Is a service that gathers, stores, and reports a customer's own data a taxable information service in NY?

Plain-English summary

The petitioner (Australia-based, no NY offices) provides business-analytics services: it gathers and maps a customer's data from the customer's own systems (payroll, HR, finance), stores it in a confidential online data warehouse unique to that customer, and lets the customer build customizable reports (within predefined fields) via a web portal. It wrote its own proprietary software to pull/integrate/analyze the data and does not sell or license it. It also offers, at no extra charge, a de minimis amount of benchmark statistics (from public sources or industry averages) the customer may optionally include for comparison -- the customer cannot see the raw data behind a benchmark. It asked three questions about taxability.

The Office of Counsel's conclusions:

1. The core service is an exempt personal/individual information service. Gathering, mapping, storing, and report-generating from the customer's data is an information service under Tax Law 1105(c)(1), because it adds to the "intelligence" in the original data (ADP Automotive Claims). But it is excluded as personal/individual: the reports consist solely of that customer's own data, are made available only to that customer, and the provider may not furnish them to anyone else.

2. The de minimis free benchmarks don't make it taxable. Offering optional, de minimis, no-charge benchmark statistics -- with no customer access to the raw data behind them -- does not tax the service. But if the benchmark data were not de minimis, or the raw data were made available, or the provider separately charged for a benchmark, the entire charge would be taxable.

3. Software isn't separately taxed. The provider's own use of the proprietary software is not taxable -- it wrote the software and didn't purchase it (Tax Law 1110(a)). And the customer's limited ability to customize reports within set parameters, while it has some attributes of using software, is a single aspect integrally related to the overall service, so the transaction is the sale of an information service, not prewritten software.

What this means for you

Analytics, reporting, and data-warehouse providers

Turning a customer's own data into reports for that customer alone is generally an exempt personal/individual information service in NY -- keep the work product confined to the one customer and don't furnish it to others. Guard the edges: incidental, free, de minimis benchmarks are fine, but don't expose the raw benchmark data, don't let benchmark content grow beyond de minimis, and don't separately charge for it -- any of those can make the whole charge taxable. Self-written software you use to deliver the service isn't taxed, and giving customers bounded report-customization doesn't convert the deal into a taxable software sale.

Common questions

Q: We turn our customer's own data into reports -- taxable information service?
A: It's an information service, but excluded as personal/individual when the reports use only that customer's data, go only to it, and aren't furnished to others.

Q: We add free public benchmark stats -- does that tax the whole thing?
A: Not if they're de minimis, free, and the customer can't see the raw data. Otherwise (more than de minimis, raw data shown, or separately charged), the entire charge becomes taxable.

Q: Is our software taxable, or the customer's report customization?
A: No. You wrote the software (so your use isn't taxed), and the customer's bounded customization is integral to the information service, not a separate software sale.

Citations and references

• Tax Law section 1105(c)(1) (information services; personal/individual exclusion)
• Tax Law section 1105(a) (sales tax on tangible personal property)
• Tax Law section 1110(a) (compensating use tax)

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_24s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-12(24)S
Sales Tax
September 27, 2012

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S101112B

The Department of Taxation and Finance received a Petition for Advisory Opinion from
name redacted (Petitioner), address redacted. Petitioner asks the following questions.
1.

Do Petitioner’s services of gathering and mapping data from a customer's data systems and
public sources, storing it in a confidential online data warehouse, and using the data to create
customizable reports for that customer constitute a taxable information service when the
reports are based substantially on the customer's original data that is confidential and
personal to each customer, and the reports are returned solely to the customer and not sold or
marketed to third parties?

2.

Does the availability of the incidental public- and private-source benchmarking statistics to
the customer cause the entire online service to become a taxable information service when
the primary purpose or function of the service is to provide its customers the ability to
access and manipulate information that is personal or individual to the customer (i.e., the
customer's own data that is mapped and imported into Petitioner’s proprietary software
database)?

3.

