Is a company's fee for a phone-in employee time-and-attendance monitoring service subject to New York sales tax, and does the company owe tax on the telephone service it buys to run it?

Plain-English summary

Dataline, Inc. built a service called StaffMonitor for tracking field employees — mostly used by home health care agencies to verify that aides actually show up at, and leave, their scheduled patient visits. An employee calls a toll-free number from the job site, punches in an ID on the keypad, and the system logs the check-in time and (via caller ID) the calling location; the employee calls again to check out the same way. Customers watch it all in real time over the Internet, get alerts for missed appointments, and can feed the collected data into their own payroll and billing systems. Dataline billed customers based on its own phone-carrier costs for each incoming call, plus a markup.

The Department found the service itself untaxed: it isn't a sale of tangible personal property, and it isn't any of the services the Tax Law specifically makes taxable. In particular, it isn't a "telephone answering service" (which is specifically taxable) — even though Dataline's system does technically take a phone call and record information from it, that's just an incidental piece of what customers are really buying: a verified, real-time employee attendance and location-tracking system, not a message-taking and forwarding service. But the flip side of that same logic burned Dataline on its own purchases: because it isn't selling telephone service to its customers (it's the one actually using the phone lines to run its own product), it can't treat its telephone bill as a tax-free purchase for resale. Dataline is the end user of that phone service and must pay sales tax on what it buys from its carrier, even though it later marks that cost up and passes it through to customers.

What this means for you

Companies selling employee tracking, verification, or monitoring services

If your service uses a phone call, text, or similar contact only as a data-entry mechanism — not as its actual product — you're likely not selling a taxable "telephone answering service," even if a call happens to be part of the process. What matters is the substance of what the customer is paying for (here, real-time attendance verification), not the mechanics used to collect the data.

Home health care agencies and other field-service employers

A vendor's time-and-attendance tracking fee like this one generally isn't sales-taxable, which is worth confirming on your vendor invoices — but don't assume every add-on the vendor offers (reports, integrations, etc.) is automatically untaxed too; each needs its own look at whether it's an enumerated taxable service.

Businesses that resell services built on purchased utilities (phone, internet, etc.)

Just because you pass a cost like a phone bill through to your customers with a markup doesn't make your own purchase of that input tax-exempt as a "resale." You're still the end user of the phone service if you're the one actually using it to run your business, and you owe tax on it regardless of how you later bill customers.

Common questions

Q: Is a phone-in employee attendance tracking service taxable in New York?
A: No, as described in this ruling — it's neither a sale of tangible personal property nor an enumerated taxable service, and taking a phone call from an employee is only incidental to the real service (verified attendance/location tracking), so it doesn't count as a taxable "telephone answering service."

Q: If the vendor's charge is based on its telephone costs plus a markup, does that make it a taxable telephone service?
A: No — how a vendor prices its service doesn't change what's actually being sold. Here, the vendor was selling attendance tracking, not telephone service, even though its price was tied to telephone costs.

Q: Does the vendor owe tax on the telephone service it buys to run this system?
A: Yes. The vendor is the end user of that telephone service — its own purchases from its telephone carrier are subject to sales tax, and it can't claim a resale exemption just because it recoups that cost from customers.

Citations and references

Statutes and rules:

• Tax Law § 1101(b)(13) (definition of telephone answering service)
• Tax Law § 1105(a) (retail sales of tangible personal property)
• Tax Law § 1105(b)(1) (telephone/telephone answering service/prepaid telephone calling service)
• Tax Law § 1105(c) (enumerated taxable services)
• 20 NYCRR 526.5(e) (nondeductible vendor expenses)
• 20 NYCRR 526.6(c) (resale exclusion)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2004.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a04_17s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-04(17)S
Sales Tax
June 30, 2004

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S020116A

On January 16, 2002, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Dataline, Inc., 110 Bi-County Boulevard, Suite 110, Farmingdale,
New York, 11735.
The issues raised by Petitioner, Dataline, Inc., are:
1)

Whether fees charged to customers for Petitioner’s StaffMonitor service as described
below are subject to sales tax.

2)

Whether Petitioner should pay sales tax on the cost of telephone service it purchases
for use in performing its StaffMonitor service.

Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner has developed and is marketing an employee time and attendance system
monitoring service (StaffMonitor). This service tracks employees whose job tasks are performed
in the field (away from a centralized location). The data gathered by the service may be integrated
into a customer’s scheduling, billing and payroll systems and can be adapted for use with almost any
time and billing bookkeeping function required by a client. Petitioner’s customer’s employee calls
Petitioner via the telephone using a toll-free number from the location where the employee is
scheduled to work. Using the telephone key pad, the employee, in response to prompts, enters his
or her employee ID, etc. Upon completion of the services performed, the employee again contacts
Petitioner via telephone and, using the telephone key pad, the employee, in response to prompts,
enters his or her employee ID and codes relating to the services performed at that location, etc.
Petitioner’s StaffMonitor service, in addition to collecting the data entered by the employee, notes
the time that the employee checked in (began work) and checked out (completed work) and through
a form of caller ID verifies the location at which the employee claims to be present and performing
services.
StaffMonitor can be used to track an employee’s attendance, time and tasks performed; and
relate the attendance, time and tasks to the specific services to be billed by Petitioner’s customer to
its clients. The time information generated by the monitoring service may be incorporated into the
customer’s payroll time record keeping systems. Customers may also provide to Petitioner the
expected schedule for the customer’s employees which Petitioner then incorporates into the system.
The StaffMonitor service allows the customer to look up and track its employees on a real
time basis. Customers access Petitioner’s computer via the Internet. Using the information entered
in Petitioner’s computer (the expected schedule and the employees’ telephone calls), the customer

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Sales Tax
June 30, 2004
can verify whether its employees are responding to the customer’s clients as scheduled and
performing the scheduled services as anticipated. StaffMonitor will provide the customer a real time
“alert” that an employee has not reported from the location of a scheduled appointment. Thus,
presuming the customer’s employees have called in to Petitioner, logging in and out from their
scheduled appointments, the customer has real time access to the location and status of its
employees. Missed appointments, tardiness, punctuality, amount of time expended in performing
scheduled tasks and duties, performance of additional services, etc., can be noted, verified and
quantified.
StaffMonitor is currently being used to service the home health care industry. It allows a
home health care agency’s staff coordinators to have real time access to pertinent information about
each and every employee and patient appointment. This information provides the staff coordinators
and the agency’s management team the ability to proactively and efficiently manage its employees
in the field. The information gathered through StaffMonitor may also be utilized by Petitioner’s
customer to generate both billing information and payroll information. The data may be
downloaded by the customer (electronically over the Internet, by disc, etc.). The customer may
directly incorporate the data for use in its payroll and billing systems. Petitioner, on the customer’s
behalf, will also deliver the data directly to customer designated independent payroll and billing
companies.
Petitioner offers its customers the option of incorporating the customer’s data into various
standard reports and viewing screens, which reports and Internet viewing screens Petitioner may
also customize for any particular customer.
Petitioner maintains ownership of all product related software and is responsible for the
development, maintenance, enhancements, marketing, and support of the software, all of which is
housed and maintained on Petitioner’s premises.
Petitioner’s charges to its customers for the above services are based on the amount charged
for each incoming call to Petitioner by its telephone carrier plus a markup.
Applicable law and regulations
Section 1101(b)(13) of the Tax Law provides:
Telephone answering service. A service that consists of taking messages by
telephone and transmitting such messages to the purchase of the service or at the purchaser’s
direction, but not including such service if it is merely an incidental element of a different
or other service purchased by the customer.
Section 1105(a) of the Tax Law provides, in part:

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Sales Tax
June 30, 2004
On and after June first, nineteen hundred seventy-one, there is hereby imposed and
there shall be paid a tax . . . upon:
(a) The receipts from every retail sale of tangible personal property, except as
otherwise provided in this article.
(b)(1) The receipts from every sale, other than sales for resale, of the following: (A)
gas, electricity, refrigeration and steam, and gas, electric, refrigeration and steam service of
whatever nature; (B) telephony and telegraphy and telephone and telegraph service of
whatever nature except interstate and international telephony and telegraphy and telephone
and telegraph service . . . ; (C) a telephone answering service; and (D) a prepaid telephone
calling service.
Section 1105(c) of the Tax Law imposes sales tax on the receipts from the sale, except for
resale, of certain enumerated services.
Section 526.5(e) of the Sales and Use Tax Regulations provides, in part:
Expenses. All expenses, including telephone and telegraph and other service
charges, incurred by a vendor in making a sale, regardless of their taxable status and
regardless of whether they are billed to a customer are not deductible from the receipts.
Opinion
Section 1105 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
enumerated as being subject to tax under section 1105 of the Tax Law.
Since the customer services provided by Petitioner do not constitute any of the enumerated
services specified under section 1105 of the Tax Law, and Petitioner is not engaged in the sale of
tangible personal property, the receipts from the sale of Petitioner’s services are not subject to sales
taxes imposed pursuant to section 1105 of the Tax Law.
Section 1105(b)(1)(C) of the Tax Law imposes sales tax on the receipts from every sale,
other than a sale for resale, of “a telephone answering service.” A telephone answering service is
a service that consists of taking messages by telephone and transmitting such messages to the
purchaser of the service or at the purchaser’s direction, but not including such service if it is merely
an incidental element of a different or other service purchased by the customer. (See section
1101(b)(13) of the Tax Law.)
While Petitioner’s service does take messages from customers’ employees, the taking of the
messages is merely an incidental element of the service Petitioner’s customers are purchasing. The

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Sales Tax
June 30, 2004
customers are not hiring Petitioner to answer the phone but rather to provide verification that the
customers’ employees have arrived at and left the location of their scheduled appointment, and to
record the services reported by the employees as having been performed at such locations.
Petitioner’s customers are purchasing a verified time and attendance employee tracking system
which logs the off-site performance of activities by customers’ employees. Through the customers’
on-line Internet access to the time and attendance tracking system, the customers get real time access
to the location and status of each of its employees individually. Petitioner’s customers are
immediately made aware of scheduled attendance problems by the alerts given over the Internet.
The essence of the transaction purchased by Petitioner’s customers (attendance verification,
tardiness alerts, etc.) goes beyond the mere answering of the customer’s phone and forwarding of
messages. Therefore, the services sold by Petitioner are something other than a telephone answering
service subject to the tax imposed pursuant to section 1105(b) of the Tax Law.
Although Petitioner’s charges to its customers are based on its cost of telephone service plus
a markup, Petitioner does not sell telephone services to its customers. Petitioner merely uses the
telephone contacts made by a customer with the StaffMonitor service to gauge the customer’s usage
of the service. Petitioner is the end user of the telephone services it purchases. Therefore,
Petitioner’s purchases of telephone services are not eligible for exclusion from tax as a sale for
resale. See section 526.6(c) of the Sales and Use Tax Regulations. Petitioner’s purchase of
telephone service is an expense it incurs in providing its StaffMonitor service to its customers and
charges made by the telephone service provider to Petitioner are subject to sales tax. See section
1105(b)(1)(B) of the Tax Law and section 526.5(e) of the Sales and Use Tax Regulations.

DATED: June 30, 2004

NOTE:

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

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