Can a financial data provider buy servers and routers tax-exempt as 'purchases for resale' when it separately charges customers an additional fee to use that equipment alongside its data-feed service?

Plain-English summary

Thomson Financial Inc. (through its Thomson ONE business unit) provides real-time and delayed financial data feeds to the financial services industry — roughly 160,000 users. About 118,000 of them receive the data through a server and router that Thomson itself supplies, for an additional, separately itemized charge on top of the data-service fee; the other 42,000 get their own equipment from other vendors. Thomson isn't in the equipment-sales-or-leasing business generally — it only provides the hardware alongside its own data service, doesn't insist customers use its equipment, retains title and maintenance/upgrade rights, and takes the equipment back (or scraps it) when a client contract ends.

New York's resale exemption for equipment purchases hinges on how the equipment is actually delivered to the customer. If a vendor provides equipment merely as part of performing an otherwise nontaxable or taxable service (without a genuinely separate rental), and never permanently transfers the equipment, that doesn't qualify as a resale purchase. But here, the Department found something different: Thomson doesn't require customers to use its equipment at all (42,000 of its users don't), it bills the equipment as a distinct, itemized, reasonably-priced line separate from the data-service charge, and customers can even use the equipment for other purposes beyond accessing Thomson's own service. That combination — genuinely separate pricing, no requirement to use it, and no restriction on other uses — means Thomson is actually renting the equipment to its customers as its own separate transaction, not simply using it to deliver its data service. Because Thomson is making a genuine, separately-charged equipment rental (a taxable transaction to the customer under § 1105(a)), Thomson itself can purchase the servers and routers tax-exempt as purchases for resale, as long as it doesn't use that same equipment for any other purpose.

What this means for you

Information-service, SaaS, and data-feed providers who also supply hardware

If you provide equipment alongside your core service for an extra charge, structure it as a genuinely separate, itemized, reasonably-priced rental — don't require customers to use your equipment, and don't restrict what else they can do with it — and you may be able to purchase that equipment tax-exempt as inventory for resale/rental, while your customers pay tax on the separately-stated equipment rental charge.

Businesses considering bundling equipment into a service fee instead

If you fold equipment costs into one non-itemized service fee (rather than billing it separately), you likely can't claim the resale exemption on your own equipment purchases — that structure looks more like using the equipment to perform your own (potentially exempt) service, not reselling/renting it.

Accountants and tax professionals

The key legal distinction here is between property "actually transferred" to the customer in conjunction with a taxable service (which the case law reads to mean permanently transferred, and which Thomson's equipment isn't) versus a genuinely separate rental transaction under § 1101(b)(4)(i)(A). The four C.I.D. Refuse Services factors — a specified customer charge, a reasonable charge, no interchangeable rental/self-use, and exclusive purchase for resale/rental — are the practical checklist to apply to any equipment-plus-service business model.

Common questions

Q: Can a service provider buy equipment tax-exempt if it only "provides" the equipment as part of delivering its service?
A: Generally no — unless the equipment is genuinely and permanently transferred to the customer, or the provider is making a truly separate, itemized rental of the equipment (as Thomson was found to be doing here).

Q: Does the customer pay sales tax on the equipment charge?
A: Yes. Once the arrangement is characterized as a rental of equipment, the customer's separately stated equipment charge is a taxable rental receipt under § 1105(a).

Q: What made this a genuine rental rather than just part of the service?
A: Several factors together: customers aren't required to use Thomson's equipment (over a quarter don't), the equipment charge is separately itemized and reasonable, and customers can use the equipment for purposes beyond Thomson's own service.

Q: Can another data or SaaS provider rely on this exact ruling?
A: No. This Advisory Opinion binds the Department only as to Thomson Financial Inc. and the facts it described. A provider that bundles equipment into one non-itemized fee, or that requires customers to use its equipment exclusively for its own service, would likely reach a different result.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4)(i) (definition of retail sale)
• Tax Law § 1101(b)(5) (definition of sale, including rentals and leases)
• Tax Law § 1105(a) (imposition of sales tax on retail sales)
• Tax Law § 1105(c) (tax on enumerated services)
• Tax Law § 1110(a) (imposition of compensating use tax)
• 20 NYCRR 526.6 (resale exclusion)

Prior authority cited:

• Matter of Micheli Construction v Tax Comm, 109 AD2d 957
• Albany Calcium and Light v State Tax Comm, 44 NY2d 986
• Matter of Modern Disposal Services Inc., Dec Tax App Trib, May 23, 1996, DTA No. 812565
• Waste Management of New York, Inc., Dec Tax App Trib, March 21, 1991, DTA No. 7805791, aff'd 185 AD2d 479 (3d Dept 1992)
• Matter of C.I.D Refuse Services, Dec Tax App Trib, August 31, 1995, DTA No. 809934

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2007.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a07_26s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-07(26)S
Sales Tax
October 18, 2007

Office of Tax Policy Analysis
Taxpayer Guidance Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S040503A

On May 3, 2004, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Thomson Financial Inc., 22 Thomson Place, Boston, MA 02210.
The issue raised by Petitioner, Thomson Financial Inc., is whether its purchases of
computer equipment that is provided for an additional charge to Petitioner’s customers in
conjunction with the sale of information and technology applications qualify for exemption from
sales and use tax as purchases for resale.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner is a provider of integrated information and technology applications to the
global financial services industry. Thomson ONE (formerly known as ILX), one of Petitioner’s
business units, is a provider of real-time or delayed data-feed products to the financial services
industry, and operates as part of Petitioner.
In providing its services to its clients, Petitioner furnishes computer equipment to them.
The equipment usually includes a server and, in some cases, a router. Some software, which
enables the client to receive the data at its location, is loaded on the server. Once the data is
received, a router distributes the data to the various users in the client’s office. Petitioner would
prefer that the client use Petitioner’s equipment, but if the client has someone in-house to
configure the equipment, then Petitioner will not insist on the client using Petitioner’s
equipment. Petitioner has approximately 160,000 users using its service. Of this number,
approximately 42,000 users do not access data from equipment provided by Petitioner. Instead,
these clients purchase equipment or lease it from other vendors. The remaining 118,000 users
access the data through equipment provided to them by Petitioner for an additional charge.
Petitioner is not in the business of selling or leasing equipment, so equipment is only provided to
the client in conjunction with Petitioner’s services. Since Petitioner has no control over the
equipment provided to a client, a client may use the equipment to receive or distribute
information from other companies.
All of Petitioner’s agreements with clients contain an itemized cost breakdown of the
equipment. The itemized cost breakdown is presented to the client as an attachment to the
agreement, as specified on the initial service proposal and price list. All invoices to clients
include a separate line charge for the subject equipment.
Petitioner retains title to all equipment and retains the right to maintain or upgrade the
equipment. At the termination of a service agreement, the equipment is returned to Petitioner for
deployment to other clients, upgraded and redeployed, or scrapped if obsolete.

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Applicable law and regulations
Section 1101(b) of the Tax Law provides, in part:
When used in this article for the purposes of the taxes imposed by subdivisions
(a), (b), (c) and (d) of section eleven hundred five and by section eleven hundred ten, the
following terms shall mean:
*

*

*

(4) Retail sale. (i) A sale of tangible personal property to any person for any
purpose, other than (A) for resale as such or as a physical component part of tangible
personal property, or (B) for use by that person in performing the services subject to tax
under paragraphs (1), (2), (3), (5), (7) and (8) of subdivision (c) of section eleven hundred
five where the property so sold becomes a physical component part of the property upon
which the services are performed or where the property so sold is later actually
transferred to the purchaser of the service in conjunction with the performance of the
service subject to tax.
*

*

*

(5) Sale, selling or purchase. Any transfer of title or possession or both, exchange
or barter, rental, lease or license to use or consume (including, with respect to computer
software, merely the right to reproduce), conditional or otherwise, in any manner or by
any means whatsoever for a consideration, or any agreement therefor, including the
rendering of any service, taxable under this article, for a consideration or any agreement
therefor.
Section 1105(a) of the Tax Law imposes a tax on "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
sales for resale, of certain enumerated services.
Section 1110(a) of the Tax Law provides, in part:
Except to the extent that property or services have already been or will be subject
to the sales tax under this article, there is hereby imposed on every person a use tax for
the use within this state on and after June first, nineteen hundred seventy-one except as
otherwise exempted under this article, (A) of any tangible personal property purchased at
retail,...
Section 526.6 of the Sales and Use Tax Regulations provides, in part:

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(a) The term retail sale or sale at retail means the sale of tangible personal
property to any person for any purpose, except as specifically excluded.
*
*
*
(c) Resale exclusion. (1) Where a person, in the course of his business operations,
purchases tangible personal property or services which he intends to sell, either in the
form in which purchased, or as a component part of other property or services, the
property or services which he has purchased will be considered as purchased for resale,
and therefore not subject to tax until he has transferred the property to his customer.
*

