Which clinical-trial patient-recruitment services -- ads, call centers, tracking, site kits, translation -- are subject to NY sales tax?

Plain-English summary

The petitioner runs global patient recruitment and retention for clinical trials, mostly for drug and medical-device companies. It asked how sales tax applies to eight products/services. The Office of Counsel walked through each:

• Product 1 -- TV/radio ad production + website dev/hosting: not taxable. Copywriting, image selection, graphic design, and voiceovers aren't enumerated services, the ads are delivered electronically (no tangible property), and developing/operating a website isn't taxable -- and because the firm keeps exclusive control of the website, there's no transfer of prewritten software.
• Product 2 -- e-mail and direct-mail campaigns: nontaxable advertising service, but the firm's own purchases of tangible property to run the campaign are taxable if delivered to it in New York (20 NYCRR 527.3(c)(2) -- an ad agency's materials are bought at retail). The 1115(n) promotional-materials exemption doesn't apply, partly because the items aren't sent to the firm's own customers/prospects.
• Product 3 -- call centers: not taxable. The primary function -- staffing/operating a call center (nurses, clinical staff) to screen subjects and refer them to doctors -- isn't an enumerated service; the reports are incidental and not separately charged, so they don't make it taxable.
• Product 4 -- ARTS advertising-response tracking: not taxable. It's an information service, but excluded as personal/individual -- not from a common database, relates only to the one client, not furnished to others.
• Product 5 -- site-kit production: taxable TPP (NY portion). The printed site kits (posters, flyers, brochures, letters) are tangible personal property, so tax is due on kits delivered to New York sites (kits delivered out of state aren't taxed). The firm can buy the components for resale if it registers as a vendor and timely gives the subcontractor a resale certificate (1101(b)(3); 1132(c)(1)).
• Product 6 -- translation: taxable when tied to taxable property. Translation isn't an enumerated service, but an additional charge to translate materials that accompany taxable property (like the site kits) is part of the taxable charge for that property (Penfold v. State Tax Commn.).
• Product 7 -- SiteAssist reporting: not taxable. Another information service excluded as personal/individual.
• Product 8 -- TrialText text recruitment: not taxable, but the firm's purchase of mailing lists is a taxable information service if the lists are delivered or used in New York (1110(a)).

What this means for you

Patient-recruitment, marketing, and clinical-trial support firms

The services here -- producing ads, running advertising campaigns, staffing screening call centers, and confidential client-specific tracking/reporting -- are nontaxable (advertising and personal/individual information-service exclusions, plus electronic delivery). What gets taxed is the stuff: printed site kits are taxable property to the extent delivered in New York; your own materials to run direct-mail campaigns are taxable to you; and mailing lists are a taxable information service if delivered/used in New York. Watch the translation trap -- translation tied to taxable printed materials rides along as taxable. Register as a vendor so you can buy resale items with a resale certificate and collect tax on the kits.

Electronic delivery and "control" keep services nontaxable

Delivering ads and reports electronically avoids a taxable transfer of tangible property, and keeping exclusive control of a hosted website means no taxable transfer of prewritten software. Build your offerings so the value is the service, not a tangible deliverable.

Common questions

Q: Are our ad-production and advertising-campaign services taxable?
A: No -- they're nontaxable advertising services, and electronic delivery avoids any taxable transfer of property or software.

Q: Are the printed site kits taxable?
A: Yes, as tangible personal property, to the extent they're delivered to New York sites. You can buy the components for resale if you register and give a resale certificate.

Q: We add a charge to translate the site-kit materials -- is that taxable?
A: Yes. Translation tied to taxable property is part of the taxable charge for that property, even though translation by itself isn't an enumerated service.

Q: Do we owe tax on mailing lists we buy?
A: Yes -- a mailing list is a taxable information service if it's delivered or used in New York.

Citations and references

• Tax Law section 1105(a) (tax on retail sales of tangible personal property)
• Tax Law section 1105(c)(1) (information services; advertising and personal/individual exclusions)
• Tax Law section 1115(n) (promotional materials exemptions)
• Tax Law section 1101(b)(3); section 1132(c)(1) (resale; vendor registration)
• Tax Law section 1110(a) (use tax on information services used in NY)
• 20 NYCRR section 527.3(c)(2) (advertising agency purchases of materials taxable)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2012.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a12_11s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-12(11)S
Sales Tax
May 15, 2012

