Is a company's business of processing clients' customer invoices, statements, and collection letters — including address verification, formatting, and mailing — subject to New York sales tax as a taxable service?

Plain-English summary

Matrix Imaging Solutions receives daily data transmissions from its clients (including collection agencies) containing debtor records, and runs each record through a custom data-processing pipeline: validating the letter request against client-set criteria, checking and updating addresses against the USPS National Change of Address database, searching for missing or invalid phone numbers, screening out records headed to states where the client isn't licensed to mail collection notices, formatting addresses to USPS automation standards (including barcode generation), adding any state-required legal language to collection letters, and — for certain clients — personalizing generic letter templates so they read as coming from the client's own customer rather than from a third-party collection agency. The finished print files become hard-copy letters, invoices, and statements that Matrix stuffs into envelopes and mails first-class.

New York's sales tax reaches sales of tangible personal property and a specific, closed list of "enumerated services" under § 1105(c) — services not on that list simply aren't taxed, no matter how sophisticated or valuable they are. The Department characterized Matrix's document preparation and address/phone verification work as clerical or secretarial services, and confirmed that clerical services of this kind aren't among the taxable enumerated services. So Matrix's charges to its clients for this processing work are not subject to sales tax.

That said, the ruling flags the other side of the ledger: because Matrix isn't producing tangible personal property that it then sells to its clients (the letters/invoices are just the vehicle for delivering its nontaxable service), Matrix can't buy its own paper, ink, and similar supplies tax-free as materials for resale — those purchases are taxable to Matrix at the time it buys them. Likewise, the manufacturing exemption for machinery/equipment used to produce property for sale doesn't apply to Matrix's printing and processing equipment, since Matrix isn't selling the printed documents themselves as products — it's selling a nontaxable service.

What this means for you

Document-processing and mail-fulfillment service providers

If your core offering is data verification, formatting, and letter/invoice preparation — rather than selling a tangible printed product — that service itself likely escapes sales tax as an unenumerated clerical service. But budget for sales tax on your own paper, ink, and equipment purchases, since you can't treat those as resale-exempt inputs.

Collection agencies outsourcing letter processing

The nontaxable treatment here covers the processing vendor's charge to you — it doesn't change how your own collection services might separately be taxed (or not) under different rules.

Accountants and tax professionals

This is a clean, short citation for the "closed list" principle: New York sales tax only reaches tangible personal property and the specific enumerated services in § 1105(c) — sophisticated data processing that doesn't fit one of those categories, like clerical document preparation, stays untaxed by default even though the vendor uses custom software and licensed USPS tools to do it.

Common questions

Q: Is data processing or document preparation automatically taxable in New York because it involves technology and specialized software?
A: No — taxability depends on whether the service fits one of the specific enumerated categories in § 1105(c), not on how sophisticated the underlying process is. Clerical/secretarial-type services generally aren't on that list.

Q: If a service provider's own service isn't taxable, does that mean its supply purchases are tax-free too?
A: No — those are separate questions. A provider whose service isn't taxable, and who isn't selling tangible property to its clients, generally owes tax on its own paper, ink, and equipment purchases as the end consumer of those items.

Q: Does adding state-specific legal compliance language to a letter change its tax treatment?
A: No — the compliance-checking and language customization described here is still part of the overall clerical/document-preparation service, which isn't a taxable enumerated service.

Citations and references

Statutes and regulations:

• Tax Law § 1105(a) (retail sales tax)
• Tax Law § 1105(c) (enumerated taxable services)
• Tax Law § 1115(a)(12) (manufacturing exemption)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2003.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a03_4s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-03(4)S
Sales Tax
January 27, 2003

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S010829B

On August 29, 2001, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Matrix Imaging Solutions, Inc., 2221 Niagara Falls Boulevard, Niagara
Falls, New York, 14304.
The issue raised by Petitioner, Matrix Imaging Solutions, Inc., is whether the sales tax
applies to charges for the service of processing its clients’ customer invoices and statements
including charges for the processing of collection letters for collection agencies and their customers.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner processes its clients’ customer invoices and statements including the processing
of collection letters for client collection agencies and their customers. Data is transmitted to
Petitioner from its clients on a daily basis. Each data transmission contains multiple records and
each record contains information regarding a specific debtor, including dates, names, and addresses.
Petitioner converts each record from the ASCII data format provided by its clients and adds them
to its database driven data processing system. The data processing system uses a variety of custom­
programmed applications written to match the record layouts provided by Petitioner’s clients.
Petitioner processes each record verifying that the letter request is valid for each individual debtor,
based upon criteria established by its client. If records are found that do not meet the proper criteria,
they are rejected and reported back to Petitioner’s client. Petitioner’s client is notified with a
summary of all records imported so that the client can verify that all the data Petitioner received is
correct.
Address information is extracted from each record and is verified against the USPS National
Change of Address database (hereinafter NCOA) for addresses that have been changed or are
determined to be undeliverable. If a new address is found, the debtor address record is updated in
Petitioner’s system with the new address. Petitioner notifies its client electronically of the new
address so that the client can update its database. Any records found to have undeliverable
addresses where no new address can be found are updated accordingly in Petitioner’s system so that
Petitioner takes no further action with these records. This information is also reported back to
Petitioner’s client.
Petitioner also analyzes phone numbers given to it for each account. Any accounts without
phone numbers, or with phone numbers that are invalid, trigger a phone number search using USPS
Phone Append service. Based on the address information from NCOA, a phone number may be
found for a new address if one was found, or a valid phone number could be found for the original
address if there was not an address change.