Is the specialized software that Petitioner uses to pull, integrate, and analyze the data from a
customer's various systems subject to New York sales tax when Petitioner uses that software
in the provision of its service and does not sell or license the software to its customers?

We conclude that Petitioner’s services of gathering and storing its customers’ data, and
using the data to prepare customized reports for its customers, as described below, are information
services excluded from tax. The optional availability and inclusion, for no charge, of some publicly
available data in those nontaxable reports does not make Petitioner’s service taxable, so long as
such data is de minimis and consists solely of benchmark statistics prepared by Petitioner and does
not include any of the supporting or background data that Petitioner used to prepare the benchmarks
and the customer does not have access to any of that supporting or background data. Petitioner’s
own use of its specialized software is not subject to tax, since it is not prewritten software. The
customer’s limited use of Petitioner’s software to customize reports within Petitioner’s parameters
is integrally related to the overall information service provided by Petitioner, and does not constitute
a separate sale of prewritten computer software.
Facts
Petitioner presented the following facts with its petition and in subsequent telephone calls on
January 28, April 14, November 4, 2011, and August 9, 2012. Petitioner is a corporation based in

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September 27, 2012

Australia. It has no offices in New York State. Some of Petitioner’s employees come into
New York for sales purposes.
Petitioner is in the business of providing business analytics services to its customers over the
Internet by allowing each customer to access and view its own data through customizable reports
via an online web portal. Petitioner is hired to gather data from a customer’s systems (i.e., payroll,
human resources, etc.) and then integrate the customer’s data so that the customer can review and
analyze the combined data through customizable reports. These reports are formatted based on the
customer’s requested criteria; consequently, a customer may, within Petitioner’s parameters,
customize a report to identify areas of improvement, view results of a business decision, or propose
a strategic direction. Any customization by a customer is limited to predefined fields set by
Petitioner. Petitioner itself wrote the specialized, proprietary software that it uses to pull, integrate,
and analyze the data from a customer’s various systems. Petitioner does not license or sell this
proprietary software to anyone. Petitioner never transfers its proprietary software into New York.
A customer cannot download Petitioner’s software to the customer’s servers. If the Internet is not
working, a customer cannot access the customer’s information or reports on Petitioner’s servers.
In a typical transaction, Petitioner will map data from a customer’s various accounting,
finance, and human resource systems to certain fields within its proprietary software. For example,
if the customer uses a traditional platform (e.g., Oracle), then Petitioner will map specified data
fields to a pre-established template in Petitioner’s proprietary software. If the customer uses a nontraditional platform, mapping may require additional professional services time to set up the data
flow and connection. The customer’s data is stored in an online data warehouse for that specific
customer, from which the data can be accessed in order to create reports, models, or other analytics.
Each customer has a unique online data warehouse that stores only its gathered data. A customer
cannot access the data warehouse of another customer. Every month the customer requests
Petitioner to refresh the data warehouse by “pulling” additional data feeds from the customer’s
systems. Petitioner’s on-line data warehouse that stores its customers’ data and reports is located in
Australia or Canada. Customers cannot download the reports that Petitioner has created and made
available for them on its servers. Rather, a customer can only download the data in the report, and
such downloaded data may be viewable in a program such as Microsoft Excel if the customer has
such software on its own computers.
As a relatively small part of its business, Petitioner also incorporates a de minimis amount of
data from public sources (e.g., labor statistics) and average industry statistics to provide customers
with the option of comparing their data to a benchmark. Petitioner creates these benchmarks itself
from public source information, such as unemployment rates, or from data it obtains from its
customers. A customer cannot see any of the raw data that Petitioner used to create any benchmark.
Customers may choose to include this benchmark information within the customizable reports.
Once Petitioner captures the public-source data (that is, a benchmark) and adds it to a customer’s
online data warehouse, the benchmark remains confidential to that customer. Moreover, the only
value of such information to the customer is the individual comparison it provides against the
customer’s own data. Petitioner does not charge its customers for any of the benchmarks it provides
them. That is, a customer that opts for benchmarks to be included in its reports pays the same fee to
Petitioner that it would pay if it had not asked for any benchmarks to be included.

