Is an airline's purchase of on-line computer systems -- flight control, crew management, reservations, baggage tracing, and similar tools -- exempt from sales tax as personal or individual information when each system is built around the airline's own confidential operating data?

Subject

Whether Petitioner's purchase of on-line computer services is excluded from New York State Sales and Use Tax pursuant to the provisions of Section 1105(c)(1) of the Tax Law.

What this means for you

A commercial airline (originally Trump Shuttle, later USAir Shuttle) contracted with a computer services vendor for a suite of on-line systems used at its New York, Boston, and Washington terminals: Flight Control (tracking each flight's departure/arrival status), Crew Management (crew qualifications, training, hours), AFTN (daily flight plans sent to Air Traffic Control), Flight Plan (route information for flight crews), Scratch Pad (blank data-entry screens), ACTS (baggage tracing), Baggage Claims Central File, Sub-Host Reservations (booking and confirming flights), and TSO Time Sharing (mainframe storage/reporting). The vendor could sell software services to the airline's competitors too, but each system here was specifically customized to the airline's own specifications, populated only with the airline's own confidential flight, crew, and passenger data, and contractually restricted from disclosure to anyone else.

New York taxes "information services" -- collecting, compiling, or analyzing data and reporting it to others -- but excludes information that's personal or individual in nature and isn't (and can't be) folded into reports given to other people. Applying that test system by system: the Flight Control, Crew Management, AFTN, Flight Plan, ACTS, Baggage Claims Central File, and Sub-Host Reservations systems are all built exclusively from the airline's own confidential data, delivered only to the airline, and never shared with or incorporated into any other airline's reports -- so each qualifies as exempt personal/individual information. The Scratch Pad System and TSO Time Sharing Service couldn't be resolved either way on the facts as presented -- their tax status turns on whether the information obtained through them meets that same personal-information test. But other services the airline also received through the same vendor -- systems like Terminal Weather, Easy Trac, and Global Pricing -- draw on data that ISN'T unique to this one airline, so those remain taxable information services.

Q&A

Q: We buy on-line computer/software systems custom-built around our own company's confidential operational data, viewed only by our own staff -- is that exempt from sales tax?
A: Yes, per this opinion, as long as the reports are based solely on data your company supplied, are delivered only to your company, and are never included in reports the vendor furnishes to anyone else.

Q: Does it matter that our vendor also sells similar software services to our competitors?
A: No, per this opinion -- what matters is whether YOUR reports are exclusively yours and kept confidential from other customers, not whether the vendor serves other clients with their own separate, similarly customized systems.

Q: We also subscribe to shared industry data through the same vendor (like weather reports or fare/pricing databases covering multiple airlines) -- is that treated the same way?
A: No, per this opinion -- services drawing on data that isn't unique or personal to your company (shared across the industry) remain taxable information services under § 1105(c)(1).

Q: What if we can't tell from our own facts whether a particular system's data is personal/individual to us?
A: This opinion itself declined to resolve that question for two of the systems described (Scratch Pad and TSO Time Sharing) because the facts presented weren't sufficient to determine whether their output met the personal-information test.

Q: Can another airline or company rely on this opinion for its own on-line computer services?
A: No. This advisory opinion binds the Department only as to the petitioner and the facts described here; another taxpayer cannot rely on it.

Citations

• Tax Law § 1105(c)(1) -- imposes tax on furnishing information (including collecting, compiling, or analyzing information and furnishing reports of it), excluding information that is personal or individual in nature and not substantially incorporated into reports furnished to other persons.
• Sales and Use Tax Regulations § 527.3 -- defines taxable information services (including electronic readouts/displays) and excludes information that is personal or individual and not incorporated into reports for other persons.
• Sales and Use Tax Regulations § 526.7, Example 14 -- computer terminal access alone is not a taxable transfer of possession of the computer, but the transaction may still be taxable based on the information provided.
• New York State Department of Taxation and Finance, Technical Services Bureau Bulletin 1978-1(S) ("Computers") -- explains that data-processing/information services are taxable under § 1105(c)(1) unless the output is personal/individual to the recipient and cannot be incorporated into reports furnished to others.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1993.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a93_58s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (58) S
Sales Tax
November 10, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S930330A