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Sales Tax
January 27, 2003

Collection agencies must be licensed to send mail to certain states. There may be certain
states that the client may be restricted from mailing to because they are not licensed or for other
reasons. Each record is analyzed at this point in time to determine if there are any addresses that
have been changed to a restricted state by NCOA or that somehow made it past earlier processing.
If the notice is going to a restricted state, it is "killed" at this point and the client is notified
electronically so that their records can be updated.
Once Petitioner has processed each address through the USPS NCOA and Phone Append
services, it performs an address standardization using software licensed by the USPS. This software
properly standardizes and formats the address and will look up the Zip+4 for the address as well as
the 2-digit Delivery Point code and calculate the check-digit to give a complete destination-point
barcode. The records are sorted based on USPS qualifications for automated mail processing and
all appropriate paperwork necessary to submit a mailing to the USPS is generated by the software.
Certain states have additional requirements for special verbiage that must be added to a
collection letter. At this point Petitioner adds any state-specific verbiage to the standard letters that
have been requested for each account. For certain records, Petitioner performs the data-processing
function of taking a generic letter request and personalizing it so that it does not look like the
correspondence is from Petitioner’s client, i.e., a collection agency, but from the customer of
Petitioner’s client.
Print stream files are generated that are sorted according to USPS specifications. These files
are sent to Petitioner’s printers creating hard-copy letters or customer invoices and statements that
are inserted into envelopes ready to be mailed. The collection letters, invoices and statements are
then mailed as first class mail per U.S. Postal Regulations.
Applicable Law
Section 1105 of the Tax Law provides, in part:
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.
Section 1105(c) of the Tax Law imposes sales tax upon receipts from the sales, except for
resale, of certain enumerated services.

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TSB-A-03(4)S
Sales Tax
January 27, 2003

Section 1115 of the Tax Law provides, in part:
Exemptions from sales and use taxes.
(a) Receipts from the following shall be exempt from the tax on retail sales
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, but not including parts with a useful life of one year
or less or tools or supplies used in connection with such machinery or equipment.
This exemption shall include all pipe, pipeline, drilling rigs, service rigs, vehicles
and associated equipment used in the drilling, production and operation of oil, gas,
and solution mining activities to the point of sale to the first commercial purchaser.
Opinion
Section 1105(a) of the Tax Law imposes a tax on the sales of all tangible personal property
unless such property is specifically exempt or purchased by an exempt organization described in
Section 1116 of the Tax Law. Services are not subject to sales tax unless they are specifically
designated as being subject to tax under Section 1105(c) of the Tax Law.
Petitioner is engaged to compose and prepare its clients’ collection letters, prepare clients’
customer invoices and statements, and update its clients’ mailing lists by verifying the addresses and
telephone numbers its clients provide. In this capacity, Petitioner is required to perform research
in order to determine that the language of the collection letters complies with state law and whether
a state into which a letter is sent requires Petitioner’s clients to possess a license, in which case
Petitioner makes sure the client has the license. Petitioner’s document preparation and verification
services constitute clerical or secretarial services.
Since the services described by Petitioner do not constitute any of the enumerated services
specified under Section 1105(c) of the Tax Law, the receipts from providing such services are
not subject to sales tax. However, since Petitioner is not producing tangible personal property for
sale, Petitioner’s purchases of paper, ink, or other items used in providing these services are
not purchased for resale, and are subject to the tax at the time of purchase. Likewise, Petitioner’s

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Sales Tax
January 27, 2003

purchases of machinery, equipment, parts, tools, and supplies used or consumed by Petitioner
to perform these services for its clients are not exempt from tax under Section 1115(a)(12) of the
Tax Law.

DATED: January 27, 2003

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

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