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The customer itself is able to access its data warehouse to create reports, models, or other
analytics. Petitioner provides pre-formed reports that the customer can use to view its data, but
Petitioner also teaches the customer how to build reports so the customer can incorporate only the
data fields it wants. A customer’s reports are only made available to, and viewable to, that
customer because of the confidential nature of the customer’s data. Petitioner does not provide any
data or report of one customer to any other customer, though Petitioner does use data from its
customers to create benchmarks that are made available to its customers. Neither the customer nor
Petitioner sells or markets the original data or the reports.
Petitioner charges its customers for the training and consulting services of teaching them
how to build customizable reports. Generally, all of Petitioner’s customers purchase these training
services, though they are not required to purchase them. Petitioner’s charges for these training
services are stated separately from its charges for its data gathering, mapping, and storage service.
Analysis
1.

Petitioner’s services of gathering data from its customer’s data systems, mapping that data,
and storing it in a confidential online data warehouse on Petitioner’s servers, and using the
data to create customizable reports based on its proprietary software and which the customer
can access via the Internet, together constitute an information service under section
1105(c)(1) of the Tax Law, because Petitioner adds to the “intelligence” contained in the
original data by mapping and organizing it in new ways and presenting the data in custom
reports according to the parameters of Petitioner’s software program. See ADP Automotive
Claims Services, Inc. v. Tax Appeals Tribunal, 188 AD2d 245 (3d Dep’t 1993).
By themselves, Petitioner’s gathering, mapping, storing, and report generating services
relate to an individual customer’s own data. Together, Petitioner’s activities constitute an
information service that would be excluded from the sales tax imposed by Tax Law section
1105(c)(1), because the reports prepared by Petitioner (and customizable by its customer)
consist of data obtained solely from that customer, and Petitioner makes those reports
available solely to that customer, and Petitioners may not include that customer’s data in
reports furnished to other persons. Thus, Petitioner’s information service is personal and
individual to the customer and Petitioner does not, and cannot, under its agreement with its
customer, furnish the information or reports to anyone else.

2.

The facts that (1) Petitioner makes available incidental benchmarking statistics to its
customer, and (2) the customer can elect to have, or not have, such statistics included in the
reports that Petitioner prepares for its customer do not make Petitioner’s charges to its
customer for its information service taxable, because the amount of such benchmarking
statistics included in a customer’s reports is de minimis, the customer is not provided access
to any of the raw data used to create a benchmark, and Petitioner does not charge its
customer for those incidental benchmark statistics. If the amount of such information were
not de minimis, or if Petitioner made the raw data used to create a benchmark available to
the customer, Petitioner’s entire charges for its information service would be taxable. In

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addition, if Petitioner were to make a separate charge to its customer for a benchmark, that
charge would be taxable.
3.

Petitioner’s own use of its specialized software that it uses to pull, integrate, and analyze
data from its customer's various systems is not subject to New York sales or compensating
use tax, because Petitioner did not purchase it; rather it wrote the software itself. See, Tax
Law section 1110(a)(A). Although Petitioner asserts that it does not sell or transfer the
software to its customers, the ability for its customer to customize the reports has some
attributes of the use of Petitioner’s software by the customer in New York, and thus could be
considered a sale by Petitioner of its software to the customer. However, because the
customer’s use of the software is limited to parameters set by Petitioner and is a single
aspect of a more comprehensive service, and this aspect is integrally related to the overall
service provided by Petitioner, we conclude that Petitioner’s transaction with its customers
as described above constitutes the sale of an information service, and not the sale of
prewritten computer software. Thus, Petitioner’s charges to its customers for its data
gathering, mapping, and storing service, as described above, will be treated solely as the sale
of an information service that is excluded from tax, as described, and not as a sale of
software.

DATED: September 27, 2012

NOTE:

/S/
DEBORAH 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.