Is a credit rating service subject to NY State sales tax or NYC sales tax, and where is it sourced?

Plain-English summary

The petitioner is a credit rating agency: for a fixed fee it rates debt offerings for issuers, insurers, and others. Here it was hired by a North Carolina home lender (with offices in and out of New York) to rate certificates issued by a New York trust. After its analysis, it prepares a ratings letter in New York City, emails it to the client representative who signed the engagement, and issues a press release that the rating is publicly available. It asked whether its service is taxable and how the two deliveries (letter to client; press release to public) affect that.

The Office of Counsel concluded no State tax, but New York City tax may apply:

• Not a State information service. Tax Law 1105(c)(1) taxes furnishing information (collecting/compiling/analyzing information and furnishing reports). But here the petitioner doesn't furnish information to its client -- it evaluates and rates the client's own financial products and supplies that rating (the client uses it to attest to third parties). So it isn't providing a taxable information service under State law.
• It is a NYC credit-rating service. New York City may tax credit rating, credit reporting, credit adjustment, and collection services "except to the extent otherwise taxable under Article 28" (Tax Law 1212-A(a)(3); NYC Admin. Code 11-2040). Evaluating a client's financials and providing a rating is a credit rating service, and since it isn't taxable under State 1105, it's taxable under the City tax.
• Destination-tax sourcing. The City tax is administered like Article 28 -- a destination tax (20 NYCRR 525.2(a)(3)). If the client's signing representative is in New York City, delivering the ratings letter there (electronically or in paper) makes the charge subject to the City credit-services tax.
• The press release doesn't matter. Delivering a press release to a NYC media outlet is not delivery of the taxable credit-rating service and doesn't affect the taxability of the client charge.

What this means for you

Credit rating, reporting, and collection firms

Your service may escape New York State information-service tax (because you're rating your client's own products, not furnishing it information) yet still be taxable by New York City under its credit-services tax. Don't assume "not a State information service" means "not taxable."

Source by where the client takes delivery

The City tax follows the destination -- where your engagement client's representative receives the rating. Track the client contact's location; public press releases to media don't drive the tax.

Common questions

Q: Is a credit rating a taxable information service in New York State?
A: No. Rating a client's own financial products isn't furnishing information to the client, so it isn't a State information service.

Q: So it's tax-free?
A: Not in New York City. NYC separately taxes credit rating services, and they're taxable there precisely because they aren't State-taxable.

Q: Does the public press release create tax?
A: No. Delivering a press release to a NYC media outlet isn't delivery of the taxable service and doesn't affect the client charge. What matters is where the client representative receives the rating.

Citations and references

• Tax Law section 1105(c)(1) (information services)
• Tax Law section 1212-A(a)(3) (NYC tax on credit rating/reporting/collection services)
• New York City Administrative Code section 11-2040 (NYC credit-services tax)
• 20 NYCRR section 525.2(a)(3) (destination tax; point of delivery controls)

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_27s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-13(27)S
Sales Tax
September 9, 2013

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

PETITION NO. S120423A

The Department of Taxation and Finance received a Petition for Advisory Opinion from name and
address redacted. Petitioner asks whether its credit rating service is subject to sales tax and, if so, how the
tax should be applied to two methods of delivery.
We conclude that Petitioner’s credit rating service is not taxable under Tax Law § 1105(c)(1), but
is taxable under Tax Law § 1212-A(a)(3), and that the sales tax is due if the service is delivered in
New York City.
Facts
Petitioner provides ratings on debt offerings for issuers of structured products, insurers and other
offerers for a fixed fee. Petitioner was hired by its client, a nationally known home lender based in North
Carolina with offices within and without New York State, to provide credit ratings on a series of
certificates issued by a New York common law trust. The specific credit rating is based on an analysis of
the entity’s financial information through specific evaluation guidelines created by Petitioner and on
information provided by third party sources.
After Petitioner’s analysis is completed, Petitioner prepares a ratings letter in New York City that
is electronically mailed to the representative of the client who signed the engagement letter with
Petitioner. Petitioner also issues a press release that the ratings letter is available to the general public.
Petitioner asks if the entire charge for its service will be subject to tax if it does not have information
about the location of the client’s offices that will have access to the ratings letter. In addition, Petitioner
asks whether delivery of the press release in New York would subject the entire charge to sales tax.
Analysis
We conclude that Petitioner’s services are not subject to the State sales tax, but may be subject to
the sales tax imposed by New York City on credit rating services. Tax Law § 1105(c)(1) imposes sales
tax on:
(c) The receipts from every sale, except for resale, of the following services:
(1) 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, 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, and excluding the
services of advertising or other agents, or other persons acting in a representative

-2-

TSB-A-13(27)S
Sales Tax
September 9, 2013

capacity, and information services used by newspapers, radio broadcasters and
television broadcasters in the collection and dissemination of news, and excluding
meteorological services.
In this instance, Petitioner provides its client with a credit rating based upon information received
from third parties and Petitioner’s specific evaluation guidelines. Petitioner analyzes the information
received and provides a credit rating, which is then furnished in a printed format and electronically mailed
to the client. Petitioner does not furnish information to its client; rather, it evaluates and rates the client’s
financial products and provides that rating by letter to the client and to the general public by a press
release. The client uses the rating to attest to third parties and not for its own use. Because Petitioner is
not providing information to its client, Petitioner is not providing an information service. Tax Law §
1212-A(a)(3) authorizes New York City to impose a local sales tax on credit rating, credit reporting,
credit adjustment, and collection services “whether rendered in written or oral form or any other manner,
except to the extent otherwise taxable under article twenty-eight of this chapter.” Section 11-2040 of the
New York City Administrative Code imposes tax on those services. Petitioner’s service constitutes a
credit rating services because it consists of evaluating a client’s financial information and providing a
rating on the client’s financial products. Because Petitioner’s service is not an information service subject
to tax pursuant to § 1105 of the Tax Law, its credit rating service is subject to tax under Tax Law
§ 1212-A(a)(3).
Section 11-2044 of the Administrative Code provides that the tax on credit rating services shall be
administered and collected in the same manner as the taxes imposed by Article 28 of the Tax Law. The
sales tax imposed by Article 28 of the Tax Law is a “destination tax.” That is, the point of delivery or the
point at which possession is transferred to the purchaser or the purchaser’s designee controls both the tax
incidence and the tax rate. See 20 NYCRR § 525.2(a)(3). If the representative of its client who signed
the engagement letter is located in New York, when Petitioner delivers its ratings letter, whether
electronically or in tangible form, to that representative, the report is subject to the local sales tax on credit
services. Delivery of a press release to a media outlet in New York City is not delivery of a taxable credit
ratings service and will have no effect on the taxability of other charges to the client.

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.