My company provides automated voice-calling services to airlines, banks, and other businesses using proprietary software we keep entirely in-house — is our calling-service fee or our own software subject to New York sales or use tax?

Plain-English summary

KPMG LLP petitioned on behalf of a client ("Company") that delivers automated, interactive voice messages — via phone and mobile — to recipients its customers designate (airlines notifying passengers of flight changes, banks sending bill-pay reminders, schools/employers broadcasting emergency alerts, telemarketers reaching call lists). Customers send an encrypted electronic call list; Company's own proprietary software authenticates each recipient and delivers a customized message with interactive keypad options, sometimes forwarding the call live to the customer's representative. Critically, the software itself is never delivered, licensed, downloaded, or made accessible to customers — customers only ever receive the finished service (the calls placed) and a "Results File" report of what happened on each call, which is specific and confidential to that one customer and never resold or incorporated into anyone else's report. Company charges an initial setup fee plus a per-call or per-minute charge.

The Department held the automated calling service fees are not subject to sales tax. Since the software is never transferred, licensed, or made accessible to customers in any way, Company isn't selling software — it's providing a calling service, and automated calling services aren't among the specifically enumerated taxable services in Tax Law §1105. The Department also considered whether the call-forwarding element makes this a taxable "telephone service," and said no: Company doesn't pay for or provide the telephone connection between the recipient and the customer's representative (its own system disconnects once that connection is made), so its own consumption of telephone service in performing the calling service doesn't transform the whole service into taxable telephone service. The Results File report also escapes tax: even if treated as an "information service," it's personal/individual data about that one customer's own call list and results, never incorporated into reports for other customers — squarely within the information-service exclusion.

On the provider's own software, the Department confirmed it isn't subject to New York use tax either, because New York's use tax rule for software created by its own author only applies if the author also sells similar software to others in the regular course of business. Since Company doesn't sell or license the software at all, its own use of the software in New York doesn't trigger use tax.

Note on this opinion's near-duplicate sibling: A second 2009 opinion, TSB-A-09(14)S (issued March 13, 2009, requested anonymously), presents an essentially identical fact pattern — the same four industries served (airlines, bill-pay, emergency voice blast, telemarketing), the same Results File description, and the same reasoning — and reaches the identical result. Whether these reflect the same underlying company petitioning twice through different representatives, or two genuinely different companies with parallel business models, isn't stated in either redacted opinion; either way, the Department's analysis and conclusion are consistent across both.

What this means for you

Automated calling, IVR, and notification service companies

Keeping your calling software entirely in-house — never licensed, downloaded, or made remotely accessible to customers — is the key fact that keeps your service fee out of the sales tax base. If customers ever gain any right to access or control the software itself (not just receive the output), the SaaS/constructive-possession analysis seen in other 2009 opinions could apply instead and change the result.

Businesses building proprietary internal software tools

If you develop software purely for your own internal use and never sell or license similar software to third parties, your own use of that software in New York generally isn't subject to use tax — but the moment you begin selling similar software (as such, or as a component of another product) in the regular course of business, that protection goes away.

Accountants and tax professionals

This opinion cleanly separates three potentially-taxable threads — software sale/license (none here), telephone service (not triggered, per Holmes Electric Protective Co. v McGoldrick), and information service (excluded as personal/individual data) — and, together with its near-identical sibling TSB-A-09(14)S, confirms this was settled, consistently-applied Department policy for the automated-calling-service business model in 2009, not a one-off result.

Common questions

Q: We build our own calling software but never let customers touch it — is our service fee taxable?
A: Not under this opinion's reasoning, as long as customers never receive, download, or gain any right to access or control the software — you're providing a calling service, not selling or licensing software, and automated calling isn't itself an enumerated taxable service.

Q: Our software occasionally forwards a call to a live representative — does that make us a taxable telephone service provider?
A: Not by itself. The Department held that consuming telephone service to perform your own calling service (without you paying for or providing the connection between the recipient and your customer) doesn't convert the whole service into taxable telephone service.

Q: We send customers a report/results file after each batch of calls — is that a taxable information service?
A: Generally no, if the report is personal and individual to that one customer's own data and isn't incorporated into reports you furnish to other customers — that falls within the information-service exclusion.

Q: Do we owe use tax on the software we built and use ourselves?
A: Not under New York's rule, as long as you don't offer similar software for sale (as such, or as a component of other property) in the regular course of business. If you start selling or licensing similar software, that use tax exemption for self-created software no longer applies.

Q: Can any calling-service company rely on this exact opinion?
A: No. An advisory opinion binds the Department only as to the taxpayer who requested it and the facts described — particularly that the software is never transferred or made accessible to customers. A hosted/SaaS-style calling platform that gives customers direct access could be analyzed very differently.

