Is a service that files loose-leaf update pages into a client's subscription publications taxable, even if the company only inserts and removes pages?

Plain-English summary

L.G. & S.G. Inc. provides a loose-leaf filing service. Publishers such as Commerce Clearing House and Prentice Hall send loose-leaf update services directly to L.G. & S.G.'s clients. The company's employee then goes to the client's office, inserts the new pages, and removes the old ones. It does not supply the update material and has nothing to do with ordering or mailing it. L.G. & S.G. argued that it provides strictly a filing service that should not be taxable.

The Department held the service is taxable.

• The tax reaches maintaining, servicing, or repairing property. Under § 1105(c)(3), sales tax applies to the services of installing, maintaining, servicing, or repairing tangible personal property.
• Those terms are read broadly. The regulation defines "maintaining, servicing and repairing" as covering all activities that relate to keeping tangible personal property in a condition of fitness, efficiency, readiness or safety, or restoring it to such condition (20 NYCRR 527.5(a)(3)).
• Loose-leaf publications are tangible personal property that must be updated. The loose-leaf services the clients own qualify as tangible personal property, and, unless continually updated, they quickly lose their usefulness.
• Filing the updates is taxable servicing. Inserting the new pages and removing the old ones keeps the property in a condition of fitness and readiness and restores it to its original condition. That is maintaining/servicing tangible personal property and is subject to tax under § 1105(c)(3), even though the company only files pages it neither supplies nor mails.

What this means for you

Labeling work a "filing service" doesn't decide the tax. New York looks at what the service does to the property. Keeping a physical publication current and usable is maintaining or servicing tangible personal property — a taxable service — regardless of what the provider calls it.

You can be taxable on servicing property you neither sell nor supply. L.G. & S.G. provided no materials and had no role in ordering or mailing the updates. The taxable event is the labor performed on the client's tangible property to keep it in a condition of fitness and readiness.

"Maintaining, servicing and repairing" is defined expansively. The regulation sweeps in all activities that keep property in a condition of fitness, efficiency, readiness, or safety, or restore it to such condition — so many recurring upkeep services on tangible items fall within § 1105(c)(3).

Common questions

Q: We only insert and remove loose-leaf pages for clients — is that really taxable?
A: Yes. The Department held that keeping the client's loose-leaf publications current is maintaining/servicing tangible personal property under § 1105(c)(3), even though you supply no material and don't order or mail the updates.

Q: Does it matter that the client, not us, owns and receives the updates?
A: No. The taxable service is the labor performed on the client's tangible property to keep it in a condition of fitness and readiness; ownership of the publication being with the client does not remove the tax.

Q: What makes a recurring upkeep task fall under this tax?
A: If the work keeps tangible personal property in a condition of fitness, efficiency, readiness, or safety, or restores it to such condition (20 NYCRR 527.5(a)(3)), it is taxable maintaining/servicing under § 1105(c)(3).

Citations and references

Statutes and regulations:

• Tax Law § 1105(c)(3) — taxes installing, maintaining, servicing, or repairing tangible personal property
• 20 NYCRR 527.5(a)(3) — defines "maintaining, servicing and repairing" as all activities that keep property in a condition of fitness, efficiency, readiness, or safety, or restore it to such condition

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1987.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a87_6s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-87(6)S
Sales Tax
January 26, 1987

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

PETITION NO. S860908C

On September 8, 1986, a Petition for Advisory Opinion was received from L.G. & S.G. Inc,
235 E. 51st St., New York, New York 10022.
The issue raised is whether services performed by Petitioner are subject to the sales and use
tax imposed under Articles 28 and 29 of the Tax Law.
Petitioner is engaged in the business of filing the various loose-leaf update services provided
to its clients by the publisher/printer thereof (e.g., Commerce Clearing House, Prentice Hall).
Petitioner does not provide the updated material and, in fact, has nothing to do with its ordering or
mailing. Rather, such materials are supplied by the printer/publisher directly to the user. Petitioner's
employee arrives at the user's office, inserts the new pages and removes the old ones. Petitioner
maintains that it is providing strictly a filing service.
Section 1105(c)(3) of the Tax Law imposes a tax on receipts from the services of "[i]nstalling
tangible personal property,...or maintaining, servicing or repairing tangible personal property... ."
The terms "maintaining, servicing and repairing" are described as; "[t]erms used to cover all
activities that relate to keeping tangible personal property in a condition of fitness, efficiency,
readiness or safety or restoring it to such condition." 20 NYCRR 527.5(a)(3)
The loose-leaf services owned by Petitioner's clients clearly qualify as tangible personal
property. Unless continually updated, such loose-leaf services quickly lose their usefulness. The
service provided by Petitioner keeps its customer's property in a condition of fitness and readiness,
and restores such property to its original condition. Consequently, Petitioner's service is deemed to
be the maintaining, servicing or repairing of tangible personal property and is subject to the tax
imposed under 1105(c)(3) of the Tax Law.

DATED: January 26, 1987

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.

RODERICK G. W. CHU, COMMISSIONER
GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (3/83)