Is a bank taxed on on-line computer services that maintain its own depositor accounts, loans and internal reports?

Plain-English summary

Oswego County Savings Bank contracted with a computer service center for on-line computer services to run its banking business — maintaining depositors' savings accounts, consumer and mortgage loans, certificate-of-deposit interest accounts, and various management reports. The center billed monthly and added sales tax to some charges. The bank asked whether it was being properly charged sales tax.

The Department held these services are not taxable, and the bank can recover the tax already paid.

• Information services are taxable — unless personal or individual. Section § 1105(c)(1) taxes furnishing information, including collecting, compiling or analyzing information and furnishing reports, but excludes information that is "personal or individual in nature" and not (or not to be) substantially incorporated in reports furnished to other persons.
• The bank's account processing fits the exclusion. The on-line services the center performs for the bank — maintaining the bank's own accounts and internal reports — are an information service that is personal or individual in nature and not to be incorporated in reports furnished to others. So the charges are excluded from tax under § 1105(c)(1).
• How to recover the tax. The bank may claim a credit on its quarterly Sales and Use Tax Return (Form ST-100, line 2a) or a refund (Form AU-11), with documentation to substantiate the amount. The claim must be made within three years of the date the tax collected was payable to the State Tax Commission.

What this means for you

Data processing of your own records is often an exempt "personal or individual" information service. When a service provider maintains only your accounts and internal reports — not data shared into reports for others — the charges can fall within the § 1105(c)(1) exclusion.

"Not incorporated into reports for others" is the dividing line. The exclusion turns on whether the information stays individual to you; if the same data or output feeds reports furnished to other customers, it becomes taxable.

If you were overcharged, you can claim it back — but the clock runs. Recover tax via a credit on Form ST-100 (line 2a) or a refund on Form AU-11, with documentation, within three years of when the tax was payable.

Common questions

Q: My computer service center charges sales tax on processing my accounts. Is that right?
A: Often not. Processing your own accounts and internal reports is generally a personal, individual information service excluded under § 1105(c)(1).

Q: How do I get back tax I already paid on these services?
A: Claim a credit on your quarterly return (Form ST-100, line 2a) or a refund (Form AU-11), keeping documentation, within three years of when the tax was payable.

Q: When would such a service be taxable?
A: If the information is not personal/individual — for example, if the same data or output is substantially incorporated into reports furnished to other persons.

Citations and references

Statutes and forms:

• Tax Law § 1105(c)(1) — information service; "personal or individual" exclusion
• Form ST-100 (quarterly Sales and Use Tax Return), line 2a — credit; Form AU-11 — refund

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a81_57s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-81(57)S
Sales Tax
November 27, 1981

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S810831A

On August 31, 1981 a Petition for Advisory Opinion was received from Oswego County
Savings Bank, 44 East Bridge Street, Oswego, New York 13126.
The issue raised is whether or not Petitioner is being charged the proper sales tax on
purchases of computer services.
Petitioner has contracted with a computer service center for on-line computer services in
conjunction with Petitioner's banking business. The services provided by the computer center consist
of the maintenance of: depositors savings accounts, consumer and mortgage loans, certificate of
deposit interest accounts, and various management type reports. Charges for the various services
provided are stated in a contract executed between Petitioner and the computer center. Petitioner is
billed at the end of each month for the services rendered during that month. The invoice is itemized
and sales tax is added to the charges for certain transactions according to the rate in effect at the
location of Petitioner's office for which the service was performed.
Section 1105(c)(1) of the Tax Law imposes a tax on receipts from every sale, except for
resale, 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 . . . ".
The on-line computer services provided Petitioner by the computer center constitute an
information service which is personal or individual in nature and which is not or may not be
incorporated in reports furnished to other persons. Accordingly, the charges by the computer center
to Petitioner for the on-line computer services described are excluded from tax pursuant to section
1105(c)(1) of the Tax Law.
Petitioner may claim a credit for any tax paid on the services at issue on its quarterly Sales
and Use Tax Return (ST-100), at line 2a, page 1 or may claim a refund of such amount separate from
the filing of a return, using Form AU-11. In either instance, Petitioner must maintain appropriate
documentation to substantiate the amount so claimed. Such credit or refund must be claimed within
three years from the date the tax collected was payable by the computer/center to the State Tax
Commission.

DATED: November 18, 1981

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR