Is a service that processes and submits a medical provider's own Medicare quality-reporting data to CMS a taxable NY information service?

Plain-English summary

The petitioner runs a data processing and warehousing platform (hardware/software located outside New York) that helps medical providers comply with Medicare's quality-reporting program (PQRI) to earn incentive payments. It collects each provider's clinical data, validates and formats it, runs it through proprietary software to find which providers/data meet CMS eligibility, stores it, and submits the eligible data to CMS. Customers submit data two ways -- Enterprise (they send an extract or the petitioner queries their system) or Self Service (they manually enter data on the petitioner's website). The provider's data is confidential and not shared with any other customer, and customers never access the platform or license the software. It asked whether the fees are taxable.

The Office of Counsel concluded not taxable under both methods:

• It is an information service... Tax Law 1105(c)(1) taxes collecting/compiling/analyzing information and furnishing reports. The petitioner does more than reformat -- it validates the data, converts it into a CMS-ready file, and flags data needing work, adding "intelligence" (ADP). So it's an information service.
• ...but excluded as personal/individual. The exclusion covers information personal or individual in nature not substantially incorporated into reports furnished to others. The petitioner organizes/analyzes the customer's own data and provides the result to no one but CMS; submitting to CMS doesn't make it shared with others. So the Enterprise Data Analysis and Submission fees are not taxable.
• Self Service = same result. The only difference is how the data reaches the petitioner; once received, the same analysis with the same added intelligence is done, and the customer never directly accesses the platform/software. So the Self Service fee is likewise a personal/individual information service -- not taxable.

What this means for you

Data-processing, compliance, and reporting services

Analyzing and submitting a single client's own confidential data -- and not sharing the analysis with anyone else -- is a personal/individual information service that's excluded from New York sales tax, even though analyzing data is generally a taxable information service. Submitting to a third party like a government agency on the client's behalf doesn't break the exclusion.

Don't let delivery method confuse the analysis

Whether the client sends you a file or types data into your portal, the taxability turns on the service you provide, not the input channel. If the client never gets a license or platform access, you're selling a service, not software.

Common questions

Q: Isn't analyzing data always a taxable information service?
A: It's an information service, but it's excluded when the information is personal/individual -- built from one client's own data and not furnished to others.

Q: Does submitting the data to CMS make it taxable?
A: No. Submitting the client's own data to CMS on its behalf isn't furnishing the analysis to others, so the exclusion still applies.

Q: Does it matter that customers use a self-service website?
A: No. The analysis is the same and customers never access the platform/software, so the self-service fee is treated the same -- not taxable.

Citations and references

• Tax Law section 1105(c)(1) (information services; personal/individual exclusion)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2013.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a13_24s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-13(24)S
Sales Tax
September 9, 2013

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S111109A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
name redacted. Petitioner asks whether certain data processing and data warehousing services are
subject to State and local sales and use tax. We conclude that the services provided by Petitioner
are not subject to sales and use tax.
Facts
Petitioner recently purchased another business that provides data processing and data
warehousing services to aid in compliance with the requirements of the Federal government’s
Centers for Medicare & Medicaid Services’ (“CMS”) program called Physical Quality Reporting
Initiative (“PQRI”). As part of PQRI, an incentive payment is made to medical professionals (the
“Customers” of the Petitioner) that successfully report required data.
Petitioner has a computer platform which simplifies and automates the process for its
Customers to meet the PQRI requirements. The platform is comprised of hardware and software
located outside New York State. The platform collects data from Customers and stores the data
until the appropriate CMS submission date. Petitioner then submits eligible data to CMS via a
computer file for its Customer to qualify for the incentive payment.
The Customer can submit data to Petitioner by one of two methods, either PQRI Enterprise
or PQRI Self Service. Petitioner represents that the information provided for the PQRI filing is
confidential in nature to its Customer and is not shared with or sold to another Customer.
Under the PQRI Enterprise method, the Customer provides Petitioner with either a file
extract of the Customer’s clinical data or Petitioner can query the Customer’s system and pull out
any data needed. In both cases, Petitioner’s personnel validate and format the data to be loaded
onto Petitioner’s platform. Petitioner runs the data through its proprietary software program to
determine what data meets the CMS eligibility criteria. Petitioner then provides Customer with a
data file listing which of the Customer’s providers are eligible for the CMS incentive payment
(“Eligible Data File”). Petitioner charges its Customer a non-refundable fee (“Data Analysis Fee”).
If the Customer approves the submission of the Eligible Data File, the Customer is then charged a
fee (“Submission Fee”) based on the number of providers in the Eligible Data File.
The Eligible Data File is then stored on Petitioner’s platform until the CMS Submission date
at which time Petitioner sends the computer file to CMS. CMS then reviews the data and processes
incentive payments for the Customer’s eligible providers. Petitioner does not receive any
information or payment from CMS as the incentive payments are paid directly from CMS to the
Customer.

