Is a medical-records storage-and-retrieval subscription service a taxable information service or a taxable storage service in New York?

Plain-English summary

Immediate Medical Records, Inc., planned a subscription service to organize, store, and quickly retrieve a person's medical records — hospital summaries, EKGs, lab and X-ray reports, CT/MRI/ultrasound studies, and more — and transmit them to a treating physician (by fax, modem, or overnight delivery) when care is needed and the records aren't at hand. The company sorts, codes, indexes, and scans the records; stores key items in a computer and the rest in hard copy; and updates the file as new records arrive. Revenue comes from annual subscription fees plus transmittal charges. It asked whether the service is taxable and, if so, whether it qualifies as an exempt information service.

The Department drew a two-step conclusion:

• Not a taxable (or exempt) information service. Section 1105(c)(1) taxes furnishing information by collecting, compiling, or analyzing it — but under Finserv Computer Corp. v. Tully (94 A.D.2d 197), that means giving the customer new information or new significant intelligence, not merely converting information the customer already has from one form or medium to another. Immediate Medical Records only stores and retransmits the subscriber's own records — it adds no new intelligence — so its service is not an information service under § 1105(c)(1) at all (and therefore doesn't reach the "personal or individual" exclusion either).
• A taxable storage service. Because the company stores the records (computer and hard copy) and transmits them only on request, it is in the business of storing tangible personal property not held for sale — a taxable service under § 1105(c)(4) and Regulation § 527.6. All charges to subscribers are subject to the combined New York State and local sales tax, at the rate for the locality of the company's place of business, regardless of the subscriber's place of residence.

What this means for you

Storing data ≠ furnishing information

There's a crucial line between two service types. Furnishing information (taxable under § 1105(c)(1), unless personal/individual) means analyzing data and giving the customer new intelligence. Storing the customer's own property and handing it back on request is a different, separately taxable service under § 1105(c)(4). Reformatting or moving records between media — scanning paper, uploading to a computer, faxing on demand — is storage/retransmission, not the creation of new information.

Being outside the information-services tax didn't mean tax-free

The company may have hoped that failing the "information service" test (or fitting the personal/individual exclusion) would make it exempt. Instead, the Department reclassified the activity as taxable storage. Escaping one enumerated service can land you in another — you have to test the transaction against all the taxable-service categories.

Records-storage services: source the tax to your place of business

For this storage service, the Department taxes all subscriber charges at the rate for the locality where the provider's business is located, and it applies regardless of where the subscriber lives. Out-of-state subscribers don't take the service out of New York tax when the storage is performed here.

Common questions

Q: Is a medical-records storage and retrieval service taxable in New York?
A: Yes — as a storage service under § 1105(c)(4). It stores the subscriber's records and transmits them on request, which is taxable storage of tangible personal property.

Q: Isn't it an information service (and therefore covered by the personal/individual exclusion)?
A: No. Under Finserv, it furnishes no new information or intelligence — it only reformats and retransmits records the subscriber already has — so it isn't an information service at all.

Q: Does an out-of-state subscriber avoid the tax?
A: No. All charges are taxable at the rate for the locality of the provider's place of business, regardless of the subscriber's residence.

Q: What's the practical test between the two service types?
A: Whether the customer gets back new intelligence (information service) or just their own data in a different form or on demand (storage). The latter is taxable storage.

Citations and references

Statutes, regulations, and authorities:

• Tax Law § 1105(c)(1) (tax on furnishing information; exclusion for personal or individual information)
• Tax Law § 1105(c)(4) (tax on storing tangible personal property not held for sale in the regular course of business)
• Sales and Use Tax Regulations § 527.3 (sale of information services)
• Sales and Use Tax Regulations § 527.6 (storage of tangible personal property)
• Finserv Computer Corporation v. Tully, 94 A.D.2d 197, aff'd 475 N.Y.S.2d 279 (furnishing information means new intelligence, not mere conversion of a customer's data from one medium to another)

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_7s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-92 (7)S
Sales Tax
January 31, 1992

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S910813A

On August 13, 1991 a Petition for Advisory Opinion was received from Immediate Medical
Records, Inc., 55 Atlantic Avenue, Lynbrook, New York 11563.
The issues raised by Petitioner, Immediate Medical Records, Inc., are:

1. Whether Petitioner will be required to collect New York State and Local Sales Tax on
   receipts from charges to subscribers for the subscription price of its proposed medical records storage
   services or on other charges in connection therewith, regardless of the subscribers's place of
   residence, or
2. Whether Petitioner's service will qualify as an exempt information service whereby
   Petitioner's receipts will be excluded from sales tax.
   Petitioner proposes to offer a service which will provide for the organization, updating,
   computer storage and prompt availability of a client's essential medical records along with rapid
   retrieval and transmission of such records to a requesting physician when medical care is required
   and medical records are not available.
   Petitioner will store in a computer hospital discharge summaries, operative summaries, most
   recent EKG and laboratory reports, X-ray interpretations, CATSCANS, MRI's, ultrasound studies,
   angiographic studies, stress tests and other information specified for computer storage by the
   subscriber or by the subscriber's physician. Any additional medical records received by Petitioner
   will be stored in hard copy.
   Upon order of the subscriber, Petitioner will first provide an index of what medical
   information is available and then copies of the items selected by the requesting physician. Petitioner
   will transmit the information by fax, modem or overnight delivery service, whichever is applicable.
   Petitioner's receipts will be derived from annual subscription fees plus transmittal costs.
   Petitioner will give subscribers forms for requesting particular records from physicians and
   hospitals and the physicians' primary and secondary diagnosis. Upon receipt of such records and
   diagnosis, Petitioner will examine the information submitted and will advise the subscriber if
   additional information is required.
   Petitioner's personnel will comb, sort and consolidate the subscribers records and code them
   according to type: diagnostic tests, invasive and surgical procedures, hospitalizations, etc., and
   further subcategorize by nature and date of the record. Petitioner will generate a table of contents of

-2­
TSB-A-92 (7)S
Sales Tax
January 31, 1992
the records as a tool for selection by a requesting physician. The essential medical file will be
scanned and recorded by an optical scanner and the remaining materials will be kept in hard copy.
The subscriber or the subscriber's physician may furnish Petitioner additional data through
the year. Petitioner will integrate the new data with the previously submitted data, adding to or
replacing information as required.
Petitioner will have control procedures which will assure that requests are either by or on
behalf of the subscriber and based on a health care purpose and that the information provided to the
subscriber or subscriber's designee will not be given to others for another purpose.
Section 1105 of the Tax Law states, in part:
Imposition of sales tax.--. . .there is hereby imposed and there shall be paid
a tax. . .upon:
(c) The receipts from every sale, except for resale, of the following services:
(1) 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 and individual in nature and which is not or may not
be substantially incorporated in reports furnished to other persons . . .
(4) Storing all tangible personal property not held for sale in the regular course of
business. . .
Section 527.3 of the Sales and Use Tax Regulations states, in part:
(a) Imposition. (1) Section 1105(c)(1) of the Tax Law imposes a tax on the receipts
from the service of furnishing information by printed, mimeographed or
multigraphed matter or by duplicating written or printed matter in any manner such
as by tapes, discs, electronic readouts or displays.
(2) The collecting, compiling or analyzing information of any kind or nature and the
furnishing reports thereof to other persons is an information service.
(b) Exclusions.
(2) The sales tax does not apply to the receipts from the sale of information which
is personal or individual in nature and which is not or may not be substantially

