If an association buys information services it both uses itself and resells to its members, how is NY sales tax applied?

Plain-English summary

The petitioner is the national office of a federation of membership-based motor clubs. It negotiates national contracts and buys geographic/demographic data (vendor Y) and mapping data (vendor X). It uses some of the data itself and passes some through to member clubs, splitting the vendors' bills and collecting the members' shares. The question: who owes sales tax, and on what?

The framework:
- The data are taxable information services under Tax Law 1105(c)(1) (collecting, compiling, or analyzing information and furnishing reports).
- A purchase of an information service that the buyer will resell as such is exempt under the resale exclusion (20 NYCRR 527.3(c)(3)).

The Office of Counsel concluded the association is taxed both as a purchaser and as a vendor:

• As purchaser/end user. For data it uses in its own business, the association is the end user and owes NY sales tax on the charges X and Y bill for information delivered to it in New York.
• As vendor/reseller. For data the member clubs use and pay the association for, the association is reselling the information and must collect sales tax from the member clubs on information delivered in New York. A contract clause barring resale doesn't prevent a resale for tax purposes -- and here the contracts contemplate member-club use anyway, so the point is moot.
• Resale certificate only if purchases are exclusively for resale. If the vendor's bill doesn't break out the association's own-use charges from the resold charges, the association can't issue a resale certificate (its purchase isn't exclusively for resale; cf. Time Warner Center, TSB-A-2006(6)C/(23)S). It must pay tax on all purchases, then take a refund or credit for the transactions that result solely in resale. If the bill does separately and reasonably state the resale-only charges, the association can issue a resale certificate for those.
• Agency. The association avoids being a reseller only if it's the members' purchasing agent or the sole retail purchaser. Nothing showed an agency; and even an undisclosed agent and its principal are both liable for the tax (Peat Marwick, TSB-A-1989(1)S).

What this means for you

Associations, buying groups, and pass-through purchasers

When you buy a taxable service and both consume part and resell part, you're on the hook twice -- use tax on what you consume, collection duty on what you resell. To use a resale certificate, the purchase must be exclusively for resale; a blended bill defeats it. Ask the vendor to separately state the resale-only portion, or pay the tax and reclaim a credit/refund for the resold share.

Members buying through a central office

Expect sales tax from the central office on information services delivered to you in New York. A no-resale clause in the upstream contract doesn't change the tax result.

Common questions

Q: I buy data and use some, resell some -- can I just give a resale certificate?
A: Only if the purchase is exclusively for resale. If the bill mixes your own-use and resale charges, you can't; pay the tax and claim a credit/refund for the resold portion, or get the vendor to separately state the resale charges.

Q: Our vendor contract prohibits resale. Does that mean we aren't reselling for tax purposes?
A: No. You can resell a service for sales-tax purposes even if a supplier contract bars it. The economics, not the clause, control.

Q: What if we're really just the members' agent?
A: You're not a reseller only if you're the members' purchasing agent or the sole retail purchaser. Even an undisclosed agent and its principal are both liable for the tax, so document any true agency carefully.

Citations and references

• Tax Law section 1105(c)(1) (tax on information services)
• 20 NYCRR section 527.3(c)(3) (resale exclusion for information services resold as such)
• TSB-A-1989(1)S (Peat Marwick: undisclosed agent and principal both liable)
• TSB-A-2006(6)C / TSB-A-2006(23)S (Time Warner Center: resale certificate requires purchase exclusively for resale)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2010.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a10_54s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-10(54)S
Sales Tax
November 1, 2010

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S100209A

On February 9, 2010 the Department of Taxation and Finance received a Petition for Advisory
Opinion from name and address redacted. Petitioner asks whether it owes sales or use tax on products
purchased from unrelated third party vendors.
We conclude that Petitioner owes sales tax as purchaser when it pays for the products that it uses and
owes sales tax as vendor on its receipts for the sale of these products, which are taxable as information
services.
Facts
Petitioner serves as the national office for the name redacted (Association), an association of
membership-based motor clubs serving different geographic areas throughout the United States and Canada.
Motor clubs that are admitted to the Association are granted the right to use Association’s name redacted
acronym in their name, as well as the Association’s logo on marketing material. Club membership in the
Association does not, however, create any form of shared ownership or shared liability. Petitioner is a
separate entity from the member clubs for both legal and tax purposes. Petitioner has an office in New York
State.
Due to its bargaining power, Petitioner often negotiates contracts on a national basis for the benefit
of both itself and member clubs. In certain circumstances, these national contracts are set up such that
Petitioner acts as a conduit between vendors and member clubs: vendors will issue one invoice to Petitioner
for goods or services provided to both Petitioner and the member clubs. Petitioner in turn splits the total
billed amount among itself and the member clubs that are parties to the contract in question. Petitioner’s
income statement records the amounts Petitioner pays X and Y for goods or services it consumes, but it does
not record as income or expense the amounts Petitioner receives from club members or the amounts it pays X
and Y for goods or services club members consume. The amounts billed to Petitioner for goods or services
provided to member clubs are recorded in a balance sheet holding account until paid by the member clubs.
Petitioner has a written contract with Y, which sells geographic and demographic data that are used
for direct marketing purposes. The written contract lists Petitioner as the client. Section 6.1 of the contract
states that the license to use the data extends to Petitioner for use for and on behalf of member clubs. Section
6.4 of the contract prohibits Petitioner from reselling the information provided except as provided in section
6.1 of the contract. The contract acknowledges that member clubs may use the data furnished by Y: “Client
agrees to uses its best efforts to provide [Y] with a copy of any direct mail solicitations, telephone scripts, ad
copy or other communications to be used in connection with the [Y] data, from any Association club as
available….”