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Sales Tax
September 9, 2013

The second method of submission of data by the Customer to the Petitioner is via the
Petitioner’s self-service website. This method requires the Customer to manually enter any needed
data for submission to CMS. The server used by the website is located outside the State of
New York and consists of hardware and software developed by Petitioner. The Customer selects a
measure group approved by CMS to report (e.g., Back Pain, Coronary Artery Disease, Preventive
Care). The Customer enters answers to four to ten questions as determined by CMS from its
records for 30 patients per selected measure group.
The Customer’s entries into the website are maintained in a “holding area” by the Petitioner
until Petitioner reviews the data inputted. Petitioner reviews the data via its data processing service
using proprietary evaluation software to determine what data is eligible for submission to CMS. If
there is data which needs more information, Petitioner returns the data to the holding area and
emails the Customer to correct the data. Corrections are done by the Customer and returned to the
holding area for Petitioner’s review. This back and forth process continues until the data is
satisfactory for submission. Once Petitioner determines that the data is ready for submission,
Petitioner moves the data to a platform for storage until the CMS Submission date. The Customer
does not have access to the platform or any data stored on the platform.
The Customer is charged a one-time fee to utilize this service at the time of initial
submission (“Self Service Fee”). At the CMS Submission date, Petitioner sends a data file to CMS.
CMS reviews and provides the incentive payment to the Customer. Neither the Customer nor CMS
have access or rights to use the platform as access to the platform is restricted to Petitioner.
Under the agreement between Petitioner and the Customer, the Customer does not have a
license for the software. The Customer enters into a Services and Fees Schedule (“SAFS”) as well
as a Statement of Work detailing the services to be performed. Based on the Terms and Conditions
referenced in the SAFS, the Customer acknowledges that Petitioner retains title, exclusive
ownership rights and all intellectual property and other rights and interests in the platform and
associated software. The Customer could not directly or indirectly sell, license or otherwise
provide any part of the platform, nor could they decompile, disassemble or reverse engineer any
component of the platform.
Analysis
Tax Law § 1105(c)(1) imposes tax on the receipts from the sale, except for resale, of the
service of:
[F]urnishing 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 or may not be substantially
incorporated in reports furnished to other persons…
Under the first method, the PQRI Enterprise, Petitioner’s customers are being charged a
Data Analysis fee and a Submission fee. We conclude that Petitioner’s PQRI Enterprise service is

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Sales Tax
September 9, 2013

an information service because it includes analyzing and compiling customer information.
Petitioner’s service does more than merely recast or reformat the Customer’s information. For
example, Petitioner validates the information, converts it into a data file suitable for submission to
CMS and returns data which needs additional work. This analysis adds to “intelligence” contained
in the original documents, and therefore constitutes an information service. See ADP Automotive
Claims Services, Inc. v. Tax Appeals Tribunal, 188 AD2d 245 (3d Dep’t 1993). However, we
further conclude that Petitioner’s service is excluded from the tax on information services because it
is personal or individual in nature. Petitioner organizes and analyzes the Customer’s own
information and does not provide the original documents, or the analysis, compilation, or
organization, to any party other than CMS. In this context, the submission to CMS does not change
this result, because neither Petitioner nor the Customer is providing the information furnished by
Petitioner (i.e., the added intelligence or validation provided by Petitioner) to others or
incorporating the same into reports furnished to others. Based on the foregoing, Petitioner’s Data
Analysis and Submission fees under the Enterprise method are not subject to New York State and
local sales tax.
Under the second method, the PQRI Self Service, Petitioner’s Customer is being charged a
Self Service fee. The only difference between the PQRI Self Service and the PQRI Enterprise
services is how the information is provided to the Petitioner. Once the information is provided to
the Petitioner, the same analysis is done by Petitioner to the information with the same
“intelligence” added. In both cases, Petitioner provides the same service. We find the distinction of
how the information is initially transmitted to Petitioner insufficient to warrant a different
conclusion. In neither method does the customer directly access Petitioner’s platform or software.
Accordingly, we conclude that Petitioner’s Self Service fee is a charge for a personal or individual
information service that is not subject to New York State and local sales tax.

DATED: September 9, 2013

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.