Is a single-sign-on platform that consolidates and lets users search third-party research a taxable NY information service?

Plain-English summary

The petitioner sells "Product X," which gives financial professionals single sign-on access to premium research they've bought from multiple banks and content providers. Providers (banks/broker-dealers) pay the fees; their clients use it for free. Beyond one log-in, Product X aggregates each client's accessible research, shows headlines and links, and lets clients search across, filter, sort, and save content from all the providers they subscribe to. The petitioner asked whether Product X is taxable.

The Office of Counsel concluded it is taxable as an information service:

• Tax follows the primary function. Services are taxed by their primary function (Matter of SSOV '81). Single sign-on/authentication is only one function; Product X "goes well beyond" it.
• Aggregating research is the essence of an information service. Product X's primary function is consolidating research from many providers so clients can view, search, and organize it through one interface. Collecting, compiling, or analyzing information and furnishing reports is an information service (Tax Law 1105(c)(1); 20 NYCRR 528.3(a)(2); newspaper-clipping example). The added search and save tools confirm the information-consolidator function.
• Distinguishable from Finserv. Unlike Finserv (transferring a customer's own records to microfiche added no new intelligence and wasn't an information service), here the consolidated, routed information was not in the client's possession beforehand -- the platform creates value by aggregating multiple streams.
• Who's taxed, and where. The sale is to the providers (who pay) and delivered to their designees, the clients. Because sales tax is a destination tax (20 NYCRR 525.2(a)(3)), to the extent a provider can show its clients access the service from outside New York, the petitioner need not collect tax on those receipts (TSB-A-03(5)S).

What this means for you

SaaS, fintech, and data-aggregation platforms

"It's just single sign-on" won't save you if the product's real value is pulling together and presenting information from multiple sources. New York taxes that as an information service. Identify your product's primary function honestly.

Multi-state user bases

Because the tax is sourced to where the customer's designees access the service, keep records of user locations. Receipts attributable to out-of-state access aren't subject to New York tax.

Common questions

Q: My product is mainly a log-in convenience -- isn't that nontaxable?
A: Not if its primary function is aggregating and presenting third-party information. Single sign-on is incidental to a taxable information service here.

Q: How is this different from Finserv?
A: Finserv just reformatted a customer's own records (no new intelligence). Product X delivers consolidated information the client didn't already have in usable form -- that's a taxable information service.

Q: Do I collect tax on every user?
A: No. It's a destination tax. To the extent providers show their clients access from outside New York, those receipts aren't subject to New York sales tax.

Citations and references

• Tax Law section 1105(a) (sales tax on tangible personal property)
• Tax Law section 1105(c)(1) (sales tax on information services)
• 20 NYCRR section 528.3 (information services)
• 20 NYCRR section 525.2(a)(3) (destination tax; point of delivery)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2014.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a14_3s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-14(3)S
Sales Tax
January 27, 2014

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

PETITION NO. S120313A

The Department of Taxation and Finance received a Petition for Advisory Opinion
from Petitioner name redacted. Petitioner asks whether its “Redacted Redacted” product
(“Product X”) is subject to sales and use tax. We conclude that Product X is subject to sales and
use tax as an information service.
Facts
Product X provides financial professionals with single sign-on access to premium content
that they have purchased from third-parties and would otherwise have to access via multiple
password-protected websites.
Petitioner currently provides Product X to banks and other third party content and data
providers (collectively "Providers"). Providers pay fees to Petitioner in exchange for allowing
their own authorized clients ("Clients") to use the product. Clients do not pay a fee for their use
of the product. Typically, a Client will be an authorized client of more than one Provider because
Product X provides little benefit unless a Client has access to more than one Provider website. A
key feature of Product X from the standpoint of the Clients is the ability for users to access
multiple website portals with a single set of log-on credentials. The product also provides
aggregated search and display of content that is accessible via the websites of the various
Providers. Clients are typically investors who have an investing relationship with multiple
Provider banks or broker-dealers and are entitled to access each Provider's website for research
and other investment-related information. Product X simplifies the process whereby Clients can
log into the Providers' websites by exchanging the various access credentials provided for each
website for a single Product X ID that provides direct access to Provider websites and the ability
to navigate among the various Provider websites.
In connection with providing this product, Petitioner maintains a list of Clients who are
authorized by the various Providers to use the product, including both those who have enrolled
and those who have not enrolled. It also maintains data from each Provider on each Provider's
Clients' entitlement to that Provider's content. This includes Clients who have been authorized to
use the product by, and are entitled to receive content from, multiple Providers. Once they have
received their log-in credentials, Clients can obtain similar functionality via logging in either to
the Product X website or to one of their Providers' websites using the Client name and password
provided by Petitioner. Petitioner effectuates this single sign-on capability through the use of an
authentication token (called a CURL) that is an encrypted “url” that instructs the Provider’s
website to directly connect the client to the website without need for additional log-in