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

PETITION NO. S110628A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
Petitioner, name and address redacted. Petitioner asks whether the services it provides in relation
to clinical medical trials are subject to sales and use tax. We conclude that (1) Petitioner’s
charges for site kits and for conducting direct mail campaigns are subject to sales and use tax to
the extent that the tangible personal property involved is delivered to New York addresses; (2) its
additional charge for translation services in connection with the written materials used in the site
kits and the direct mail campaigns would be included in the taxable receipts for the kits and
direct mail campaigns and thus taxable; however, (3) Petitioner’s remaining charges are not
taxable.
Facts
Petitioner performs global patient recruitment and retention services, specializing in
patient outreach. Its clients are primarily medical drug companies and medical equipment supply
companies that want to recruit qualified patients to participate in a drug study that they are
administering to determine if the study medication or treatment is effective and to learn about
any side effects. Petitioner conducts advertising campaigns using (1) mass media advertising,
including television, radio, newspaper, direct mail and all forms of online advertising; and (2)
caller outreach. For example, the advertisements may solicit people who are suffering from a
disease or other medical condition.
The facts pertinent to specific questions raised in the Petition are set forth below.
Analysis
The Tax Law imposes sales and use tax on retail sales of tangible personal property and
the sale, except for resale, of certain services (see Tax Law § 1105[a], [c]). Among the
enumerated services subject to tax is 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. Excluded from that tax are advertising services and
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]; see also Tax Law § 1105[c][9]).

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We apply these principles to determine the taxability of the products offered by
Petitioner.
Product 1: Production and Distribution of TV/Radio Ads and Website Development and Hosting
Description: Petitioner professionally creates and outsources ads and websites on behalf
of pharmaceutical companies or medical equipment providers for the purpose of recruiting
patients for clinical trials. The ads and websites make consumers aware of the trial and
encourage them to call a toll-free number to see if they qualify to participate. Petitioner may
provide copywriting services, such as the preparation of scripts, or the client may provide the
copywriting. Similarly, Petitioner may provide image selection, graphic design and voiceovers.
These services do not involve the transfer of any tangible personal property. Petitioner also
assists in the distribution of the advertisements to radio and television stations. It sends the ads
electronically to stations. With regard to the production of websites, Petitioner, through a
business partner, develops the website and maintains exclusive control over it, including
performing all data encryption.
Analysis: In developing the ads, including performing copywriting, image selection, and
graphic design services, Petitioner is not performing a taxable service (see Tax Law § 1105[c]).
Because the ads are transferred to the customer or its designee electronically, the ad development
part of this product does not involve the sale of tangible personal property. Accordingly, the ad
development part of this product is not taxable. Developing and operating a website is not a
taxable service. Moreover, because Petitioner maintains exclusive control over the website, the
service of developing and operating the website also does not involve any transfer of prewritten
computer software, and thus is not subject to sales or use tax.
Product 2: Development and Conduct of E-mail and Direct Mail Campaigns
Description: To perform e-mail campaigns, Petitioner hires a subcontractor, which emails messages directly to e-mail addresses on an e-mail list that the subcontractor owns or has
obtained from a third-party. Petitioner sometimes obtains the content for the e-mail from the
client and sometimes develops the content itself or through a subcontractor. Petitioner and its
subcontractors assist in the formatting of the e-mail but leave the final decision to the client.
With regard to direct mail campaigns, Petitioner develops the mechanicals and provides any
necessary copywriting, image selection or graphic design services, sending any mechanicals of
the correspondence to a subcontractor electronically. The subcontractor prepares the direct mail
pieces and mails them to the client’s designees.
Analysis: The conduct of the e-mail campaign is not taxable because it qualifies for Tax
Law section 1105(c)(1)’s exclusion for advertising services. Petitioner’s service of conducting a
direct mail campaign is also exempt as an advertising service (Tax Law § 1105[c][1]; TSB-A88(39)S). However, Petitioner’s purchases of tangible personal property in conducting that
campaign are taxable if the property is delivered to Petitioner in New York (Tax Law § 1105[a];
20 NYCRR § 527.3[c][2][“All purchases of materials by an advertising agency for use in

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Sales Tax
May 15, 2012

performing its services are purchases at retail subject to sales tax.”]). The promotional material
exemptions in Tax Law section 1115(n) do not apply to Petitioner’s purchases of the direct mail
items, because, among other reasons, those items are not being sent to Petitioner’s customers or
prospective customers.
Product 3: Operation of Call Centers
Description: Petitioner offers, through a third-party contractor, full call center services.
Petitioner’s call centers are staffed by nurses (registered nurses and licensed practical nurses) and
other clinical-degreed professionals. The call centers screen potential study subjects using a
script that has been approved by an Institutional Review Board (IRB).1 Via fax or email,
potentially qualified patients are referred to the nearest participating doctor’s office (“site”),
where they can be examined to determine whether they qualify to participate in the trial. Sites
are then responsible to follow up with the patient to schedule appointments. Petitioner provides
each media outlet (e.g., a radio or television station or publication) in each advertising market a
separate toll free number to identify where a caller encountered the advertisement. All call
center activity is displayed in real-time for Petitioner to view and use as a guide for media
management. Clients can log-in to Petitioner’s online reporting portal to review results in realtime. The sites communicate with Petitioner’s clients by telephone, as well as by sending and
receiving e-mails.
Analysis: The primary function of this service is the staffing and operation of a call
center to screen subjects and refer appropriate candidates to doctors' offices, which is not one of
the enumerated services that are subject to sales tax. While the service also provides reports to
the client, because there is no separate charge for that aspect of the service and that aspect is
incidental to the service’s primary function, the presence of those reports does not render the
service taxable.
Product 4: Advertising Response Tracking System (“ARTS” or “the Service”)
Description: Sometimes clients opt to use their own or a third-party’s technology to track
calls generated by an advertising campaign. ARTS is a program that allows the client to monitor
the effectiveness of media campaigns. For each site, a separate toll free telephone number is
assigned to each medium. The Service tracks the calls going in to each site, thus making sites
accountable for the potential patients they receive from advertising. The Service also tracks the
in-coming phone calls back to the advertising source. After the Service collects information, it
electronically supplies the information to Petitioner’s clients. Petitioner provides toll-free or
local area code numbers (provided by a third party vendor) to its clients to be included in all ad

