My company provides automated voice-calling services to airlines, banks, and other businesses using proprietary software we keep entirely in-house — is our calling-service fee or our own software subject to New York sales or use tax?

Plain-English summary

A company delivers automated, interactive voice messages — via phone and mobile — to recipients that its customers designate (airlines notifying passengers of flight changes, banks sending bill-pay reminders, schools/employers broadcasting emergency alerts, telemarketers reaching call lists). Customers send an encrypted electronic call list; the provider's own proprietary software authenticates each recipient and delivers a customized message with interactive keypad options, sometimes forwarding the call live to the customer's representative. Critically, the software itself is never delivered, licensed, downloaded, or made accessible to customers — customers only ever receive the finished service (the calls placed) and a "Results File" report of what happened on each call, which is specific and confidential to that one customer and never resold or incorporated into anyone else's report. The provider charges an initial setup fee plus a per-call or per-minute charge.

The Department held the automated calling service fees are not subject to sales tax. Since the software is never transferred, licensed, or made accessible to customers in any way, the provider isn't selling software — it's providing a calling service, and automated calling services aren't among the specifically enumerated taxable services in Tax Law §1105. The Department also considered whether the call-forwarding element makes this a taxable "telephone service," and said no: the provider doesn't pay for or provide the telephone connection between the recipient and the customer's representative (its own system disconnects once that connection is made), so its own consumption of telephone service in performing the calling service doesn't transform the whole service into taxable telephone service. The Results File report also escapes tax: even if treated as an "information service," it's personal/individual data about that one customer's own call list and results, never incorporated into reports for other customers — squarely within the information-service exclusion.

On the provider's own software, the Department confirmed it isn't subject to New York use tax either, because New York's use tax rule for software created by its own author only applies if the author also sells similar software to others in the regular course of business. Since this company doesn't sell or license the software at all, its own use of the software in New York doesn't trigger use tax.

What this means for you

Automated calling, IVR, and notification service companies

Keeping your calling software entirely in-house — never licensed, downloaded, or made remotely accessible to customers — is the key fact that keeps your service fee out of the sales tax base. If customers ever gain any right to access or control the software itself (not just receive the output), the SaaS/constructive-possession analysis seen in other 2009 opinions could apply instead and change the result.

Businesses building proprietary internal software tools

If you develop software purely for your own internal use and never sell or license similar software to third parties, your own use of that software in New York generally isn't subject to use tax — but the moment you begin selling similar software (as such, or as a component of another product) in the regular course of business, that protection goes away.

Accountants and tax professionals

This opinion cleanly separates three potentially-taxable threads — software sale/license (none here), telephone service (not triggered, per Holmes Electric Protective Co. v McGoldrick), and information service (excluded as personal/individual data) — and is a good template for any "calling/notification as a service" business model where the vendor never surfaces its underlying software to the customer.

Common questions

Q: We build our own calling software but never let customers touch it — is our service fee taxable?
A: Not under this opinion's reasoning, as long as customers never receive, download, or gain any right to access or control the software — you're providing a calling service, not selling or licensing software, and automated calling isn't itself an enumerated taxable service.

Q: Our software occasionally forwards a call to a live representative — does that make us a taxable telephone service provider?
A: Not by itself. The Department held that consuming telephone service to perform your own calling service (without you paying for or providing the connection between the recipient and your customer) doesn't convert the whole service into taxable telephone service.

Q: We send customers a report/results file after each batch of calls — is that a taxable information service?
A: Generally no, if the report is personal and individual to that one customer's own data and isn't incorporated into reports you furnish to other customers — that falls within the information-service exclusion.

Q: Do we owe use tax on the software we built and use ourselves?
A: Not under New York's rule, as long as you don't offer similar software for sale (as such, or as a component of other property) in the regular course of business. If you start selling or licensing similar software, that use tax exemption for self-created software no longer applies.

Q: Can any calling-service company rely on this exact opinion?
A: No. An advisory opinion binds the Department only as to the taxpayer who requested it and the facts described — particularly that the software is never transferred or made accessible to customers. A hosted/SaaS-style calling platform that gives customers direct access could be analyzed very differently.

Citations and references

Statutes and regulations:

• Tax Law §1105(a), (c)(1) (tax on tangible personal property; information services, with personal/individual exclusion)
• Tax Law §1110(a)(F), (g) (use tax exemption for software used by its own non-selling author)
• TSB-M-93(3)S (prewritten software and related services)

Cited case and opinion:

• Matter of Holmes Electric Protective Co. v McGoldrick, 262 App Div 514 (1st Dept 1941) (consuming telephone service to perform another service doesn't convert that service into taxable telephone service)
• Deloitte & Touche LLP, TSB-A-03(42)S (personal/individual information exclusion)

Source

• Landing page: NY Sales Tax Advisory Opinions, 2009
• Original opinion: TSB-A-09(14)S