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TSB-A-14(3)S
Sales Tax
January 27, 2014

credentials. The CURL limits a specific Client's access to only the pages on each Provider's
website to which the Client is entitled. In connection with the CURL, Petitioner does not
transfer any software to the Provider; rather, it merely provides the Provider with the
specifications to which the CURL will have to conform for Petitioner’s service to work.
A Client may also gain access to a Provider’s content by entering the Product X
credential information at Petitioner’s website. Upon accessing the website, a Client will see
headlines or titles of reports or other research recently made available by the Provider to which
that Client is entitled, along with the name of the author, and the industry sector classification
discussed by the research or report. Next to the report/research will be a link that will take the
Client to the Provider’s website where a complete version of the research or report is available.
On the left side of the page the Client will see a “banner,” which is a series of icons, one for each
Provider that has granted the Client access to its research. The Client is able to access the
website of any of the Providers with an icon on that banner by clicking its icon. Petitioner’s
website provides a Client with additional functionality around the content. The Client has the
ability to filter and sort Provider content by topic and author based on tags provided by the
Providers or by certain Product X taxonomy. The Client is able to do full-text searches on
Petitioner’s site across the content supplied by the Providers to which the Client has access.
Clients can store frequently used searches. If a search retrieves research that is of interest to the
Client, a link will bring the Client to the website of the Provider that did the research via the
CURL. The website identifies the “most read” articles and also provides Clients with access to a
limited directory of clients.
In the past, Petitioner licensed search capability software from an unrelated third party
and paid sales tax thereon, but now it uses search software that it has developed. The license fee
it formerly paid for the search capability software represents a small fraction of the overall cost
of providing Product X.
Under Petitioner's agreement with Providers, the Providers grant Petitioner a royalty-free
license to certain use of the Providers' content solely for purpose of providing Product X,
including the search capability. Petitioner grants the Providers a license to use the Product X
technology, including software, solely for the purpose of transmitting the Provider's content and
Client information to Petitioner in connection with the product. For no additional charge,
Petitioner gives Providers data on Clients’ use of their websites, including anonymous use
rankings comparing use of a given Provider’s website with use of other Providers’ websites.
Petitioner only provides this data as part of Product X.
Petitioner’s management of Providers’ log-in process relieves Providers of the need to
handle the identification authentication process themselves, which entails either dedicating staff
time to the process (e.g., to assist customers with forgotten passwords), or maintaining software
to handle that function, or both.

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TSB-A-14(3)S
Sales Tax
January 27, 2014

Analysis
The Tax Law imposes sales and use tax on retail sales of tangible personal property and
certain enumerated services, including information services (Tax Law § 1105[a], [c][1]).
Services are to be taxed according to their primary function (see Matter of SSOV '81 Ltd., Tax
Appeals Tribunal, January 19, 1995). Section 525.2 (a)(3) of the Sales and Use Tax Regulations
provides that the sales tax is a “destination tax,” meaning that “[t]he point of delivery or point at
which possession is transferred by the vendor to the purchaser, or the purchaser's designee,
controls both the tax incidence and the tax rate.”
One of Product X’s functions is to manage the process of authenticating the identity of
those persons seeking to access Providers’ research, which Petitioner does through its single
sign-on technology. Product X goes well beyond performing this function, however. In a
nutshell, Product X allows Providers -- research providers -- to give Clients – the Providers’
customers -- a way to efficiently and conveniently access investment research coming from
multiple Providers. Product X does this chiefly by consolidating the research of the Clients’
various information services providers so that those Clients can view the investment information
through a customer interface and a single sign-on. If the Client goes to Petitioner’s website, the
Client will see headlines of recently published research of all those Providers whose information
the Client has a right to access with links that take the Client to the website of the Provider that
published the report. Alternatively, if the Client opts to access the website of a Provider, the
Client sees a ribbon that has links to any of the other Providers to which the Client has access
and that subscribe to Petitioner’s service. This function of aggregating information is the
quintessence of an information service (Sales Tax Reg. § 528.3[a][2][“The collecting, compiling
or analyzing information of any kind or nature and the furnishing reports thereof to other persons
is an information service”]; Sales Tax Reg. § 528.3[b][2][Example 3][newspaper clipping
services are taxable as information services]). Further proof that Product X’s primary function is
to act as an information consolidator are the additional software tools that Petitioner makes
available to allow the Clients to more efficiently use the information accessed through Product
X. For example, Product X provides Clients with a search engine that allows Clients to search
across the content of all the Providers that subscribe to Petitioner’s service and to which the
Client has access. Also, Product X allows Clients to save any relevant content or their searches
for later use and to organize the saved items.
The facts here are distinguishable from the facts in Finserv Computer Corp. v. Tully (94
A.D.2d 197, 200 [3d Dept 1983], affd 61 NY2d 947 [1984]). In that case, the court held that a
service that transferred the computerized records of its customers onto microfiche or microfilm
was not an information service because it did not give back to the customer any additional
intelligence. Here, the information made accessible to the Clients through Product X is not in
their possession prior to Petitioner’s performing its aggregation function; rather, Petitioner has
found a way to route it to them that consolidates the multiple information streams to which the
Client has a right, in order to allow Clients to efficiently access, save, and organize that
information.

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TSB-A-14(3)S
Sales Tax
January 27, 2014

Accordingly, based on the facts presented, the sales of Product X are subject to sales and
use tax as the sale of a taxable information service to the Providers and delivered to the
Providers’ designees, their Clients. To the extent that Petitioner’s customers, the Providers, can
show that their designees for the receipt of Petitioner’s service, the Providers’ Clients, are
accessing the service from outside New York, Petitioner need not collect sales tax on the receipts
from such sales (see TSB-A-03][5]S).

DATED: January 27, 2014

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.