Was a customized demographic report exempt as proprietary information when the provider could reuse the underlying data for other clients?

Plain-English summary

The provider compiled a customized demographic and census-data report for one retailer and could not sell that finished report to anyone else. Even so, the Comptroller found the information service taxable because the provider could reuse the same underlying information in a different report for another client.

Rule 3.342(d)(1) exempted information gathered for a particular client only when it was proprietary to that client and could not be sold to others.

What this means for you

Exclusivity of the finished report was not enough. The underlying information also had to be proprietary and unavailable for reuse with other customers.

Common questions

Did customization make the report exempt? No.

What defeated proprietary treatment? The seller could use the same information for another client's report.

Citations and references

• 34 Tex. Admin. Code Rule 3.342(d)(1) — proprietary information compiled for a particular client

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9109L1130D05

Original ruling text

September 12, 1991

Dear ****:

Thanks for taking the time to write. Your question concerns the
taxability of information compiled specifically for ***.

I understand that * is buying customized information. The
information service provider maintains a database from which *'s
information is compiled. * gives the service provider specific
criteria, such as demographic characteristics and census data for a
particular neighborhood in which * has a retail outlet. When
the information is compiled and a report is issued by the service
provider, the service provider may not sell the report to any other
party. The report is proprietary to ** upon issuance.

Under Rule 3.342(d)(1), information gathered or compiled on behalf of
a particular client is not subject to tax if the information is of a
proprietary nature to that client and may not be sold to others. The
key phrase is, "if the information is of a proprietary nature to that
client." The seller may not sell the information to another customer
even in another form or report. In this situation, the information is
compiled specifically for *, but the information is not
proprietary to *. The seller may use the same information to
compile a report for another client. This information service is taxable.

This opinion is based on the facts presented other facts, although
similar, may result in a different conclusion.

If you have any questions or need more information, please call our
toll-free number, 1- 800-531-5441. The Austin number is 512/463-4614.
Or you may write to the Tax Administration Division.

Sincerely,

Adina Whittemore
Tax Administration Division