*

*

(2) A sale for resale will be recognized only if the vendor receives a properly
completed resale certificate. See sections 532.4 and 532.6 of this Title.
(3) Receipts from the sale of property purchased under a resale certificate are not
subject to tax at the time of purchase by the person who will resell the property. The
receipts are subject to tax at the time of the retail sale.
*

*

*

(6) Tangible personal property purchased for use in performing services which are
taxable under section 1105(c)(1), (2), (3) and (5) of the Tax Law is purchased for resale
and not subject to tax at the time of purchase, where the property so sold (i) becomes a
physical component part of the property upon which the services are performed, or (ii) is
later actually transferred to the purchaser of the service in conjunction with the
performance of the service subject to tax.
*

*

*

(7) Tangible personal property purchased for use in performing a service not
subject to tax is not purchased for resale.
Opinion
Petitioner is in the business of providing integrated information and technology
applications to the global financial services industry. Petitioner purchases the servers and routers
needed for Petitioner to deliver these services. Petitioner has approximately 160,000 users of its
services. Of this number, approximately 42,000 users do not access the data from servers and
routers provided by Petitioner. Instead, those customers obtain servers and routers from other
vendors. The remaining 118,000 users access the data through servers and routers provided to
their companies by Petitioner. When Petitioner’s customers require the use of Petitioner’s routers
and servers to obtain access to the data they purchase from Petitioner, such customers are

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invoiced additional charges for their use of Petitioner’s equipment. Petitioner’s agreements with
its clients contain an itemized “cost breakdown” of the equipment, if any, provided to the client.
In order for a purchase of tangible personal property to qualify as a purchase for resale,
the property must be purchased exclusively for resale as such or as a physical component part of
tangible personal property that is resold, or for use in performing services subject to tax under
section 1105(c) of the Tax Law. See section 1101(b)(4)(i) of the Tax Law and section 526.6 of
the Sales and Use Tax Regulations. (See also Matter of Micheli Construction v Tax Comm 109
AD2d 957; Albany Calcium and Light v State Tax Comm 44 NY2d 986.)
Persons engaged in integrated sales of services and tangible personal property are not
necessarily precluded from purchasing property used in the provision of such services for resale.
However, in order to be purchased for resale, the property must be actually transferred to the
customer in conjunction with performance of the service. (See section 1101(b)(4)(i)(B) of the
Tax Law.) The Tax Appeals Tribunal has said that for purposes of the resale exemption,
“actually transferred” means “permanently” transferred. See Matter of Modern Disposal
Services Inc., Dec Tax App Trib, May 23,1996, DTA No. 812565; and Waste Management of
New York, Inc., Dec Tax App Trib, March 21, 1991, DTA No. 7805791, affd 185 AD2d 479 (3d
Dept 1992). Petitioner does not permanently transfer servers and routers to its customers in
conjunction with the sale of its services. Therefore, Petitioner’s purchases of such equipment do
not qualify for the resale exemption under section 1101(b)(4)(i)(B) of the Tax Law as purchases
of property for use in performing services subject to tax under section 1105(c).
Petitioner’s purchases of such equipment would only qualify for the resale exemption if
the equipment were sold or rented as such to Petitioner’s clients. See section 1101(b)(4)(i)(A) of
the Tax Law.
In order for tangible personal property to be purchased for resale as such there must be a
specified charge to the customer for the rental of the property, the charge must be reasonable, the
property may not be used interchangeably for rental and non-rental (self use) purposes, and the
property must be purchased exclusively for resale (or rental). (Matter of C.I.D Refuse Services,
Dec Tax App Trib, Aug 31, 1995, DTA No. 809934.)
Petitioner offers its services for sale to clients without any requirement that the customers
purchase and use the servers and routers that Petitioner makes available to clients who need such
equipment. Clients are billed an additional charge for their use of the servers and routers
separate and apart from the charge to such clients for their purchase of Petitioner’s services.
Clients may put the servers and routers obtained from Petitioner to additional uses other than
accessing the services purchased from Petitioner. Under the circumstances described in this
Opinion, Petitioner is making separate rentals of equipment to clients in addition to its sales of
services, which equipment rentals are subject to the sales tax imposed by section 1105(a) of the
Tax Law. Likewise, under the described circumstances, Petitioner has purchased such servers
and routers for resale as such. Provided that Petitioner makes no other use of such servers and

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routers, Petitioner may purchase such servers and routers exempt from tax as purchases for
resale.

DATED: October 18, 2007

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Taxpayer Guidance Division

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the
person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.