My platform helps buyers and sellers complete two types of syndicated loan trades over the Internet, sometimes letting the seller input their own data directly instead of us doing it — is either product a taxable information service or software sale in New York?

Plain-English summary

XYZ Corporation runs an Internet-based platform that facilitates settlement of trades in the primary and secondary syndicated bank loan market. Two products were at issue:

• Product 1 (primary syndication): The seller negotiates terms with a buyer outside the platform, then gives XYZ the deal details; XYZ inputs the information into the platform to generate the necessary contracts, which the buyer reviews and can accept (electronically or by signing a printed copy) or reject/counter-offer. XYZ maintains all control over the software and does all the data entry itself.
• Product 2 (completed primary or secondary trade): Functionally similar, except sellers have the option of establishing their own data link to input their own information directly onto the platform and generate their own daily spreadsheets, rather than relying on XYZ to do it.

XYZ's sample contract states no software license is transferred to subscribers. Subscribers are charged per closed transaction.

The Department reached a split result:

Neither product is a taxable information service. When XYZ enters a subscriber's own information onto the platform to generate contracts, it's just converting information the subscriber already has into a different form — not adding new intelligence — and that's not a taxable information service under the rule from Finserv v. Tully. The daily spreadsheets XYZ compiles (new data XYZ generates from subscriber transactions) are an information service in the technical sense, but they're excluded from tax because they're personal/individual to that one subscriber and never shared with anyone else. Calendaring reminders aren't an enumerated taxable service either.

Product 2 IS a taxable sale of prewritten computer software; Product 1 is not. The dividing line: does the subscriber gain any real control over the software? With Product 1, XYZ retains full control and does all the data entry — the subscriber never gets the right to control the software, just to review and approve/reject documents. With Product 2, giving the subscriber the option to establish a data link and input its own information (whether or not the subscriber actually exercises that option) hands the subscriber the right to control the software — enough, on its own, to make the whole product a taxable software sale. As in other 2009 opinions, the Department disregarded the contract's statement that "no license... is transferred," since the substance (a password granting access and control) controls over the label.

What this means for you

Financial technology and transaction-platform companies

The line between a nontaxable "we do the data entry for you" service and a taxable "you can control the platform yourself" software sale can turn on a single optional feature. Here, merely offering subscribers the ability to self-input data — even if most never use it — was enough to make the whole product taxable software, while the otherwise-identical product without that option stayed untaxed.

Platforms compiling confidential per-customer reports

Daily/periodic reports you generate that are specific to one subscriber and never shared with others fall within the "personal or individual" information-service exclusion, even though technically you're "furnishing information" the subscriber didn't already have.

Accountants and tax professionals

This opinion is a clean illustration of the Finserv v. Tully "conversion vs. new intelligence" distinction for information services, paired with the now-familiar 2009 constructive-possession rule for software (contract language denying a license doesn't control; actual subscriber control over the platform does). Useful whenever a fintech or SaaS client offers a tiered product where only some tiers give the customer direct data-entry/control rights.

Common questions

Q: We just take our customer's own data and put it into our system to generate documents — is that a taxable information service?
A: Generally no, per Finserv v. Tully — converting a customer's own information from one form to another without adding new intelligence isn't a taxable information service.

Q: We generate confidential reports about a customer's own transactions and send them only to that customer — taxable?
A: No, that's excluded as personal/individual information under Tax Law §1105(c)(1), even though it's technically "new" information you compiled, as long as it's specific to that one customer and not shared with or used for anyone else.

Q: We give customers the OPTION to input their own data directly, but most never use it — does that option alone create tax exposure?
A: Yes, per this opinion. The mere availability of the right to control the software (via a data link/password) was enough to make the whole product a taxable software sale, regardless of whether individual subscribers actually exercise that option.

Q: Our contract says no software license is granted to subscribers — doesn't that keep us untaxed?
A: No. The Department held this contractual disclaimer isn't controlling; what matters is whether the subscriber has actual practical control over the software (here, via a password enabling data input and report generation).

Q: Can any transaction-platform 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 — the key fact distinguishing the two products here (whether subscribers can self-input data) needs to be checked against your own platform's actual feature set.

