits to the related link.
   Applicable law and regulations
   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, and excluding the services of advertising or other
agents, or other persons acting in a representative capacity . . . .
Section 526.6(c)(1) of the Sales and Use Tax Regulations provides, in part:
Where a person, in the course of his business operations, purchases tangible
personal property or services which he intends to sell, either in the form in which

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purchased, or as a component part of other property or services, the property or services
which he has purchased will be considered as purchased for resale, and therefore not
subject to tax until he has transferred the property to his customer.
Section 527.3(c)(3) of the Sales and Use Tax Regulations provides:
The purchase of a service subject to tax under section 1105(c)(1) of the Tax Law
by a vendor who will resell that service as such or as a part of a service also subject to tax
under section 1105(c)(1) is not a purchase at retail and is exempt from the sales tax.
Opinion
Petitioner performs various services to assist its clients in conducting marketing
campaigns via e-mails sent to Internet users who meet a client’s selection criteria. Based on the
facts described in this Opinion, Petitioner is considered to be performing marketing services that
are not included among the enumerated services subject to sales tax under section 1105 of the
Tax Law. See Names in News/Direct Response Inc., Adv Op Comm T&F, August 8, 1988,
TSB-A-88(39)S. Accordingly, Petitioner’s charges to its clients for these services are not subject
to sales tax.
It should be noted that if, in addition to the nontaxable services discussed above,
Petitioner were to offer mailing lists for sale, charges for such mailing lists might be subject to
sales tax. A mailing list is a collection of names and addresses (in this case the list might consist
of e-mail addresses) accumulated to provide customers of the list owner with lists of persons to
send information regarding the customers’ products, services, or other items. Charges for the
sale or use of a mailing list in New York are considered either charges for tangible personal
property and taxable under section 1105(a) of the Tax Law or charges for information taxable
under section 1105(c)(1). See Alan Drey Company, Dec St Tax Comm, January 27, 1978,
TSB-H-78(3)S, affd 67 AD2d 1055.
Petitioner inquires whether the fee it pays to an ISP for the placement of a questionnaire
on the ISP's Web site is subject to sales or use tax. The fee is not subject to tax under section
1105 of the Tax Law. See Mike Levy, Adv Op Comm T&F, August 14, 1995, TSB-A-95(33)S;
Ski Soft, Inc., Adv Op Comm T&F, June 25, 1997, TSB-A-97(35)S.
Petitioner also inquires whether its purchases of databases that become part of the
information used by Petitioner to perform its nontaxable marketing services described in this
Opinion are subject to sales and use tax. Petitioner’s database purchases in such circumstance
are subject to sales tax under section 1105(c)(1) of the Tax Law. In such case Petitioner uses the

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databases in performing its marketing services. The databases in such case are not purchased for
resale.

DATED: May 17, 2007

NOTE:

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

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the
person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.