Does a firm owe sales tax when it routes a Canadian customer's calls through its Buffalo switch and analyzes the calling data to give confidential efficiency advice?

Plain-English summary

Network Consultants, Inc., advises Canadian businesses on their telecommunications. It plans a new package: customers connect their phone lines to Network's switching equipment in Buffalo to place calls from Canada to the U.S., which lets Network monitor and analyze each customer's long-distance calling habits and then advise how to use their facilities more efficiently. The advice is confidential. Network also does the connection engineering and watches the lines for service problems (which it reports to the phone company, who does any repairs and bills the customer directly). Network charges a flat monthly fee based on the number of lines. It asked whether the receipts are taxable.

The Department held the whole package is not taxable.

• The call routing is international telephony — exempt. Section § 1105(b) taxes telephony and telephone service but excepts interstate and international service. Letting customers use the switch to communicate is telephony (20 NYCRR § 527.2(d)(2)), but because the calls are between Canada and the U.S., the service is international and not taxable.
• The connection and monitoring ride with the exempt service. Engineering the connection and detecting/notifying the phone company of line problems are deemed part of the international telephony service — so they're not taxable either.
• The analysis and advice are not a taxable information service. Network's monitoring, analysis, and advice on efficient long-distance use is confidential and not incorporated into reports furnished to others, so it falls within the personal-or-individual exclusion and is not a taxable information service under § 1105(c)(1).

What this means for you

International (and interstate) telephone service is carved out of § 1105(b). New York taxes telephony, but not interstate or international service. A service built around routing calls across the border can fall outside the tax.

Ancillary steps take the character of the main service. Engineering, connection, and line-monitoring that exist to deliver a nontaxable international telephony service are treated as part of that service — not separately taxed.

Confidential, client-specific advice is not a taxable information service. The § 1105(c)(1) information-service tax has a key exclusion: information that is personal or individual to the client and not substantially put into reports furnished to others. Bespoke, confidential analysis generally qualifies for that exclusion.

Common questions

Q: Is routing a customer's calls through my switch a taxable phone service?
A: Not if the calls are interstate or international — § 1105(b) excludes that service from tax. Here Canada-to-U.S. calls made the telephony international and nontaxable.

Q: I analyze a client's data and give tailored advice. Is that a taxable information service?
A: Not if the information is personal or individual to the client and isn't substantially incorporated into reports furnished to others — that's excluded from the § 1105(c)(1) information-service tax.

Q: What about the connection engineering and line monitoring?
A: The Department treated those as part of the nontaxable international telephony service, so they weren't separately taxed.

Citations and references

Statutes:

• Tax Law § 1105(b) — tax on telephony and telephone service, except interstate and international service
• Tax Law § 1105(c)(1) — tax on information services, excluding information that is personal or individual in nature and not substantially incorporated into reports furnished to others
• Tax Law § 1105(c)(5) — tax on maintaining, servicing, or repairing real property (quoted; telephone lines are real property under 20 NYCRR § 527.7(a)(2)(iv))

Regulations:

• 20 NYCRR § 527.2(d)(2) — definition of "telephony and telegraphy"
• 20 NYCRR § 527.2(d)(5) — charges included in the tax on telephone service
• 20 NYCRR § 527.7(a)(2)(iv) — telephone lines, wires, and poles are real property

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1982.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a82_31s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-82(31)S
Sales Tax
September 1, 1982

