My company sells subscription reports built from a shared database of evaluator input about my customers — are those subscription fees a taxable information service in New York?

Plain-English summary

TheMarkets.com LLC runs a web-based service called MeritMark that lets money managers, hedge funds, and other institutional "evaluators" rate the service quality of investment broker dealers — research quality, sales coverage, and trade execution — free of charge to the evaluators. Broker dealers then pay a subscription fee to receive reports showing how they rank against other dealers, based on an aggregate score pulled from all the evaluators' input, plus scores for their own named personnel. The reports don't name other broker dealers or identify evaluators by company.

The Department held these subscription fees are a taxable information service under Tax Law §1105(c)(1). The key move: because the evaluator input is collected into one common database and then used to generate each broker dealer's report, the sale is taxable even though the reports are customized to each individual paying customer — customization doesn't rescue a report built from shared, aggregated data. New York's information-service exclusion only protects data that is genuinely "personal or individual" and not "substantially incorporated" into reports given to others; because every broker dealer's report draws on the same underlying evaluator pool, that exclusion doesn't apply here.

The fees are taxable when the report is delivered to a customer in New York; if the same electronic report goes to a customer's people both inside and outside New York, the taxable receipts must be allocated between the two, following an earlier opinion (KPMG LLP, TSB-A-03(5)S).

What this means for you

Data, analytics, and benchmarking companies

If your product aggregates input from many sources into a shared database and then sells subscribers a report (even a highly personalized one) drawn from that pool, expect it to be a taxable information service in New York. The "customized report" argument does not work once the underlying data is shared/aggregated rather than exclusively about — and belonging to — the specific paying customer.

Financial-services and research-evaluation platforms

The mode of delivery doesn't matter: reports are taxable whether emailed or accessed through a website, and the tax attaches to the receipt regardless of format.

Multi-location subscribers

If your organization's staff who use a New York vendor's report are located both in and outside New York, expect the vendor to need to allocate the taxable receipt between in-state and out-of-state use, rather than treating the whole fee as either fully taxable or fully exempt.

Accountants and tax professionals

This opinion is a clean application of the "common database" rule from Rich Products Corporation v Chu and Towne-Oller & Assoc. v State Tax Comm: customization of the output doesn't defeat taxability where the input pool is shared across customers. Useful precedent whenever a client's product superficially looks "personal" (a report about just one company) but is actually built from a multi-source common dataset.

Common questions

Q: We customize every report to the specific client receiving it — doesn't that make it a nontaxable personal information service?
A: Not by itself. This opinion holds that if the underlying information comes from a common database used to generate reports for multiple customers, the sale is taxable information services regardless of how customized the final report or display looks.

Q: Does it matter whether the reports are emailed or viewed on a website?
A: No. The Department held the reports are taxable "regardless of whether they are emailed to broker dealers or viewed on Petitioner's website."

Q: What if our subscribers' users are located both in and outside New York?
A: Then the taxable receipt should be allocated between the users located in New York and those located elsewhere, rather than taxing (or exempting) the whole fee.

Q: Can another data or research company rely on this exact opinion?
A: No. An advisory opinion binds the Department only as to the taxpayer who requested it, based on the specific facts submitted. A service that truly doesn't pool customer data into a shared database could reach a different result under the "personal or individual" information exclusion.

Citations and references

Statutes and regulations:

• Tax Law §1105(c)(1) (tax on furnishing information/reports, with a "personal or individual" exclusion)
• Tax Law §1105(c)(9) (information/entertainment services via telephony/telegraphy)
• 20 NYCRR §525.2(a)(3) (sales tax as a destination tax)
• 20 NYCRR §527.3 (information service imposition and exclusions)

Cited cases and opinions:

• Rich Products Corporation v Chu, 132 AD2d 175
• Towne-Oller & Assoc. v State Tax Comm, 120 AD2d 873
• Alan/Anthony, Inc., TSB-A-92(51)S
• Bernstein Law Firm, PLLC, TSB-A-04(23)S
• KPMG LLP, TSB-A-03(5)S (allocation of receipts between in-state and out-of-state delivery)

Source

• Landing page: NY Sales Tax Advisory Opinions, 2009
• Original opinion: TSB-A-09(18)S

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Taxpayer Guidance Division

TSB-A-09(18)S
Sales Tax
April 27, 2009

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S071127A

On November 27, 2007, the Department of Taxation and Finance received a Petition for
Advisory Opinion from TheMarkets.com LLC, 810 7th Avenue, 6th Floor, New York, New York
10019.
The issue raised by Petitioner, TheMarkets.com LLC, is whether subscription fees for
MeritMark services described below are subject to New York State and local sales tax.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner’s service MeritMark is a web-based subscription service that provides
investment broker dealers with evaluation reports based on evaluations of broker dealers and
their products and services by money managers, hedge funds, mutual fund managers, pension
managers and other such entities that manage money on behalf of themselves or other entities
(evaluators). Petitioner’s website is available free of charge to evaluators. These evaluators use
the system to rank and score the level of service provided to them by investment broker dealers
along several dimensions, including the quality of research provided to help with investment
decisions, the quality of the sales coverage by the broker dealer, and the quality of the execution
on the securities orders sent to the broker dealer. Ranks and scores are based on Personnel
Ballots provided by MeritMark that allow the evaluator's staff to comment on and allocate points
to research and sales personnel employed by various broker dealers. The evaluators use these
rankings and scores to determine the level of commission dollars they should be spending with
each broker dealer, and to justify that level of spending with investors. An evaluator may access
MeritMark to view its own evaluations of broker dealers. MeritMark archives past evaluations
for review by the evaluator.
Broker dealers pay a subscription fee to receive reports from Petitioner that show how the
evaluators rank the broker dealer in comparison to other dealers. A sample report submitted by
Petitioner shows the ranking given to a broker dealer based on an aggregate score derived from
the scores received from all the evaluators. The report shows the aggregate scores associated
with higher and lower rankings, and the differential between the broker dealer's score and the
average score for all broker dealers evaluated for reporting purposes. The report also shows
aggregate scores and rankings received by the broker dealer's personnel, who are identified by
name, and shows the scores and comments given by named individuals who are doing the
evaluations. The report does not identify other broker dealers, and does not identify evaluators
by company name. Currently all reports are emailed to the broker dealers. However, it is
anticipated that a reporting website will be created for the broker dealers to view and generate
reports.