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TSB-A-10(54)S
Sales Tax
November 1, 2010

The Y contract states that it covers all transactions in which Y provides any data or information
services to Petitioner. The contract grants Petitioner a nonexclusive and non-transferable license to use Y
data. The contract gives no indication that Y is providing Petitioner with a license to use software.
Petitioner has a written contract with X to provide mapping data that is used by Petitioner in various
applications, and by member clubs in their radio assistance dispatch services centers. Section 2.1 of the
contract states that “Subject to the restrictions set forth in Addendum A and elsewhere in this Agreement,
…[X] hereby grants [Petitioner] a non-exclusive, non-transferable, non-sublicensable…license to use the
Data…..” Section 2.4 states that Petitioner “shall cause each End-User to assent to end-user terms provided
in …[an agreement by X], or equivalent terms that are no less protective of …[X] (‘End User terms’), in such
a manner that the End User Terms be enforceable against the End User.” End User is defined in the contract
as “any entity or person who receives or uses a copy of all or any portion of the Data or information
contained therein or derived therefrom for personal use in an Application with no right to copy, sublicense or
loan the same.”
X delivers the mapping data to Petitioner in a computer readable medium.
Analysis
Tax Law section 1105(c)(1) imposes sales tax on the receipts for the service of furnishing
information by printed matter, including the services of collecting, compiling or analyzing information of
any kind or nature and furnishing reports thereof to other persons. 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 exempt from the sales tax. 20 NYCRR 527.3(c)(3).
X and Y are providing written information services to Petitioner. Petitioner is both the end user of
information services and the vendor of information services to the member clubs. Petitioner is the end user
of information services as to information it uses in its own business. If X and Y delivers to New York the
information that Petitioner uses, Petitioner owes New York sales tax on the charges billed by X and Y for
this information.
Petitioner is reselling information furnished by X or Y that is used by member clubs when the
member clubs pay Petitioner for the information. A person may resell a product for purposes of sales tax
even though a contract with a third party such as a supplier prohibits a resale of the product. This legal point
is moot in regard to Petitioner’s contracts with X or Y because these contracts explicitly contemplate that the
information will be used by the member clubs and implicitly acknowledge that Petitioner will receive
payments from member clubs for information furnished them. The contracts thus do not preclude a resale for
sales tax purposes of the information services provided by X or Y.
Petitioner, which has an office in New York State, will, as a vendor, be required to collect sales tax
from member clubs on the payments they make to Petitioner for the delivery in New York of X or Y
information. When Petitioner does make a purchase from X and Y for resale, Petitioner’s purchase of those

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TSB-A-10(54)S
Sales Tax
November 1, 2010

services will qualify for the resale exclusion even though club members furnish the monies used by
Petitioner to pay the vendors for the resold services.
Petitioner can avoid being the reseller of the information services furnished by X or Y only if it is
acting as purchasing agent for the member clubs or if it is the sole retail purchaser of the services. Nothing
in Petitioner’s contracts with X and Y indicates that Petitioner was acting as agent of the member clubs. If
Petitioner were acting as undisclosed agent of the member clubs, it would still be required to pay sales tax
on all taxable purchases because both an undisclosed agent and its principal are liable for sales tax in that
scenario. See Peat Marwick Main and Co., Adv Op Comm T&F, August 25, 2006, TSB-A-1989(1)S. And
if Petitioner is not entitled to a payment or reimbursement from a member club for X or Y information used
by the members, Petitioner would not be reselling the information service or acting as agent and would, as
the retail purchaser of services, owe New York sales tax on payments it makes to X or Y on the information
delivered in New York to the member club.
If Petitioner receives a bill from X or Y that does not break out the charges for services that
Petitioner consumes from the charges for services that it resells, Petitioner will not be entitled to issue a
resale certificate to X or Y for the information services it purchases from these vendors because its purchases
are not exclusively for resale. Cf , Board of Managers of the Time Warner Center Condominium and the
Unit Owners, Adv Op Comm T&F, August 25, 2006, TSB-A-2006(6)C, TSB-A-2006(23)S. It must pay
sales tax on all purchases from X or Y, but will be entitled to a refund or credit for sales tax paid to these
vendors on all transactions that result solely in resale, rather than Petitioner’s own use, of the information
services. If the bill from X or Y does break out separate and reasonable charges for services that Petitioner
purchases exclusively for resale, Petitioner will be entitled to issue a resale certificate to the vendor and will
not be required to pay sales tax on charges for the services that are purchased exclusively for resale.

DATED: November 1, 2010

NOTE:

/S/
DANIEL SMIRLOCK
Deputy Commissioner & 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.