On March 30, 1993 a Petition for Advisory Opinion was received from Trump Shuttle, Inc.
(currently, Shuttle, Inc. D/B/A US Air Shuttle), 75-20 Astoria Blvd., Jackson Heights, N.Y. 11370.
The issue raised by Petitioner, Trump Shuttle, Inc. (currently, Shuttle, Inc. D/B/A USAir
Shuttle), is whether Petitioner's purchase of on-line computer services is excluded from New York
State Sales and Use Tax pursuant to the provisions of Section 1105(c)(1) of the Tax Law.
Petitioner is a commercial airline carrier. It has terminals in New York City, Boston and
Washington, D.C. Each terminal is equipped with computer equipment (CRTs and printers) and
on-line access to software. The software utilized by Petitioner's employees enables the employees
to schedule or access flight information, coordinate passenger, crew and baggage information, obtain
weather reports and conduct similar tasks associated with the airline business.
On June 8, 1989, Petitioner and System One Corporation entered into a contractual
agreement ("contract") whereby System One agreed to provide certain software (i.e., computer) and
telecommunications services and to lease certain items of equipment to Petitioner. The sales tax on
the telecommunications services and items of equipment are not at issue in the audit or in this
petition.
System One may provide software services to competitors of Petitioner. However, the reports
generated by the software and the on-line access of the software and data base by Petitioner is
confidential and used exclusively by Petitioner. These reports are not rendered to any parties other
than Petitioner and the software that is modified for Petitioner can only be accessed by Petitioner.
The contract specifically states that "the software and any related documentation supplied to
Petitioner by System One are for the exclusive use of Petitioner and shall not be disclosed or made
available to any other person, firm, corporation, or entity". Additionally, the contract provides that
System One agrees that "all information is confidential business information, shall not be disclosed
to third parties without Petitioner's consent and this covenant shall survive termination of the
agreement"
Each software service has been specifically modified to the specifications required by
Petitioner and contains confidential Petitioner data. For example, the "Flight Plan Services" portion
of the software must be formatted by System One and Petitioner to account for each of Petitioner's

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November 10, 1993
flight segments. In addition, the database must be updated by Petitioner's data not less than fifteen
(15) days in advance of the scheduled flight operations. The information provided by Petitioner for
the database includes items such as:
*

the type and aircraft performance information for Petitioner's aircraft which will be
utilized to operate the flight,

*

the flight segments over which Petitioner's aircraft will operate, and

*

the scheduled departure or arrival times for Petitioner's flight segments.

Other examples of services provided by System One that are modified for Petitioner and
contain Petitioner's raw data include systems for "Flight Control", "Crew Management", "Baggage
Claim", "Scratch Pad" and "Reservations" These systems can be distinguished from systems that may
contain a database, for instance, of fares and flight information for all domestic airlines such as
Delta, Continental, etc.
The following is a description of the services provided to Petitioner by System One. Each
system was modified by System One based upon Petitioner's specifications and confidential
directions. Each system contains data provided only by Petitioner and each report generated by the
system is used exclusively by Petitioner's personnel.
A.

Flight Control System

The Flight Control System information service processes Petitioner's daily flight
information such as the flight number, the aircraft number, the aircraft's departure
and arrival cities and times, and alternate cities for arrivals when weather related
problems exist. As a flight departs, the crew calls back with their departure time and
it is then recorded into the system by Petitioner's control center agent. When the
flight arrives, the crew calls in with their arrival time and such information is
recorded by Petitioner's control center agent at the arrival city. This is done on an
hourly basis, and is used by Petitioner's Flight Dispatch department to track the status
of each flight. Daily arrival time reports are processed by System One and are printed
by Petitioner's Dispatch personnel.
B.

Crew Management System

The Crew Management information service is used to process information relating
to each member of Petitioner's flight crew. Specifically, Petitioner inputs
information including the crew's qualifications, the crew's training experience,
current and future crew training dates, crew flight hours and a listing of the last ten
flights of each crew member. The initial information is input by Petitioner's Flight
Operations Department and it is updated by them on a weekly basis. Various reports
are available for printing on a daily basis and at the end of the month.

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C.

AFTN (Aeronautical Fixed Telecommunications Network)

This system is used by Petitioner's Dispatchers to generate Petitioner's daily flight
plans. These flight plans are reviewed internally and are ultimately forwarded to Air
Traffic Control electronically. Petitioner's personnel inputs information on each flight
number, type of equipment, air speed, altitude and various points along the flight
path.
D.

Flight Plan

System One, by using the information provided by Petitioner's Dispatchers, processes
reports containing all the necessary information for the flight crew to use during its
flight route.
F.

Scratch Pad System

System One provides access to software containing 1000 blank screens. The screens
are used by Petitioner's personnel to design and input select information. Only
Petitioner's personnel can access the system.
G.

ACTS (Airline Computerized Baggage Tracing System)

Performs a programmed baggage tracing function comparing messages containing
unclaimed baggage information. Input messages are entered into the system by
Petitioner's Baggage Service Agents on bags that are missing or unclaimed. A report
printed on a weekly basis for Petitioner's Passenger Services Group to determine the
amount of mishandled baggage.
H.

Baggage Claims Central File System

An information processing system for Petitioner's shuttle data. The Baggage Claims
Central File System provides programmed baggage claim tracing and filing functions
to assist in the detection of repetitive and duplicate baggage.
J.

Sub-Host Reservations

A reservation information system used by Petitioner's Reservations Agents to book
and confirm flights on Petitioner's airline. When a passenger requests space for travel
on Petitioner's flights, the Reservations agent inputs the necessary information into
the system and confirms the booking.
K.