-3­
TSB-A-92 (7)S
Sales Tax
January 31, 1992
incorporated into reports furnished to other persons by the person who has collected,
compiled or analyzed such information.
Section 527.6 of the Sales and Use Tax Regulations states, in part:
Storage of tangible personal property. [Tax Law. § 1105(c)(4)]
(a) Definition. Storage is the provision of a place for the safekeeping of goods,
without regard to the manner of payment or length of time of the service.
(b) Imposition. (1) The tax is imposed on the sale, except for resale, of the service
of storing tangible personal property,. . .
In the instant case, Petitioner will provide each subscriber with request forms for the purpose
of obtaining certain medical records and diagnosis pertaining to the subscriber from hospitals and
physicians. Such records and diagnosis are to be forwarded to Petitioner. Petitioner will computer
store pertinent portions of the records and diagnoses, with the remainder being stored in hard copy.
At the request of a subscriber or the subscriber's designee, Petitioner will forward pertinent data to
the subscriber's attending physician by fax, modem or overnight delivery.
In Finserv Computer Corporation v. Tully, 94 AD2d 197, aff'd 475 NYS2d 279, the court
stated, in part:
Special Term upheld petitioner's contention that the sales at issue are
primarily services for the "furnishing of information" (Tax Law, §1105, subd. [c],
par. [1]) and, therefore, since the information provided concededly is personal or
individual in nature and may not be incorporated into reports furnished to other
persons, no sales tax is applicable (id.). Section 1105 (subd. [c], par. [1]) of the Tax
Law and its regulations (20 NYCRR 527.3) describe "furnishing of information" as
"collecting, compiling or analyzing information of any kind or nature and furnishing
reports thereof". Respondent's determination concluded that "[p]etitioner did not
furnish its customers with any information its customers did not previously have.
Therefore, petitioner's sales were not of information services but rather the
rearranging of its customers' information onto a different medium". Thus, respondent
distinguished between (1) integrating or recasting the information received from the
customer so that the customer is given back some new information, or some new
significant intelligence, concerning the data furnished, and (2) converting the
information received from the customer 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. Respondent's determination considered only
the first of these two alternatives (i.e., providing new information or intelligence) to
be "furnishing of information" within section 1105 (subd. [c], par. [1]) of the Tax
Law (see, also, Technical Services Bureau Bulletin No. 1978-1 [S] [CCH, 2 NY Tax
Rep, par. 66-001]; Technical Services Bureau Memorandum - 1981 [3]S).
Respondent's interpretation seems to be consistent with the statutory language

-4­
TSB-A-92 (7)S
Sales Tax
January 31, 1992
"collecting, compiling or analyzing". One cannot collect, compile or analyze the data
of a customer without in some way significantly adding to the sum of knowledge of
the customer with respect to that data. In thus distinguishing between furnishing new
information to the customer and merely changing information already possessed from
one format to another, the commissioner rationally interpreted the statute and that
interpretation, therefore, must be upheld (see Matter of Howard v. Wyman, 28 N Y
2d 434, 438). . . .
Based on the determination reached by the court in Finserv Computer Corporation vs. Tully,
supra, that one cannot collect, compile or analyze the data of a customer without in some way
significantly adding to the sum of knowledge of the customer with respect to that data, so that the
customer is given back some new information or some new significant intelligence, in the instant
matter it must be concluded that Petitioner's sales will not be sales of information services since
Petitioner will not be providing subscribers or subscribers' designees with new information or new
significant intelligence. Accordingly, Petitioner's sales will not be considered as sales of the
furnishing of information within the provisions of Section 1105(c)(1) of the Tax Law and likewise
will not fall within the exception provided therein for being personal or individual in nature.
However, since Petitioner will computer store certain information submitted by or on behalf
of a subscriber and also store any additional medical records in hard copy, for the purpose of
transmitting, only upon request, any of the information on file to a subscriber or the subscriber's
designee, Petitioner will be considered to be in the business of storing medical records and not in the
business of selling information. Accordingly Petitioner will be considered to be selling the service
of storing tangible personal property not held for sale in the regular course of business in accordance
with the meaning and intent of Section 1105(c)(4) of the Tax Law and Section 527.6 of the Sales and
Use Tax Regulations.
Where Petitioner's service occurs within New York State, Petitioner's receipts from all
charges to subscribers will be subject to the combined New York State and local sales tax imposed
under the provisions of Section 1105(c)(4) of the Tax Law regardless of the subscriber's place of
residence. All receipts will be subject to the combined New York State and local tax rate in effect
for the locality where Petitioner's place of business is to be located.

DATED: January 31, 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.