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S810923A

On September 23, 1981 a Petition for Advisory Opinion was received from Network
Consultants, Inc., 69 Delaware Avenue, Suite 1004, Buffalo, New York 14202.
The issue raised is whether receipts derived from the performance of the services described
below are subject to sales tax.
Petitioner currently provides a consulting service to Canadian businesses with respect to their
telecommunication needs. Petitioner now plans to offer a new package of services to its Canadian
customers. Customers will be allowed to connect their telephone lines to Petitioner's switching
equipment in Buffalo in order to make calls from Canada to the United States by means of
Petitioner's switch. The reason for routing a customer's calls through Petitioner's switch is to enable
Petitioner to monitor and analyze the long distance calling habits of that customer. Based on its
analysis, Petitioner will advise a customer as to how to make the most efficient and economical use
of that customer's long distance communications facilities. The information provided by Petitioner
will be confidential. Petitioner will perform certain of the engineering tasks necessary for the
connection of the customer's telephone lines to Petitioner's switching equipment. In addition,
Petitioner will monitor customers' telephone lines routed through its switch for signs of service
problems. Any service problem detected by Petitioner will be brought to the attention of the
telephone company which supplied the line to Petitioner's customer. The telephone company will
perform any needed repairs, and will bill Petitioner's customer directly for such repairs. For the
package of services described above, Petitioner will charge a flat monthly fee. The size of this fee
will depend on the number of telephone lines a customer connects to Petitioner's switch.
Section 1105(b) of the Tax Law imposes a sales tax upon the receipts "from every sale, other
than sales for resale, of telephony and telegraphy and telephone and telegraph service of whatever
nature except interstate and international telephony and telegraphy and telephone and telegraph
service."
Section 527.2(d)(2) of the Sales and Use Tax Regulations provides as follows:
"The term 'telephony and telegraphy' includes use or operation
of any apparatus for transmission of sound, sound reproduction or
coded or other signals."
Section 527.2(d)(5) of the Sales and Use Tax Regulations provides as follows:

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

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-82(31)S
Sales Tax
September 1, 1982

"The tax on utility services applies to every charge for any
telephone and telegraph service. Among these charges are monthly
message rate and intrastate toll charges and charges for special
services, such as installation, change of location, conference
connections, tie-lines, WATS lines and the furnishing of equipment."
Section 1105(c)(1) of the Tax Law imposes a tax on the receipts from the following service:
"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, .
. ."
Section 1105(c)(5) of the Tax Law imposes a tax on the following service:
"Maintaining, servicing or repairing real property, property or
land, as such terms are defined in the real property tax law, . . ."
Section 527.7(a)(1) of the Sales and Use Regulations defines the terms "maintaining,
servicing, and repairing" as follows:
"Maintaining, servicing and repairing are terms which are
used to cover all activities that relate to keeping real property in a
condition of fitness, efficiency, readiness or safety or restoring it to
such condition."
Section 527.7(a)(2)(iv) of the Sales and Use Tax Regulations includes within the definition
of real property for purposes of section 1105(c)(5) of the Tax Law "Telephone and telegraph lines,
wires, poles and appurtenances".
As part of its new package of services, Petitioner will allow its Canadian customers to use
its switching equipment as a means of communicating with parties in the United States. Petitioner
will, therefore, be providing a telephony service within the meaning of section 1105(b) of the Tax
Law. 20 NYCRR 527.2(d)(2). Since the communications made via Petitioner's switching equipment
will be between Canada and the United States, the telephony service provided by Petitioner will be
international. This service, therefore, will not be subject to tax under section 1105(b) of the Tax Law.
Petitioner will connect its customers' telephone lines to its switching equipment in order to
provide the telephony service. In addition, Petitioner will detect and notify the appropriate telephone
companies of service problems on its customers' lines in order that they may be remedied. These
services, for purposes of the Tax Law, are deemed to be part of the telephony service that will be

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Sales Tax
September 1, 1982

offered by Petitioner. Since the telephony service to be offered is international and not subject to tax,
these services, constituting part of such telephony service, will also not be subject to tax.
Petitioner will monitor and analyze the communications made through its switching
equipment by its customers. On the basis of these studies, Petitioner will advise its customers with
respect to the use of their long distance communications facilities. Any advice furnished to a
customer will be confidential and will not be incorporated into reports furnished to others. This
consulting service, therefore, is not a taxable information service within the meaning of section
1105(c)(1) of the Tax Law.

DATED: August 13, 1982

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau