Is developing and maintaining a database of a client's own membership data a nontaxable information service, or a taxable sale of tangible personal property?

Plain-English summary

Alan/Anthony, Inc. develops and maintains a computer database of the membership of an international nonprofit trade association. The information comes solely from the client (correspondence, promotional brochures, and questionnaires completed by members). Alan/Anthony uses it to update the database and gives the data back to the client on floppy disks or computer-generated reports; the data and disks are the client's property. It asked whether this is a nontaxable information service that is "personal or individual in nature."

The Department's answer:

• First ask whether it's an information service at all. A report is an information service only if it requires processing data through a computer under a program to produce new information, rather than merely giving back the customer's own information in a more convenient form (Northeastern Computer Services, Inc., TSB-A-88(33)S). A transaction must qualify as an information service before the § 1105(c)(1) "personal or individual" exclusion can even apply.
• Mere form-conversion is a sale of goods. When a customer's own data is simply arranged or converted from one form or medium to another — without interpreting or recasting it, so the form changes but not the intelligence — the transaction is a sale of tangible personal property taxable under § 1105(a), not an information service (Finserv Computer Corp. v. Tully; TSB-M-81(3)S).
• Result: taxable as tangible personal property. Because Alan/Anthony merely converts the client's membership information from one form to another without interpreting or recasting it, its sale of the floppy disks or computer-generated reports is a taxable sale of tangible personal property under § 1105(a) — not an information service.

This is the flip side of the same term's TSB-A-92(41)S and TSB-A-92(51)S: where a vendor genuinely collects and analyzes information to create something new, it's an information service (which may then be exempt as personal/individual); where it just reformats the client's own data, it's a taxable sale of goods and the exclusion never applies.

What this means for you

Data-processing and database services

If you simply take a client's own data and hand it back in a different form (disks, printouts, reports) without creating new information, New York treats that as a taxable sale of tangible personal property — not a service. The medium you deliver is a taxable good.

The line is "new information" vs. "new form"

The question is whether you create new information (interpret, analyze, recast) or merely change the form of what the client already had. Only the former is an information service; the latter is a sale of goods regardless of how individualized the client's data is.

The "personal or individual" exclusion can't rescue mere reformatting

That exclusion only matters after something qualifies as an information service. If your work is pure form-conversion, it's a taxable sale of tangible personal property and the exclusion is irrelevant.

Accountants and tax professionals

The opinion applies the Northeastern Computer Services threshold (new information vs. convenient reformatting) and Finserv v. Tully / TSB-M-81(3)S: converting a customer's own data from one medium to another, changing form but not intelligence, is a § 1105(a) sale of tangible personal property, so the § 1105(c)(1) analysis (and its personal/individual exclusion) is never reached. Contrast TSB-A-92(41)S and TSB-A-92(51)S.

Common questions

Q: Is maintaining a client's membership database an information service?
A: Not here. Because the work merely reformats the client's own data without creating new information, it's a taxable sale of tangible personal property, not an information service.

Q: What distinguishes an information service from a sale of goods?
A: An information service creates new information (interpreting, analyzing, recasting). Merely changing the form or medium of data the customer already has is a sale of tangible personal property.

Q: Does the "personal or individual" exclusion apply?
A: No. That exclusion only applies once a transaction qualifies as an information service. Pure form-conversion never gets there.

Q: Why are the floppy disks and reports taxable?
A: They are the tangible medium delivering the client's own reformatted data, so their sale is taxable under § 1105(a).

Q: How is this different from the exempt behavioral reports in TSB-A-92(41)S?
A: There, the vendor analyzed inputs to create a new, individualized report (an information service that qualified for the exclusion). Here, the vendor only reformatted the client's existing data.

Citations and references

Statutes and authorities:

• Tax Law § 1105(a) (tax on receipts from retail sales of tangible personal property)
• Tax Law § 1105(c)(1) (tax on information services; personal-or-individual exclusion, reached only if the work is an information service)
• Northeastern Computer Services, Inc., Adv. Op. Comm. T&F, June 24, 1988, TSB-A-88(33)S; Finserv Computer Corp. v. Tully, 463 N.Y.S.2d 924, aff'd 61 N.Y.2d 947; TSB-M-81(3)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1992.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a92_44s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-92 (44) S
Sales Tax
May 29, 1992

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S920206F

On February 6, 1992, a Petition for Advisory Opinion was received from Alan/Anthony, Inc.,
145 Avenue of the Americas, 2nd Floor, New York, New York 10013.
The issue raised by Petitioner, Alan/Anthony, Inc., is whether the development and
maintenance of a computer database of its client's membership is an information service which is
"personal or individual in nature" within the meaning of the exclusion from tax contained in Section
1105(c)(1) of the Tax Law, and, therefore, not subject to sales tax.
Petitioner develops and maintains a computer database of the membership of an international
nonprofit trade association. Information in the database comes solely from Petitioner's client in the
form of correspondence, promotional brochures, and questionnaires completed by the trade
association members.
Petitioner uses the information to update records in the database and provides the data to its
client on floppy disks or in computer generated reports. The data and floppy disks are the property
of the client.
Section 1105(c)(1) imposes sales tax on:
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 incorporate in reports furnished to other persons, and excluding the
services of advertising or other agents, or other persons acting in a representative
capacity, and information services used by newspapers, radio broadcasters and
television broadcasters in the collection and dissemination of news. (emphasis added)
The preparation of a report is deemed an information service if it requires the Petitioner to
process data through a computer system under the control of a program for new information, rather
than merely rendering back information supplied by the customer in a more convenient form.
Northeastern Computer Services, Inc., Adv Op Comm T&F, June 24, 1988, TSB-A-88(33)S.
A report must qualify as an information service before its eligibility for the exclusion
contained in Section 1105(c)(1) of the Tax Law can be established.
If data is arranged to the purchaser's specifications on cards, discs, tapes or paper printouts
without creating new information but merely a change in form, where the vendor furnishes the

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TSB-A-92 (44) S
Sales Tax
May 29, 1992

medium on which the purchaser's source data is recorded, the transaction is a sale of tangible
personal property taxable in accordance with the provisions of Section l105(a) of the Tax Law.
See, Taxability of Major Data Entry Techniques, TSB-M-81(3)S.
Where information already in a customer's possession is merely converted from one form or
medium to another, without interpreting or recasting it, so that the form of the information changes
but not the intelligence contained therein there is a sale of tangible personal property rather than the
sale of an information service. (Finserv Computer Corp. v. Tully, 463 N.Y.S. 2d 924, affd 61 N.Y.2d
947).
Accordingly, pursuant to Northeastern Computer Services, Inc., supra, Finserv Computer
Corp. v. Tully, supra, and TSB-M-81(3)S Petitioner's sale of floppy disks or computer generated
reports constitutes the sale of tangible personal property taxable in accordance with the provisions
of Section l105(a) of the Tax Law rather than an information service taxable pursuant to Section
1105(c)(1) of the Tax Law since Petitioner merely converts the information concerning membership
supplied by its client from one form or medium to another, without interpreting or recasting it, so
that the form of the information changes but not the intelligence contained therein.

DATED: May 29, 1992

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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