Citations and references

Statutes and regulations:

• Tax Law §1101(b)(5), (6) (definition of sale; prewritten software as tangible personal property)
• Tax Law §1105(a) (sales tax on tangible personal property)
• Tax Law §1105(c)(1) (information services, with personal/individual exclusion)
• Tax Law §1105(c)(9) (information/entertainment services via telephony, contingent on §1105(c)(1))
• 20 NYCRR §526.7, §526.7(e)(4) (constructive possession/transfer of right to use, control, or direct use)

Cited cases and opinions:

• Finserv v. Tully, 94 AD2d 197 (3d Dep't 1983), aff'd 62 NY2d 947 (1984) (converting information's form without adding intelligence isn't an information service)
• KPMG LLP, TSB-A-03(5)S (allocation of receipts across in-state/out-of-state use)

Source

• Landing page: NY Sales Tax Advisory Opinions, 2009
• Original opinion: TSB-A-09(8)S

Original ruling text

New York State Department of Taxation and Finance

TSB-A-09(8)S
Sales Tax
February 2, 2009

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

PETITION NO. S080403A

The petition asks whether various aspects of two of XYZ Corporation’s products, which are accessed through
an Internet-based financial transaction settlement platform, are subject to New York State and local sales and use
taxes. We conclude that neither product provided by XYZ is an information service subject to State and local sales
tax. However, we conclude that provision of the second product constitutes the sale of pre-written computer software
subject to State and local sales taxes.
XYZ describes its products as services that facilitate the settlement of transactions in the primary and
secondary syndicated bank loan market. The first product involves the sale of a financial instrument known as a
primary syndication, which is the original issue of a bank loan to a corporate client. In this transaction, the seller (or
group of sellers acting as one) offers all or part of a commercial loan to a buyer. Before contacting XYZ, the seller or
sellers negotiate the terms of the sale with the buyer. The seller or group of sellers then provides XYZ with the
identity of the buyer and the details of the sale. XYZ enters the information onto the platform to incorporate it into the
necessary contracts and other documents. The seller (or, in the case of a group of sellers, the main designated seller or
administrative agent) then approves and electronically “signs” the documents. Once this is completed, the buyer
accesses the platform and reviews the electronic documents. If the buyer accepts the offer, it can either approve the
documents electronically and transmit them back to the seller or sellers, or it can download, print, and sign a tangible
version of the documents and send them to the seller or sellers via mail, courier, etc. If a buyer does not approve the
offer, it can reject the offer or make a counter-offer by editing the documents and transmitting them electronically to
the seller. The seller may also edit the documents. The parties can download the documents and either print them or
store them in electronic format.
XYZ establishes security measures that ensure that each buyer can access only the documents related to the
transaction to which it is a party. Each transaction involves only one buyer. A buyer cannot obtain the identities of
other buyers or the details of other transactions. XYZ provides the seller with a daily spreadsheet by e-mail, which
includes data relating to its sales. These data include current dollar values of both outstanding and settled transactions.
XYZ does not track or provide information about loan balances. These spreadsheets are kept confidential and are not
shared with anyone other than the seller to which they refer. XYZ does not use the spreadsheets or the information
they contain for any other purpose. XYZ also assists sellers in coordinating transaction completion dates and provides
reminders to buyers of applicable deadlines.
The second product differs from the first only in the following ways: First, the financial instrument being sold
is a “completed primary” or “secondary trade.” This transaction involves the subsequent sale of all or part of a
primary syndication. Second, the seller or sellers have the option of establishing a data link and inputting their own
information onto the platform, rather than XYZ’s inputting the information. The data link also allows the seller or
sellers to obtain the daily spreadsheet on their own, rather than XYZ’s sending the spreadsheet by e-mail.
XYZ’s subscribers access its products by means of an interactive Internet-based electronic system or
“platform.” Subscribers must, at their sole expense, obtain all the equipment and communications connections to
allow access to XYZ’s platform. XYZ does not provide any telecommunication service or Internet access service.
The equipment and connections must meet certain minimum specifications established by XYZ. Subscribers are
provided with a digital certificate, user name, or password, which allows access to the platform. XYZ’s sample
contract with its subscribers states that “[n]o license for any software or any other product or service is transferred
either expressly or by implication, temporary or permanently, to the Subscriber.” Subscribers are charged for each
primary syndication or secondary trade that is closed.