-2TSB-A-09(18)S
Sales Tax
April 27, 2009

Applicable law and regulations
Section 1105 of the Tax Law provides, in part:
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.
*

*

*

(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, including the
services of collecting, compiling or analyzing information of any kind or nature and
furnishing reports thereof to other persons, but excluding the furnishing of information
which is personal or individual in nature and which is not or may not be substantially
incorporated in reports furnished to other persons, . . .
*

*

*

(9) (i) The furnishing or provision of an entertainment service or of an
information service (but not an information service subject to tax under paragraph one of
this subdivision), which is furnished, provided, or delivered by means of telephony or
telegraphy or telephone or telegraph service (whether intrastate or interstate) of whatever
nature, such as entertainment or information services provided through 800 or 900
numbers or mass announcement services or interactive information network services.
Provided, however, that in no event (i) shall the furnishing or provision of an information
service be taxed under this paragraph unless it would otherwise be subject to taxation
under paragraph one of this subdivision if it were furnished by printed, mimeographed or
multigraphed matter or by duplicating written or printed matter in any other manner nor
(ii) shall the provision of cable television service to customers be taxed under this
paragraph.
Section 525.2 (a)(3) of the Sales and Use Tax Regulations provides:
Except as specifically provided otherwise, the sales tax is a “destination tax.” The
point of delivery or point at which possession is transferred by the vendor to the
purchaser, or the purchaser's designee, controls both the tax incidence and the tax rate.

-3TSB-A-09(18)S
Sales Tax
April 27, 2009

Section 527.3 of the Sales and Use Tax Regulations provides, in part:
(a) Imposition. (1) Section 1105(c)(1) of the Tax Law imposes a tax on the
receipts from the service of furnishing information by printed, mimeographed or
multigraphed matter or by duplicating written or printed matter in any manner such as by
tapes, discs, electronic readouts or displays.
(2) The collecting, compiling or analyzing information of any kind or nature and
the furnishing reports thereof to other persons is an information service.
(3) Among the services which are information services are credit reports, tax or
stock market advisory and analysis reports and product and marketing surveys.
*

*

*

(b) Exclusions. (1) Sales tax does not apply to receipts from sales of information
services which are for resale as such.
(2) The sales tax does not apply to the receipts from the sale of information which
is personal or individual in nature and which is not or may not be substantially
incorporated into reports furnished to other persons by the person who has collected,
compiled or analyzed such information.
Opinion
Petitioner’s web-based MeritMark service allows various evaluators to input information
regarding services provided by investment broker dealers. The information collected from the
evaluators is stored on Petitioner’s website. Broker dealers may pay a subscription fee for access
to reports that are created from the information stored on the website. Currently all reports are
emailed to the broker dealers. However, in the future a reporting website may be created for the
broker dealer to view and generate reports.
If a common database is used to generate reports or otherwise disseminate information,
the information sold is subject to sales tax under section1105(c)(1) of the Tax Law despite the
fact that the reports, screens or displays of such information may be customized to meet the
specific needs of customers. See Rich Products Corporation v Chu, 132 AD2d 175; TowneOller & Assoc. v State Tax Comm, 120 AD2d 873; Alan/Anthony, Inc., Adv Op Comm T&F,
June 19, 1992, TSB-A-92(51)S. In the present case, the information collected from the
evaluators by Petitioner forms a common database that is used to create the reports for broker
dealers. Accordingly, the reports sold to the broker dealers are taxable information services and
do not come within the statutory exclusion for furnishing information that is personal or
individual in nature and is not or may not be substantially incorporated in reports furnished to

-4TSB-A-09(18)S
Sales Tax
April 27, 2009

other persons. Charges by Petitioner to broker dealers for access to the reports constitute charges
for information services subject to sales tax pursuant to section 1105(c)(1) or 1105(c)(9) of the
Tax Law. See Bernstein Law Firm, PLLC, Adv Op Comm T&F, September 22, 2004,
TSB-A-04(23)S. The reports are taxable regardless of whether they are emailed to broker
dealers or viewed on Petitioner's website.
Therefore, Petitioner’s subscription fees paid by the broker dealers are subject to sales tax
when the reports are delivered to the customer in New York. When the information is delivered
by electronic means to customers both within and without New York, the receipts subject to
the sales tax should be allocated between the two. See KPMG LLP, Adv Op Comm T & F,
January 31, 2003, TSB-A-03(5)S.

DATED: April 27, 2009

NOTE:

/s/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel

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.