Does a nonprofit news cooperative owe sales tax on the information services it buys for its members, or on production equipment and utilities it provides at member newspapers?

Plain-English summary

The Associated Press (AP) is a not-for-profit news-gathering cooperative owned by its 1,550+ newspaper and 6,000+ broadcast station members, formed so members can share the cost of national and global news gathering rather than each covering it alone. AP asked the Department two questions: whether its purchases of electronic information services (stock quotes, sports statistics, weather forecasts) that it buys from independent providers and passes on to its members are taxable, and whether the computers, photographic equipment, electronic darkrooms, and utilities it buys and installs at member newspapers and its own offices and bureaus are exempt.

On the first question, the Department said AP's information-service purchases are not taxable. New York excludes from the information-services tax any service "used by newspapers, radio broadcasters and television broadcasters in the collection and dissemination of news." Because AP's members are themselves newspapers and broadcasters, and AP buys these services specifically for its members' news-gathering and dissemination function as a cost-sharing cooperative, not a commercial reseller, the exclusion applies.

On the second question, the Department said the equipment and supplies can qualify for the manufacturing/production exemption, but only to the extent they're used directly and predominantly (more than 50% of the time) to produce components of a newspaper -- photographs, advertisements, and news wire content -- whether used by AP itself or at member locations. Electricity and other utilities used to power that production equipment are exempt too. The Department couldn't rule on every category of equipment without more detail on how each item is actually used.

What this means for you

News cooperatives, wire services, and similar member-owned organizations

If your organization buys information services on behalf of member newspapers or broadcasters for their news-gathering and dissemination function, those purchases can qualify for the same news-collection exclusion that would apply if each member bought the service directly -- the cooperative structure doesn't forfeit the exclusion.

Publishers and broadcasters buying production equipment

Equipment that acts directly on the production of your published product (computers, photographic/prepress equipment, darkrooms) can qualify for the manufacturing exemption if more than half its use is in the actual production phase -- but equipment used mainly for administration or distribution doesn't qualify, so track usage carefully if a piece of equipment serves multiple purposes.

Accountants and tax professionals

This ruling is a useful walkthrough of both the narrow "used by newspapers... in the collection and dissemination of news" information-services exclusion and the "directly and predominantly" production-equipment test under 20 NYCRR § 528.13, including how utilities powering exempt equipment are also exempt under § 1115(c).

Common questions

Q: Is every information service a news organization buys exempt from sales tax?
A: No. The exclusion is specific to information services "used by newspapers, radio broadcasters and television broadcasters in the collection and dissemination of news," not general business information purchases.

Q: Does a nonprofit cooperative structure matter for this exemption?
A: It supports the analysis here because AP's members are themselves newspapers and broadcasters using the information for the exempt purpose, but the underlying test is about how the information is used, not about nonprofit status alone.

Q: What equipment used at member newspaper offices qualifies for the production exemption?
A: Equipment used directly and predominantly (over 50% of the time) to produce components of a newspaper for sale, such as computers, prepress and photographic equipment, and electronic darkrooms. Equipment used mainly for administration or distribution doesn't qualify.

Q: Can another news organization or cooperative rely on this ruling?
A: No. It's an Advisory Opinion binding the Department only as to the Associated Press and the specific cooperative structure and equipment it described.

Citations and references

• Tax Law § 1105(c)(1) (information services; news collection/dissemination exclusion)
• Tax Law § 1115(a)(12) (production machinery and equipment exemption)
• Tax Law § 1115(c) (utilities used directly in production exemption)
• 20 NYCRR § 528.13(b), (c) (production activities; directly and predominantly test)
• 20 NYCRR § 528.22(c) (utility exemption for production)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1998.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a98_45s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(45)S
Sales Tax
July 29, 1998

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S971210E

On December 10, 1997, the Department of Taxation and Finance received a
Petition for Advisory Opinion from The Associated Press, 50 Rockefeller Plaza,
New York, New York 10020-1666.
The issues raised by Petitioner, the Associated Press, are:
1.
Whether Petitioner’s purchases of information services are
subject to New York State sales and use tax.
2.
Whether equipment, supplies and utilities purchased on behalf
of and for the use by Petitioner’s members and located at member
newspapers and at Petitioner’s offices and bureaus in New York, are
exempt from New York State sales and use tax.
Petitioner submits the following facts as the basis for this Advisory
Opinion.
Petitioner is a news gathering cooperative which was formed in 1848 by six
New York City newspapers to share the cost of gathering news outside the New York
metropolitan area. It was not until 1900 that Petitioner was incorporated under
the New York Membership Corporation Law. As mandated by its charter and by-laws,
the objects and purposes of Petitioner are “to gather, obtain and procure by its
own instrumentalities, by exchange with its members and by any other appropriate
means, any and all kinds of information and intelligence, telegraphic and
otherwise, for the use and benefit of its members and to furnish and supply the
same to its members for publication in the newspapers owned or represented by
them, under and subject to such regulations, conditions and limitations as may
be prescribed by the by-laws; and the mutual cooperation, benefit and protection
of its members.” Petitioner is restricted exclusively to the collection and
dissemination of news for and to its members. Petitioner’s membership has grown
from the original six newspaper members to a present membership of 1,550
newspapers and 6,000 radio and broadcast stations in the U.S., and includes
virtually all daily newspapers in New York and most news-oriented radio and
television broadcasters.
Petitioner is administered by a president and a board of directors composed
solely of publishers and broadcasters. Petitioner indicates that it is the only
major U.S. news service that is a not-for-profit cooperative.
Petitioner’s unique collective arrangement with its members has been
designed so that members are effectively sharing the expenses of news gathering.
Petitioner has no stockholders, declares no dividends, and distributes no
profits. Petitioner’s income is used to maintain, improve and expand service.
In practice, Petitioner seeks to “break even” on a cash basis. Petitioner’s
members are assessed an amount equal to Petitioner’s projected annual expenses,

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July 29, 1998

less non-membership income.
Adjustments are made periodically to reflect
anticipated changes in cash flow. In effect, Petitioner operates as the facility
for a cost-sharing arrangement between the members. Without this arrangement,
the costs of national and global news-gathering would be prohibitively expensive
and management by the separate media organizations would be impossible.
Petitioner receives news information from three sources: its members,
Petitioner’s employees or freelance professionals and, as described below,
information service providers. Petitioner’s members are required, pursuant to
their membership agreements, to contribute local news for distribution to the
rest of the membership.
Petitioner’s members are subject to sanction and
ultimately expulsion from membership for failure to provide local news on a
timely basis. In return, members are entitled to receive the collective news
gathering efforts of all of the other members. Members are not compensated for
the news information they provide to Petitioner. Petitioner also has a specially
trained staff of writers, editors, photographers, broadcasters and engineers who
operate with equipment developed and refined by Petitioner to deliver reliable
service to its members.
Petitioner gathers in all parts of the world, news of intelligence of
current and recent events of interest to newspaper readers and distributes it
daily to its members for publication in their newspapers. Petitioner maintains
its principal office in New York City, but also has division points scattered
over the United States, each of which is charged with the duty of collecting
information from a defined territory and preparing and distributing it to
newspapers within the defined area and to other division points for use within
their respective areas. Each member newspaper forwards news deemed important to
the divisional headquarters of its area. In addition, employees of Petitioner
obtain news which is transmitted to the appropriate division headquarters and to
other divisions for distribution to member newspapers within their respective
areas.
The news Petitioner distributes is originally obtained by direct
employees of Petitioner, employees of the member newspapers and employees of
foreign independent agencies with which Petitioner has contractual relations,
such as the Canadian press. Petitioner, moreover, broadcasts its news reports
directly over the airwaves to the listening public, through the facilities of
member radio stations.
Petitioner’s charter and by-laws clearly prescribe the information sharing
purpose of Petitioner. Its by-laws describe it as “a mutual and cooperative
association formed to gather with economy and efficiency an accurate and
impartial report of the news. . . and to furnish and supply the same to its
members. . .”
The membership agreements for member newspapers, radio
broadcasters and television broadcasters have been in effect for many years.
While each agreement is tailored to a specific form of media, one theme is common
to all three forms of membership agreement: they all require that local news and
related information gathered by a member must be shared with Petitioner for
distribution to all of the members.
For example, Petitioner’s Membership
Agreement for Newspapers states: “Member shall promptly furnish to The Associated
Press all the spontaneous news of the Member’s district. . .” Petitioner’s
agreements with its television and radio broadcaster members provides essentially
the same.

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Petitioner regularly purchases electronic services such as stock quotes,
sports statistics and weather forecasts from independent providers for
dissemination to its members for their editorial use. In the past, some of this
information was gathered by Petitioner using its own employees and freelance
professionals.
Petitioner now purchases these services from independent
providers on behalf of its members because it is the most cost-effective means
of obtaining this information. When negotiating the fees for these services, the
providers are aware that Petitioner is disseminating the services to its members.
Petitioner frequently negotiates a specific format from these providers so that
Petitioner does not have to reformat the information prior to distributing it to
its global membership.
Petitioner has bureaus in every state and more than 80 foreign cities. It
has more than 300 news and photography bureaus worldwide.
As part of
disseminating the collective news efforts to its members, Petitioner purchases,
installs and maintains equipment and supplies on behalf of and for the use of its
members at member locations, and also at Petitioner’s
offices and bureaus,
throughout New York State, New York City and elsewhere. Most of the equipment
and supplies are used by Petitioner and its newspaper members in the publication
of newspapers. The equipment is similar to those items found at a typical modern
printing plant including, but not limited to, computers and their integrated
peripheral equipment, photographic equipment and electronic darkrooms. Equipment
and supplies installed at Petitioner’s offices and bureaus are used to produce
and/or transmit components of a newspaper such as photographs, advertisements and
Petitioner’s news wire to member newspapers.
The equipment and supplies at
member locations are used to receive these transmissions from Petitioner and/or
to produce components of a newspaper. Petitioner also incurs significant costs
for electricity and other utilities related to the production of the components
of a newspaper.
Applicable Law & Regulations
Section 1105 of the Tax Law provides 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 . . . 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
. . . .