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TSB-A-09(8)S
Sales Tax
February 2, 2009

We conclude that provision of either of the products described above does not constitute the sale of a taxable
service. Sales tax is imposed only on certain enumerated services. Among these is the service of “furnishing
information by printed mimeographed or multigraphed matter or by duplicating written or printed matter in any other
manner, including the service 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.” See Tax Law
§1105(c)(1). Converting information already in a customer’s possession 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, does
not constitute an information service. Finserv v. Tully, 94 AD2d 197 (3d Dep’t 1983) aff’d, 62 NY2d 947 (1984).
When XYZ enters information provided by a subscriber onto the platform to be incorporated into contracts and other
documents, it is not adding intelligence; rather, it is merely converting information already possessed by the subscriber
into a different form. Therefore, this aspect of XYZ’s service is not an information service for purposes of Tax Law
section 1105(c)(1).
XYZ also prepares daily spreadsheets containing the current dollar value and status of outstanding and settled
transactions. This is not information provided by the subscriber or in the customer’s possession; rather, it is XYZ’s
compilation of data from the subscriber’s transactions. Because the spreadsheet provides new information to the
subscriber, it is an information service for purposes of Tax Law section 1105(c)(1). Nevertheless, because the
information contained in the spreadsheets is specific to the subscriber and is not shared with others or used by XYZ for
any other purpose, it is personal or individual in nature, and thus excluded from the sales tax imposed by Tax Law
section 1105(c)(1). Calendaring deadlines and providing reminders to the parties involved in a transaction is not an
enumerated service for purposes of sales tax.
Tax Law section 1105(c)(9) imposes sales tax on information and entertainment services provided via
telephony or telegraphy or telephone or telegraph service of whatever nature. However, the tax imposed by that
section does not apply unless the underlying service would otherwise be subject to tax as an information service under
section 1105(c)(1). Because we conclude that XYZ’s services described above are not information services that are
subject to tax under Tax Law section 1105(c)(1), they are not subject to tax under section 1105(c)(9).
We further conclude that provision of the second product described above constitutes the sale of prewritten
computer software. Pre-written computer software is defined as tangible personal property subject to State and local
sales tax, “regardless of the medium by means of which the software is conveyed to a purchaser.” Tax Law
§1101(b)(6). The sale of pre-written computer software is subject to tax as the sale of tangible personal property. See
Tax Law §§1101 (b)(6); 1105(a). “Sale” is defined as “[a]ny transfer of title or possession or both, exchange or barter,
rental, lease or license to use or consume (including with respect to computer software, merely the right to reproduce)
or otherwise, in any manner or by any means whatsoever for a consideration, or any agreement therefor.” Tax Law
§1105(b)(5). Sales and Use Tax Regulation section 526.7 provides generally that “a sale is taxable at the place where
the tangible personal property or service is delivered or the point at which possession is transferred by the vendor to
the purchaser or his designee.” Regulation section 526.7(e)(4) further provides that a transfer of possession has
occurred if there is actual or constructive possession, or if there has been a transfer of “the right to use, or control, or
direct the use of tangible personal property.” The location of the code embodying the software is irrelevant, because
the software can be used just as effectively by the customer even though the customer never receives the code on a
tangible medium or by download.
The first product described above does not constitute the sale of pre-written computer software, because the
subscriber does not obtain constructive possession or the right to use or control the software. XYZ maintains control
over the software and inputs all of the information provided by the subscriber. However, with the second product, the
subscriber has the option of obtaining a data link to input all of its own information and to generate and obtain
spreadsheets and reports. This option, whether or not exercised, provides the subscriber with the right to control the
software sufficient to constitute a taxable sale. Although the sample contract between XYZ and its subscribers
provides that no license to use software is transferred to the purchaser, this characterization is not controlling. The

TSB-A-09(8)S
Sales Tax
February 2, 2009

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subscriber has the right to obtain a password that permits access to the platform and allows it to use and control the
software. Thus, provision of the second product described above is the sale of pre-written computer software and is
subject to tax when provided to a subscriber in New York. The situs of the sale for purposes of determining the proper
local tax rate and jurisdiction is the location of the subscriber or its agents or employees who use the software. If the
subscriber’s employees who use the software are located both in and out of New York State, XYZ must collect tax
based on the portion of the receipt attributable to the users located in New York. See TSB-A-03(5)S.

DATED: February 2, 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.