New York Advisory Opinion TSB-A-96(3)S: Is a proxy solicitation firm's confidential "stock watch service," which identifies a client's individual shareholders and debtholders through investigative research, excluded from New York sales tax as personal information not shared with other clients?

Plain-English summary

Morrow & Co., Inc. provides proxy solicitation and stockholder identification services to publicly traded domestic and foreign corporations. Its "stock watch service" -- also described as a nominee identification/stock surveillance service -- gives clients individual shareholder and debtholder intelligence, a service that evolved from demand Petitioner's proxy-solicitation clients expressed in the late 1970s and early 1980s: they needed to know who owned their stock, track the position movements of specific shareholders, watch for "toehold" accumulation by potential corporate raiders, and get voting intelligence on issues requiring shareholder approval. Drawing on its expertise and contacts from the proxy solicitation field, Petitioner gathers this information through a comprehensive, multi-source process: weekly and daily security-position listings from major depositories like the Depository Trust Company (the largest), Midwest Securities Trust Company, and Philadelphia Securities Trust Company (each requiring a client-signed authorization letter before releasing data); authorization-gated account breakdowns from custodian banks and brokerages including Bessemer Trust, Brown Brothers Harriman, and Merrill Lynch, Pierce, Fenner & Smith; and additional specialized sources like ILX Systems, Nelson's Directory of Investment Managers, and Vickers Stock Traders Guide. All investigative work and analysis is performed exclusively by Petitioner's own personnel, specifically to maintain confidentiality and avoid triggering rumors about a client's stock -- Petitioner doesn't maintain a general databank it can simply query by client name; each report reflects that specific client's stockholders at that specific moment, a constantly shifting picture especially when someone is actively accumulating shares. Reports are private, confidential, and contractually barred from being shared with anyone else.

The Department ruled the stock watch service receipts are not taxable. Tax Law § 1105(c)(1) taxes information services generally but excludes furnishing information that is personal or individual in nature and not, or may not be, substantially incorporated into reports furnished to other persons. Given the client-specific, investigation-driven, confidentially-contracted nature of Petitioner's reports, the Department found the service falls within this exclusion -- the same conclusion reached the same day in the Department's companion ruling for Kissel-Blake, Inc. (TSB-A-96(4)S), a similar stockholder-identification firm. The Department also confirmed the stock watch service isn't a taxable "protective and detective service" under § 1105(c)(8), so receipts escape tax under either potentially applicable provision.

What this means for you

Proxy solicitation and stockholder-identification firms

If your research is built fresh for each client from that client's own situation, drawing on your own investigative process and external data sources, and the resulting reports are contractually confidential and not reused or resold to other clients, you likely qualify for the personal/individual information exclusion -- even though the underlying process (depository listings, custodian bank surveys, specialized databases) is itself standardized and repeatable across clients.

Information service providers assessing this exclusion

What matters is the OUTPUT's client-specificity and confidentiality, not whether your internal PROCESS or data sources are similar across engagements -- Morrow's stock watch service uses many of the same depositories and data sources for every client, but each resulting report is unique to that client's own stockholder base at that moment.

Common questions

Q: Does needing client authorization letters to access depository data affect the tax analysis?
A: Indirectly -- it reinforces that the process is confidential and client-specific (each authorization is tied to a particular client's own account data), which supports the Department's finding that the resulting reports are personal/individual information rather than a generic product.

Q: Is this the same outcome as the Kissel-Blake ruling issued the same day?
A: Yes -- TSB-A-96(4)S involved a similar stockholder-identification and "NOMINEX" service and reached the identical conclusion under the same statutory exclusion, confirming this is a consistent Department position for this type of confidential, client-specific stock-ownership research.

Q: Would the answer change if Morrow sold a standardized shareholder list product to multiple clients?
A: Likely yes -- the exclusion specifically requires the information NOT be substantially incorporated into reports furnished to other persons; a generic, resold product wouldn't qualify, unlike Petitioner's individualized, non-shareable client reports.

Citations and references

Statutes and regulations:

• Tax Law § 1105(c)(1) (information services tax; personal/individual information exclusion)
• Tax Law § 1105(c)(8) (protective and detective services tax)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a96_3s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (3)S
Sales Tax
January 25, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S950425B