1

An IRB is a committee that has been formally designated to approve, monitor, and review biomedical and
behavioral research involving humans with the aim to protect the rights and welfare of the research subjects. In the
United States, IRBs are governed by Part 46 of Title 45 of the Code of Federal Regulations. IRBs are themselves
regulated by the Office for Human Research Protections (OHRP) within the Department of Health and Human
Services.

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materials. Petitioner treats the information obtained through the Service as confidential and does
not share it with anybody but the Client.
Analysis: This service constitutes an information service, but it is not taxable because it
qualifies for the “personal or individual exclusion” in Tax Law § 1105(c)(1), since the
information is not drawn from a common database, relates only to a particular client, and may
not be furnished to anyone other than the customer to whom it relates.
Product 5: Site Kit Production
Description: Petitioner creates and produces site kit materials for its clients for use at the
sites. Sites utilize these materials to recruit patients from their practice and retain them
throughout the duration of the study. A site kit may include items such as posters, flyers,
brochures, letters to patients, letters to colleagues, appointment reminders etc. For all materials,
Petitioner provides the following: copywriting, selection, graphic design, printing, fulfillment,
and shipping. In no case does Petitioner collect any fees from the operators of the sites.
Petitioner prepares the mechanicals and other source materials and contracts with a subcontractor
to have the materials printed, assembled, and mailed out.
Analysis: Because the kits are tangible personal property, sales and use tax would be due
based on the number of kits delivered to sites with New York addresses. To the extent that the
kits are delivered to sites outside the State, Petitioner’s charge for the kit is not subject to New
York sales and use tax. Petitioner’s purchases of the tangible personal property to be included in
the site kit materials from the subcontractor qualify for the resale exclusion if it timely provides
the subcontractor with a resale certificate (Tax Law §§ 1101[b][3]; 1105[a]). To issue a resale
certificate Petitioner must register as a vendor required to collect sales tax (see Tax Law §
1132[c][1]).
Product 6: Translation
Description: Petitioner offers translation services for all the printed materials included in
the products discussed above. Petitioner can have materials translated into any language, while
adjusting copy for cultural relevancy. Petitioner provides clients with a full translation certificate
upon completion. The translations are always transferred electronically.
Analysis: While translation services are not among the enumerated services subject to tax
(Tax Law § 1105[c]), an additional charge for translation services made in relation to any
tangible personal property that Petitioner is selling to its clients, such as the site kits, is
considered part of the charge for those items of tangible personal property and would be subject
to sales and use tax (see Matter of Penfold v. State Tax Commn., 114 AD2d 696 [1985]).

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May 15, 2012

Product 7: SiteAssist™
Description: Petitioner works directly with sites to gather information regarding the
success of their recruitment efforts, via telephone, fax, e-mail and text, and the use of customized
questionnaires produced by Petitioner in-house. Petitioner sends weekly reports to the client
electronically. Petitioner keeps the reports confidential and does not incorporate any part of the
reports sent to one client into the reports going to any other client.
Analysis: This is an information service, but it is not taxable because it qualifies for the
personal or individual exclusion in Tax Law § 1105(c)(1), since the information is not drawn
from a common database, relates only to a particular client, and may not be furnished to anyone
else.
Product 8: TrialText™
Description: Petitioner recruits and retains patients through cell phone text messaging in
any language. It may provide the script for the message or the client may provide it with the
script. Petitioner may purchase lists (all electronic) of opt-in potential patients for recruitment.
As part of this service, Petitioner may also supply study patients with appointment or, “take
medication” reminders.
Analysis: This service is not taxable, but Petitioner’s purchase of mailing lists would be
subject to sales or use tax as an information service if the lists are delivered or used in New York
(Tax Law § 1105[c]; 1110[a][C]; TSB-M-10(7)S, Sales and Compensating Use Tax Treatment of
Certain Information Services).

DATED: May 15, 2012

NOTE:

/S/
DEBORAH R. LIEBMAN
Deputy 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. The information provided in this document does
not cover every situation and is not intended to replace the law or change its meaning.