Is a bank-benchmarking analytics service a taxable information service, and is a custom predictive-model product exempt as custom software?

Plain-English summary

A financial-analytics company offers banks two products and asked whether each is taxable.

• Product A is a benchmarking/"customized analytical service." Each participating bank sends its own customer and account data; the company indexes it in a central database and builds a customized "synthetic portfolio" / pseudo-entity from five or six other participants' data that resembles the requesting bank's book. The bank's performance is then compared against that pseudo-entity, delivered via periodic written reports, semi-annual presentations, and ad-hoc support.
• Product B predicts which of a bank's customers will exhibit desired behaviors. The company builds completely customized formulas for each client and sells software containing those formulas, which the bank runs on its own data; there's no common database and each client's formula differs.

The Office of Counsel split them:

• Product A is a taxable information service (Tax Law § 1105(c)(1)). The company collects, analyzes, and reports information and adds intelligence by comparing the customer's confidential data to selected information held in a common database. The "personal or individual" exclusion does not apply, because other participants' data is used to create the pseudo-entity each bank is measured against (Matter of SunGard). The presentations and Q&A, sold for a single charge with the report, are integral parts of it and also taxable (Matter of SSOV '81).
• Product B is exempt custom software. Because the company produces fully customized formulas for each client with no common database and no prewritten modules, the product is custom software, which is excluded from sales tax (TSB-A-10(4)C / TSB-A-10(23)S).

What this means for you

Benchmarking, analytics, and data-cooperative providers

A service that measures a customer against a pool of other customers' data is a taxable information service — even if each customer's own raw data is kept confidential. What defeats the "personal or individual" exclusion is that the report draws on a common database of others' information.

Custom-model and quant vendors

Building a genuinely customized model for each client — no shared database, no prewritten modules — and licensing it for the client to run on its own data can be exempt custom software. The customization must be real and per-client.

Bundled deliverables follow the report

Presentations, Q&A, and support sold with a taxable information report for a single charge are integral to it and taxable (SSOV '81).

Common questions

Q: Each bank's own data is confidential — why is the benchmarking taxable?
A: Because the service compares the customer's data against a synthetic index built from other participants' data drawn from a common database, so it's not "personal or individual."

Q: Why is Product B exempt but Product A taxable?
A: Product B is fully customized software with no common database that the client runs on its own data (custom software, exempt). Product A reports analysis drawn from a shared database (taxable information service).

Q: Are the presentations and support taxable too?
A: Yes — sold for a single charge with the taxable report, they're integral components of it and taxable.

Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner. Use it as guidance and confirm your own facts.

Citations and references

• Tax Law § 1105(c) (enumerated services subject to tax)
• Tax Law § 1105(c)(1) (information services; exclusion for personal or individual information)
• Tax Law § 1101(b)(6); Tax Law § 1105(a) (tax on prewritten software)
• 20 NYCRR 527.3(b) (information services)
• Matter of SunGard Securities Finance, LLC, Tax Appeals Tribunal (Mar. 16, 2015); Matter of SSOV '81 Ltd., Tax Appeals Tribunal (Jan. 19, 1995); TSB-A-10(4)C / TSB-A-10(23)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2017.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a17_19s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-17(19)S
Sales Tax
August 4, 2017

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

PETITION NO. S140401A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
REDACTED REDACTED REDACTED REDACTED REDACTED REDACTED REDACTED
(“Petitioner”). Petitioner asks whether its receipts from two of the services it offers customers
are subject to New York State and local sales tax.
We conclude that Petitioner’s sale of REDACTED REDA (Product A) is subject to sales
tax under Tax Law § 1105(c)(1) as a sale of a taxable information service, and the Petitioner’s
sale of REDACTED REDACTED (Product B) is excluded from sales tax because it is the sale of
customized software.
Facts:
Petitioner offers at least two separate products to its clients. At issue are Petitioner’s
REDACTERD (Product A) and REDACTED (Product B).
1. Product A:
Petitioner describes its Product A as a “customized analytical service.” Petitioner offers
Product A to customers that are financial institutions (the “Product A Participants”). The service
allows each Product A Participant the ability to strategically review and analyze its portfolios, so
that it can measure the performance of its credit cards, deposit accounts, etc. against the
performances of an index of accounts that is customized for each product and financial
institution.
Each Product A Participant forwards its individual customer and account data, which
Petitioner analyzes and indexes. Each Product A Participant’s customer and account level
information then is held as separate file tables within a central database (the “Product A
Database”), but still indexed to each particular Product A customer. Petitioner uses the
information collected in the Product A Database to construct an “analytical framework” for each
Product A Participant. Each Product A Participant receives a customized financial analysis that
is specific to that particular Product A Participant and is based upon certain information
accumulated from the Product A Database. Any information gathered in the Product A Database
that is associated with a particular Product A Participant is confidential and not disclosed to the
other Product A Participants. Particular personal customer account information that Petitioner
gathers for the Product A Database also is kept confidential and not shared with any other
Product A Participants. The data utilized by Petitioner in preparing the customized financial