Original ruling text

New York State Department of Taxation and Finance

TSB-A-09(14)S
Sales Tax
March 13, 2009

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S090220B

On February 20, 2009, the Department of Taxation and Finance received a Petition for
Advisory Opinion from name and address redacted.
The issues raised by Petitioner, name redacted, are:

1. Whether Petitioner’s receipts from the sale of its automated voice messages as described
   below are subject to New York State and local sales tax.
2. Whether the software used by Petitioner is subject to New York State and local sales and use
   tax.
   Petitioner submitted the following facts as the basis for this Advisory Opinion.
   Petitioner is a corporation that is based in a state other than New York. Petitioner is hired to
   provide automated voice messages to recipients designated by its customer, which messages are
   delivered through telephone and mobile devices. To accomplish this, the customer provides Petitioner
   with an electronic call list containing proprietary and confidential information on each call recipient.
   The call list is sent by the customer over the Internet in a secure, encrypted file or the customer may
   provide Petitioner access to its computer files to extract the required information. Petitioner developed
   specialized software to make the actual calls and deliver an automated voice message, which replaces
   the typical live operator without sacrificing the functionality. The voice message may be provided by
   the customer or the customer may have Petitioner provide assistance with scripting and creating the
   appropriate message. When customers wish to change or update their messages, the customer must
   contact a Petitioner representative to make the appropriate changes. Petitioner does not license or sell
   this proprietary software. No software is delivered or transferred to the customer for use and the
   customer is not given access to Petitioner’s system software.
   When making the call, Petitioner first authenticates the recipient using a piece of personal
   information contained in the electronic call list. Once the recipient is authenticated, Petitioner delivers
   an automated, customized voice message to each person contained in the electronic call list. The voice
   message provides personalized options that prompt the recipient to take action. The recipient selects
   an option by pressing the corresponding number on a keypad. Depending on the option selected,
   Petitioner’s software will either provide additional information via an automated recording or forward
   the call to the customer or the customer’s representative. The software program is designed to dial out
   to the customer or the customer’s representative telephone number when forwarding a call to the
   customer or the customer’s representative. When the recipient has been connected to the customer or
   the customer’s representative, Petitioner’s computer system disconnects.

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TSB-A-09(14)S
Sales Tax
March 13, 2009

Petitioner provides services to the following four industries.
Airlines
Petitioner’s services are used by the airlines to notify passengers of flight changes and
cancellations. In providing this service to airlines, the passenger will be provided a primary message
and may also be offered the option to access additional messages containing items of general
information or to be connected to the airline’s customer service.
Bill Pay Notification
Petitioner provides automated courtesy calls regarding upcoming payment due dates and past
due payments. The automated messages are made to the call recipients via telephone. In some cases,
recipients can also be connected to a bank or other financial services company for further support by
pressing an assigned key on their telephone keypad.
Emergency Voice Blast Service
Petitioner provides an automated voice message to a select group of recipients (e.g., students,
employees) to notify them of an emergency situation. This service allows a business, school, or
government agency to broadcast an emergency message via personal telephone or mobile device. This
service can be used to notify employees or students of a toxic gas leak, fire alarm, or terrorist attack.
Telemarketing
Petitioner provides an interactive voice message to a list of call recipients designated by its
customer. The recipient receiving the automated message may choose to act by pressing an assigned
number on his or her telephone keypad. By pressing one of the assigned numbers, a call recipient can
receive additional information (by automated message) or be connected to the support center of the
customer.
The results of each call are captured in a Results File. The Results File is a report containing
the original data sent by the customer and the results of each call made by Petitioner. Primarily the
Results File provides the customer with an itemized breakdown of the calls made by Petitioner. The
Results File does not contain any external data, except for the call results. This file is delivered to the
customer electronically. Also, because of the confidential nature of the information, each customer’s
Results File is only made available to that specific customer. Petitioner does not sell or market either
the original data or the information contained in the Results File to any third party. Petitioner may not
incorporate the information contained in the Results File in reports it provides to others. In all cases,
the data provided to the customer is proprietary and confidential to the customer.
Petitioner charges new customers an initial set-up fee based on the hours incurred at a standard
hourly rate. In addition to the initial set-up fees, Petitioner applies a rate or flat charge to either the
number of customer calls made or the minutes used to make the calls.
Applicable law and regulations
Section 1105 of the Tax Law provides, in part:

TSB-A-09(14)S
Sales Tax
March 13, 2009

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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 1110 of the Tax Law provides, in part:
(a) Except to the extent that property or services have already been or will be subject to
the sales tax under this article, there is hereby imposed on every person a use tax for the use
within this state on and after June first, nineteen hundred seventy-one except as otherwise
exempted under this article, (A) of any tangible personal property purchased at retail, (B) of
any tangible personal property (other than computer software used by the author or other
creator) manufactured, processed or assembled by the user, (i) if items of the same kind of
tangible personal property are offered for sale by him in the regular course of business...(F) of
any computer software written or otherwise created by the user if the user offers software of a
similar kind for sale as such or as a component part of other property in the regular course of
business,…
*
*
*
(g) For purposes of clause (F) of subdivision (a) of this section, the tax shall be at the
rate of four percent of the consideration given or contracted to be given for the tangible
personal property which constitutes the blank medium, such as disks or tapes, used in
conjunction with the software, or for the use of such property, and the mere storage, keeping,
retention or withdrawal from storage of computer software described in such clause (F) by its
author or other creator shall not be deemed a taxable use by such person.
Technical Services Bureau Memorandum, entitled State and Local Sales and Compensating
Use Taxes Imposed on Certain Sales of Computer Software, March 1, 1993, TSB-M-93(3)S, provides,
in part:
Effective September 1, 1991, State and local sales and compensating use taxes are
imposed on the sale or use of prewritten computer software and certain related services.

TSB-A-09(14)S
Sales Tax
March 13, 2009

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The effect of this change in the Tax Law is to broaden the types of computer software
that are subject to sales and use taxes . . . certain software previously considered “custom” may
now be considered prewritten computer software and subject to such taxes. . . . The only
software that is exempt from sales and use taxes under the new law is software designed and
developed to the specifications of a specific purchaser.
Prewritten computer software is any computer software that is not designed and
developed by the author or other creator to the specifications of a specific purchaser.
The sale of prewritten software includes any transfer of title or possession, any
exchange, barter, rental, lease or license to use, including merely the right to reproduce, for
consideration . . . .
*

*

*

Use Tax Exemption
Use tax generally applies to taxable uses of prewritten computer software in the same
manner that the use tax applies to uses of other tangible personal property, except that: (1) no
use tax is imposed on software used by its author if the author does not offer similar software
for sale in the regular course of business, and (2) where software is used by its author and the
author does sell the same or similar software in the regular course of business, use tax applies
and is computed on the cost of the medium (floppy disk, magnetic tape, etc.) that contains or is
used in conjunction with the program.
Opinion
Petitioner is hired to provide automated voice messages to recipients designated by its
customers. To accomplish this, the customer provides Petitioner with an electronic call list containing
proprietary and confidential information on each call recipient. Petitioner uses software to make the
calls that deliver automated voice messages to the customer’s designated recipients. The voice
message delivered by Petitioner may prompt the recipient to take an action and Petitioner’s software
will either transfer the call to the customer or the customer’s representative or provide additional
information via an automated recording. Petitioner also provides clients with reports compiling the
results of each call.
Petitioner has developed proprietary software whereby Petitioner has automated the calling
functions provided to its customers. It appears from the facts in this Opinion that the software is not
delivered or transferred to Petitioner's customers by download or in a tangible format, and that the
software may not be accessed online by Petitioner's customers for use. Therefore, it appears that
Petitioner does not license or sell this proprietary software. Rather, Petitioner is providing automated
calling service to its customers.
Services are not subject to sales tax unless they are specifically enumerated as being subject to
tax under section 1105 of the Tax Law. Petitioner’s automated calling services as described in this
Opinion do not constitute any of the enumerated services specified under section 1105 of the Tax Law.

TSB-A-09(14)S
Sales Tax
March 13, 2009

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When forwarding the message recipient to the customer or the customer’s representative, Petitioner’s
software program is designed to dial out to the telephone number of the customer or representative.
When the message recipient has been connected to the customer or the customer’s representative,
Petitioner’s computer system disconnects. Thus phone service for the call between the message
recipient and the customer or customer representative is not paid by Petitioner. While Petitioner’s
services include some elements that may appear similar to telephone services such as call forwarding
services, these elements are not sufficient to transform Petitioner’s services when considered as a
whole into telephone services subject to sales tax. Petitioner may consume telephone services in the
performance of the services it provides to customers, but Petitioner is not engaged in providing
telephone service to its customers. See Matter of Holmes Electric Protective Co. v McGoldrick, 262
App Div 514 (1st Dept 1941).
Petitioner’s customers also receive a written report of the call results. To the extent the report
is deemed to be an information service, the information provided is personal and individual in nature
relating to the customer call lists and call results, and that information is not substantially incorporated
in reports furnished to other persons. Therefore, charges for such service were it considered to
constitute an information service would qualify for the exclusion from sales tax for information
services as provided in section 1105(c)(1) of the Tax Law. See Deloitte & Touche LLP, Adv Op
Comm T&F, November 24, 2003, TSB-A-03(42)S.
Since Petitioner's services as described in this Opinion do not constitute any of the enumerated
services specified under section 1105 of the Tax Law, the receipts from the sale of Petitioner's services
are not subject to sales tax imposed by section 1105.
Section 1110 of the Tax Law provides that software used by its author is not subject to use tax
if the author does not offer similar software for sale as such or as a component part of other property in
the regular course of business. Therefore, the software Petitioner develops and uses to provide
services to its customers is not subject to use tax provided that Petitioner does not sell the software as
such or as a component part of other property in the regular course of business.

DATED: March 13, 2009

NOTE:

/S/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel

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.