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Section 1115 of the Tax Law provides in part:
(a)
Receipts from the following shall be exempt from the tax on
retail sales tax imposed under subdivision (a) of section eleven
hundred five and the compensating use tax imposed under section
eleven hundred ten:
*

*

*

(12) Machinery or equipment for use or consumption directly and
predominantly in the production of tangible personal property, gas,
electricity, refrigeration or steam for sale, by manufacturing,
processing, generating, assembling, refining, mining or extracting,
or telephone central office equipment or station apparatus . . .
(c)
Fuel, gas, electricity, refrigeration and steam, and gas,
electric, refrigeration and steam service of whatever nature for use
or consumption directly and exclusively in the production of
tangible personal property, gas, electricity, refrigeration or
steam, for sale, by manufacturing, processing, assembling,
generating, refining, mining, extracting, farming, agriculture,
horticulture or floriculture, shall be exempt from the taxes imposed
under subdivisions (a) and (b) of section eleven hundred five and
the compensating use tax imposed under section eleven hundred ten.
Section 528.13(b) of the Sales and Use Tax Regulations provides in part:
(b)
Production. (1) The activities listed in paragraph (a)(1) of
this section are classified as administration, production or
distribution.
(i)
Administration includes activities such as sales promotion,
general office work, credit and collection, purchasing, maintenance,
transporting, receiving and testing of raw materials and clerical
work in production such as preparation of work, production and time
records.
(ii) Production includes the production line of the plant starting
with the handling and storage of raw materials at the plant site and
continuing through the last step of production where the product is
finished and packaged for sale.
(iii) Distribution includes all operations subsequent to production,
such as storing, displaying, selling, loading and shipping finished
products.
(2)
The exemption applies only to machinery and equipment used
directly and predominantly in the production phase. Machinery and
equipment partly used in the administration and distribution phases
does not qualify for the exemption, unless it is used directly and
predominantly in the production phase.

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Sales Tax
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*

*

*

Section 528.13(c) of the Sales and Use Tax Regulations provides in part:
(c)
Directly and predominantly. (1) Directly means the machinery
or equipment must, during the production phase of a process:
(i)
act upon or effect a change in material to form the product to
be sold, or
(ii) have an active causal relationship in the production of the
product to be sold, or
(iii) be used in the handling, storage, or conveyance of materials
or the product to be sold, or
(iv) be used to place the product to be sold in the package in
which it will enter the stream of commerce.
(2)
Usage in activities collateral to the actual production
process is not deemed to be used directly in production.
*

*

*

(3)
Machinery used to produce other machinery or equipment or
parts for self use in production is considered to be used directly
in production.
*

*

*

(4)
Machinery or equipment is used predominantly in production, if
over 50 percent of its use is directly in the production phase of a
process.
*

*

*

(5)
Machinery or equipment used in production by someone other
than its owner is exempt under the same conditions as other
machinery and equipment.
Opinion
Issue 1
The purchase of information services by Petitioner is not subject to the
tax imposed under Section 1105(c)(1) of the Tax Law since, under Petitioner’s
distinctive collective arrangement with its members, the information services are
used by its member newspapers, radio broadcasters and television broadcasters in
the collection and dissemination of news.

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Issue 2
Petitioner’s equipment and supplies are located at its offices and bureaus
and at member locations.
The equipment includes computers and peripheral
equipment, photographic equipment and electronic darkrooms. The equipment and
supplies are used to prepare various components of a newspaper, such as
photographs, advertisements, and news articles, and to scan and/or transmit these
items to member locations. The equipment and supplies at member locations are
used to receive these transmissions from Petitioner and/or to produce components
of a newspaper. Computers and peripheral equipment, such as keyboards and video
terminals, photographic equipment and electronic darkrooms, as well as related
supplies, used to perform these functions are used directly in the production of
the members’ newspapers. Such equipment and supplies of Petitioner when used by
either Petitioner or member newspapers predominantly in the production of the
members’ newspapers for sale will qualify for exemption under Section 1115(a)(12)
of the Tax Law. It may not be concluded whether other types of equipment and
supplies purchased by Petitioner may qualify for the production exemption without
knowing the details of how the equipment and supplies in question are used.
Electricity or other utilities used to operate equipment which is being
used directly in production are exempt from sales tax under Section 1115(c) of
the Tax Law. Utilities which create conditions necessary for production, or
perform an actual part of the production process, are also exempt under Section
1115(c). See Section 528.22(c) of the Sales and Use Tax Regulations.

DATED: July 29, 1998

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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