On April 25, 1995, a Petition for Advisory Opinion was received from Morrow & Co., Inc.,
909 Third Avenue, 20th Floor, New York, New York 10022.
The issue raised by the Petitioner, Morrow & Co., Inc., is whether receipts from its "stock
watch service" are excluded from sales tax under the provisions of Section 1105(c)(1) of the Tax
Law. This section of the law excludes 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 from the tax as it applies to information services.
The petition sets forth the following facts.
Petitioner is in the business of providing proxy solicitation and stockholder identification
information services to publicly traded domestic and foreign corporations. Petitioner's nominee
identification/stock surveillance service ("stock watch service") provides clients with individual
shareholder and debtholder intelligence. Clients retain Petitioner's "stock watch service" to enhance
their knowledge of the current ownership of their stock. The "stock watch service" evolved from
a demand for accurate, timely market intelligence geared to the confidential and unique needs of
clients. This demand was expressed by clients of Petitioner's proxy solicitation service during the
late 1970's and early 1980's who needed to know who owned their stock and who also required
information regarding the position movements of specific shareholders, surveillance of possible
"toehold positions" by threatening "corporate raiders," and voting intelligence on issues requiring
shareholder approval. Expertise in the proxy solicitation field allowed Petitioner to respond to
clients' needs. Petitioner had developed numerous contacts for obtaining information regarding the
holdings of major institutions and has always maintained a working knowledge of the depository
system and a unique understanding of custodial relationships, including some knowledge of nominee
history.
Petitioner gathers information through a comprehensive process that utilizes internal and
multiple external resources. All investigative efforts and analyses are executed solely by Petitioner's
personnel in order to maintain confidentiality and to avoid the instigation of rumors concerning
clients' stock. Reports furnished by Petitioner to clients are private and confidential and, by contract,
may not be furnished to others. The quality of the information that Petitioner compiles for its clients
is the result of experience accumulated over many years, which allows Petitioner to analyze data
without relying unnecessarily on unconfirmed reports.

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TSB-A-96 (3)S
Sales Tax
January 25, 1996
Initial steps in the surveillance process require weekly updates of positions held through
major depository accounts, of which the Depository Trust Company is the largest. These security
position listings may not be released to Petitioner without a client first writing a letter authorizing
Petitioner to receive this information. Depository Trust Company requires separate letters for weekly
subscriptions and daily listing requests. To receive a daily security position listing from the Midwest
Securities Trust Company, another authorization letter is necessary. Philadelphia Securities Trust
Company also requires an authorization letter prior to releasing account information. Further steps
in the surveillance process require similar authorization. To receive information regarding non­
objecting beneficial owners, a client's authorization is required. Account breakdowns from various
custodian banks and brokerage firms also may necessitate a client's authorization. Bessemer Trust
must receive an authorization letter prior to releasing account information. Brown Brothers
Harriman requires a letter of authorization. Merrill Lynch, Pierce, Fenner & Smith also needs a letter
of authorization to release a geographical breakdown of its holders. As the "stock watch service"
has matured, numerous sources have been developed to assist in the identification process. ILX
Systems, Nelson's Directory of Investment Managers, Morningstar Mutual Funds, The Money
Market Directory of Pension Funds, and Vickers Stock Traders Guide are some examples of sources
used by Petitioner.
The "stock watch service" is not a fixed quantity but a continuing process. Accurate and
timely information is provided as a result of diligent research and analysis, executed on a case-by­
case basis. The report given to one client is different from the report given to another client. It is
as different as the identities of the stockholders of one client are from the identities of the
stockholders of another. Petitioner does not have a databank with a list of all the stockholders of
every company which it can access by entering the name of a client and thereby obtain a list of the
client's stockholders. It is a constantly changing situation, especially when someone is in a program
of acquiring stock. The "stock watch service" provided to a client by Petitioner is a listing of the
client's stockholders at a particular time. It is not providing a list from a common database or
providing compilations that could be easily provided by the client itself if it were to take the trouble
to do so. It is a specialized, individual information service which is the result of investigation,
analysis and experience.
Section 1105(c)(1) of the Tax Law imposes tax on receipts from every sale, except a sale for
resale, of:
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, 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,
and excluding meteorological services.

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TSB-A-96 (3)S
Sales Tax
January 25, 1996
Section 1105(c)(8) of the Tax Law imposes tax on receipts from every sale, except a sale for
resale, of:
Protective and detective services, including, but not limited to, all services provided
by or through alarm or protective systems of every nature, including, but not limited
to, protection against burglary, theft, fire, water damage or any malfunction of
industrial processes of any other malfunction of or damage to property or injury to
persons, detective agencies, armored car services and guard, patrol and watchman
services of every nature other than the performance of such services by a port
watchman licensed by the waterfront commission of New York harbor, whether or
not tangible personal property is transferred in conjunction therewith.
The information that is furnished by Petitioner to clients is private, confidential and unique
to each client. The research efforts conducted by Petitioner are tailored in each instance to maintain
confidentiality and to meet the unique needs of the client. In the instant case, the "stock watch
service" that is provided by Petitioner is considered to be the furnishing of information which is
personal or individual in nature and the information is not or may not be substantially incorporated
into reports furnished to other persons. In addition, this service is not a protective or detective
service within the meaning of Section 1105(c)(8) of the Tax Law. Accordingly, receipts from the
sale of the service are not taxable as receipts from the sale of an information service pursuant to
Section 1105(c)(1) of the Tax Law or as receipts from the sale of a protective or detective service
pursuant to Section 1105(c)(8) of the Tax Law.

DATED: January 25, 1996

/s/
DORIS S. BAUMAN
Director
Technical Services Bureau

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