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TSB-A-17(19)S
Sales Tax
August 4, 2017

analysis for a Product A Participant is not available or used in any publicly published source or
given to any other Product A Participant except as described herein.
When a Product A Participant requests a study, that Participant’s data is reviewed to
determine its makeup and characteristics. Then a review of the other Product A Participants’ data
is performed to create a customized synthetic portfolio (collection) of customer accounts from
five or six Product A Participants that closely correspond to the makeup and structure of the
customer account data belonging to the requesting Product A Participant. This is created
because the Petitioner uses the information collected in the Product A Database to construct an
“analytical framework” for each Product A Participant. Each Product A Participant receives a
customized financial analysis that is specific to that particular Participant and is based upon
certain information accumulated from select accounts and tables in the Product A Database.
The customized synthetic portfolio of customer accounts then is associated into a pseudoentity representing averages based on the aggregation of information for certain Product A
Participants. The Product A Participant requesting the study is then compared to the pseudoentity analysis to evaluate the Product A Participant’s performance. The study’s findings are
delivered in three ways. Each Product A Participant receives monthly or quarterly written
reports comparing the participant’s performance to the customized index of accounts and the
pseudo-entity created by Petitioner. Petitioner’s personnel also make semi-annual presentations
to each Product A Participant to review the participant’s performance. Lastly, Petitioner
provides up to 160 hours of ad-hoc analytic support to respond to Product A Participant inquiries
regarding the reports, performance, and other similar inquiries.
2. Product B:
In addition to Product A, Petitioner creates and sells Product B to retail financial
institutions. Product B is designed to estimate which of a financial institution’s existing or
prospective customers demonstrate a desired set of behaviors, such as, for example, significant
spender by category (e.g. travel and entertainment), recent balance transfer from one bank to
another, or substantial revenues dollars generated through annual fee charges.
Petitioner does not sell any customer or other data in connection with Product B. Rather,
Petitioner, based upon its expertise, creates a set of formulas designed to predict the likelihood
that a particular individual with specified characteristics will respond to an offer, taking into
account spending habits, account balances, Fair Credit Reporting Act credit bureau data, and
other variables. Petitioner performs mathematical calculations to establish customized formulas
for each requesting financial institution and then sells software with these formulas to the
financial institution. The financial institution then runs the resulting formulas on its own
customer account data that is owned and maintained by the financial institution. Petitioner does
not take the client’s raw customer data and run that data through the Product B formulas on its
own computer system.

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TSB-A-17(19)S
Sales Tax
August 4, 2017

No common database exists for the Product B formulas because each client’s coefficients
represent something different. Thus, the formulas and data are different for each client.
The Product B formulas have a limited shelf-life as their effectiveness tends to deteriorate
over time. Therefore, the formulas require regular tracking for continued effectiveness.
Redevelopment of a client’s Product B formula is typically performed once or twice every 12-24
months.
Analysis:
1. Product A:
Tax Law § 1105(c) imposes sales tax upon the receipts from every sale, except for resale,
of certain specifically enumerated services. As is relevant to this matter, Tax Law § 1105(c)(1)
imposes tax upon the service of:
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....

In performing the Product A service, Petitioner is accumulating information from the
Product A Participants, organizing and analyzing such information and then presenting such
information in a written report. Petitioner also provides additional presentations and answers
questions relating to the report and its analysis. The information provided to customers includes
a comparison to the performance of other customers’ data. Petitioner’s service adds intelligence
to the customer’s confidential information by comparing it to selected information maintained in
a common database. Thus, Petitioner’s Product A is a taxable information service under Tax
Law § 1105(c).
Tax Law § 1105(c)(1) provides an exclusion from the tax on information services where
the information provided is personal or individual in nature and is not or may not be substantially
incorporated in reports furnished to other persons (see 20 NYCRR 527.3[b]). Here, the
information provided using the Product A service is clearly not personal or individual in nature
because portions of information provided by various Product A Participants is captured in the
Product A Database and used to develop reports furnished to other Product A Participants.
Although certain Product A Participant financial information is deemed personal and is
kept confidential, that does not change the fact that critical information from other Product A
Participants is used to create each pseudo-entity against which each Product A Participant is
compared. Accordingly, Petitioner’s service does not satisfy the requirements of the “personal

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TSB-A-17(19)S
Sales Tax
August 4, 2017

or individual” exclusion, and is taxable under Tax Law § 1105(c). Matter of Sungard Securities
Finance, LLC, Tax Appeals Tribunal, March 16, 2015.
In providing Product A, Petitioner provides services in addition to the preparation of the
written report (e.g., presentations and answering questions with regard to the reports). These
additional services are provided with the written report for a single charge. Accordingly, these
services are integral component parts of the written report and the information provided therein,
and are therefore taxable. See Matter of SSOV ‘81 Ltd., Tax Appeals Tribunal, January 19,
1995.
2. Product B:
Typically, the sale of pre-written software is subject to sales tax. See Tax Law §§
1101(b)(6), and 1105(a). However, Petitioner represents that it produces completely customized
formulas for each separate client. No common database exists for the underlying Product B
formula. Each client’s formula is different from Petitioner’s other clients’ formulas and there are
no pre-written software modules or common formulas utilized. Accordingly, Product B is
excluded from taxation because it constitutes “custom software”. See PaySource Direct Inc. and
LiveXchange Corporation, TSB-A-10(4)C, TSB-A-10(23)S, May 27, 2010.

DATED: August 4, 2017

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

NOTE:

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.