TSO Time Sharing

The Time Sharing Service includes the access of System One's mainframe for storage
of select information by its Reservations Agents and the processing of various reports
from this data.

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Sales Tax
November 10, 1993
Section 1105 of the Tax Law states, in part:
Sec. 1105.
Imposition of sales tax.--On and after June first, nineteen
hundred seventy-one, there is hereby imposed and there shall be paid a tax of four
percent upon:
(a) The receipts from every retail sale of tangible personal property, except
as otherwise provided in this article.
(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 or individual in nature and which is not or may not be
substantially incorporated in reports furnished to other persons, . . .
Section 527.3 of the Sales and Use Tax Regulations state, in part:
Sale of information services. (Tax Law, §1105[c][1])
(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.
(3) Among the services which are information services are credit reports, tax
or stock market advisory and analysis reports and product and marketing surveys.
(b) Exclusions. (1) Sales tax does not apply to receipts from sales of
information services which are for resale as such.
(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
incorporated into reports furnished to other persons by the person who collected,
compiled or analyzed such information.

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Sales Tax
November 10, 1993
Section 526.7 of the Sales and Use Tax Regulations states, in part:
Sale, selling or purchase. [Tax Law, §l101(5)] (a) Definition.
(1) The words sale, selling or purchase mean any transaction in which there
is a transfer of title or possession, or both, of tangible personal property for a
consideration.
(2) Among the transactions included in the words sale, selling or purchase are
exchanges, barters, rentals, leases or licenses to use or consume tangible personal
property.
(e) Transfer of possession
.
(5) It is not essential for a transfer of possession to include the right to move
the tangible personal property which is the subject of a rental, lease or license to use.
Example 14:

A corporation contracts with a center for access time
on the computer center's equipment through the use of
a terminal located in the corporation's office. The
terminal is connected to the computer by telephone.
The corporation's access to the computer through the
terminal is not deemed to be a transfer of possession
of the computer subject to tax. However, the
transaction may be taxable based on the information
provided to the customer.

New York State Department of Taxation and Finance, Taxpayer Services Division, Technical
Services Bureau Bulletin 1978-1(S), titled COMPUTERS, states in part:
5.

Data Processing Services - Information Services - Information
services are commonly provided by data processing centers. An
information service may consist of a data processing company using
its own facilities to process customer data to produce information.
The data may be provided to the data processing company in source
document form, as machine readable media, or entered directly into
the company's computer facilities via devices located at the
customer's premises. Output may be in the form of reports on paper
or other media, or may be transmitted electronically to the customer's
site.

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Sales Tax
November 10, 1993
Information services are subject to tax (section 1105(c)(1)), unless the information
output (paper or other media) is:
(1) personal or individual in nature to nature recipient, and
(2) the data processing company cannot or may not incorporate a substantial portion
of the same information in reports which it furnishes to other persons.
The fact that the customer is billed each of the steps required to perform the service
will not alter the application, nor will the incidental transfer of some tangible
personal property affect the taxability, i.e. the sales tax status of the information
service provided to the customer will determine the taxability of the total charge,
(taxable or exempt under section 1105(c)(1)) ....
Processing of the following data are examples of exempt information service:
Accounting Reports
Accounts Receivable
Accounts Payable
Sales Analysis
Inventories
Payrolls
Tax Reports
In the instant matter, System One Corporation provides both an on line computer service and
an information service to Petitioner. It is not engaged in the business of selling software. Petitioner
directly enters data into System One via devices located at Petitioner's various locations. From the
data submitted by Petitioner, System One generates reports which are delivered electronically to
Petitioner. In those instances where the information in the reports is based only upon the data
submitted by Petitioner, is only delivered to Petitioner and cannot be and is not included in reports
to other parties, and by its nature is unique to Petitioner, the information is considered to be personal
and individual in nature in accordance with the guidelines established by Technical Services Bureau
Bulletin 1978-1(S), supra.
Accordingly, the receipts from charges to Petitioner for the reports generated by the Flight
Control System, the Crew Management System, the AFTN, Flight Plan, ACTS, the Baggage Claims
Central File System and the Sub-Host Reservations are not subject to sales tax as the information
in such reports falls within the exclusion from tax provided under Section 1105(c)(1) of the Tax
Law.
The tax status of receipts from charges to Petitioner for use of the Scratch Pad System and
the TS0 Time Sharing Service will be determined on whether the information obtained from the

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Scratch Pad System or via the TSO Time Sharing Service qualifies for the exclusion from tax
provided under Section 1105(c)(1) of the Tax Law. It cannot be determined from the facts as
presented by Petitioner, as to whether the information received so qualifies.
Petitioner also receives other reports through System One which do not qualify for the
exclusion from tax provided under Section 1105(c)(1) of the Tax Law since the information
contained in the reports is based on data which is not uniquely personal or individual in nature to
Petitioner such as Terminal Weather System, Easy Trac and Global Pricing. These reports are subject
to the tax imposed by Section 1105(c)(1) of the Tax Law.

DATED: November 1, 1993

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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