Citations and references

Statutes and regulations:

• Tax Law §1105(a), (c)(1) (tax on tangible personal property; information services, with personal/individual exclusion)
• Tax Law §1110(a)(F), (g) (use tax exemption for software used by its own non-selling author)
• TSB-M-93(3)S (prewritten software and related services)

Cited case and opinion:

• Matter of Holmes Electric Protective Co. v McGoldrick, 262 App Div 514 (1st Dept 1941) (consuming telephone service to perform another service doesn't convert that service into taxable telephone service)
• Deloitte & Touche LLP, TSB-A-03(42)S (personal/individual information exclusion)

Source

• Landing page: NY Sales Tax Advisory Opinions, 2009
• Original opinion: TSB-A-09(5)S

Original ruling text

New York State Department of Taxation and Finance

TSB-A-09(5)S
Sales Tax
January 29, 2009

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

PETITION NO. S080108B

On January 8, 2008, the Department of Taxation and Finance received a Petition for
Advisory Opinion from KPMG LLP, 801 Second Avenue, Suite 900, Seattle, WA 98104.
Petitioner, KPMG LLP, submitted additional information relating to the Petition on June 12,
2008 and November 10, 2008.
The issues raised by Petitioner on behalf of its client (Company) are:

1. Whether Company’s receipts from the sale of its automated voice messages as described
   below are subject to New York State and local sales tax.
2. Whether the software used by Company is subject to New York State and local sales and
   use tax.
   Petitioner submitted the following facts as the basis for this Advisory Opinion.
   Petitioner’s client, Company, is a corporation that is based in a state other than
   New York. Company is hired to provide automated voice messages to recipients designated by
   its customer, which messages are delivered through telephone and mobile devices. To
   accomplish this, the customer provides Company with an electronic call list containing
   proprietary and confidential information on each call recipient. The call list is sent by the
   customer over the Internet in a secure, encrypted file or the customer may provide Company
   access to its computer files to extract the required information. Company developed specialized
   software to make the actual calls and deliver an automated voice message, which replaces the
   typical live operator without sacrificing the functionality. The voice message may be provided
   by the customer or the customer may have Company provide assistance with scripting and
   creating the appropriate message. When customers wish to change or update their messages, the
   customer must contact a Company representative to make the appropriate changes. Company
   does not license or sell this proprietary software. No software is delivered or transferred to the
   customer for use and the customer is not given access to Company’s system software.
   When making the call, Company first authenticates the recipient using a piece of personal
   information contained in the electronic call list. Once the recipient is authenticated, Company
   delivers an automated, customized voice message to each person contained in the electronic call
   list. The voice message provides personalized options that prompt the recipient to take action.
   The recipient selects an option by pressing the corresponding number on a keypad. Depending
   on the option selected, Company’s software will either provide additional information via an
   automated recording or forward the call to the customer or the customer’s representative. The
   software program is designed to dial out to the customer or the customer’s representative

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Sales Tax
January 29, 2009
telephone number when forwarding a call to the customer or the customer’s representative.
When the recipient has been connected to the customer or the customer’s representative, the
Company’s computer system disconnects.
Company provides services to the following four industries.
Airlines
Company’s services are used by the airlines to notify passengers of flight changes and
cancellations. In providing this service to airlines, the passenger will be provided a primary
message and may also be offered the option to access additional messages containing items of
general information or to be connected to the airline’s customer service.
Bill Pay Notification
Company provides automated courtesy calls regarding upcoming payment due dates and
past due payments. The automated messages are made to the call recipients via telephone. In
some cases, recipients can also be connected to a bank or other financial services company for
further support by pressing an assigned key on their telephone keypad.
Emergency Voice Blast Service
Company provides an automated voice message to a select group of recipients (e.g.,
students, employees) to notify them of an emergency situation. This service allows a business,
school, or government agency to broadcast an emergency message via personal telephone or
mobile device. This service can be used to notify employees or students of a toxic gas leak, fire
alarm, or terrorist attack.
Telemarketing
Company provides an interactive voice message to a list of call recipients designated by
its customer. The recipient receiving the automated message may choose to act by pressing an
assigned number on his or her telephone keypad. By pressing one of the assigned numbers, a
call recipient can receive additional information (by automated message) or be connected to the
support center of the customer.
The results of each call are captured in a Results File. The Results File is a report
containing the original data sent by the customer and the results of each call made by Company.
Primarily the Results File provides the customer with an itemized breakdown of the calls made
by Company. The Results File does not contain any external data, except for the call results.
This file is delivered to the customer electronically. Also, because of the confidential nature of
the information, each customer’s Results File is only made available to that specific customer.
Company does not sell or market either the original data or the information contained in the
Results File to any third party. Company may not incorporate the information contained in the
Results File in reports it provides to others. In all cases, the data provided to the customer is
proprietary and confidential to the customer.

-3TSB-A-09(5)S
Sales Tax
January 29, 2009
Company charges new customers an initial set-up fee based on the hours incurred at a
standard hourly rate. In addition to the initial set-up fees, Company applies a rate or flat charge
to either the number of customer calls made or the minutes used to make the calls.
Applicable law and regulations
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 . . . 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,...
Section 1110 of the Tax Law provides, in part:
(a) 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, (B) of any tangible personal property (other than computer software
used by the author or other creator) manufactured, processed or assembled by the user, (i)
if items of the same kind of tangible personal property are offered for sale by him in the
regular course of business...(F) of any computer software written or otherwise created by
the user if the user offers software of a similar kind for sale as such or as a component
part of other property in the regular course of business,…
*

*

*

(g) For purposes of clause (F) of subdivision (a) of this section, the tax shall be at
the rate of four percent of the consideration given or contracted to be given for the
tangible personal property which constitutes the blank medium, such as disks or tapes,

-4TSB-A-09(5)S
Sales Tax
January 29, 2009
used in conjunction with the software, or for the use of such property, and the mere
storage, keeping, retention or withdrawal from storage of computer software described in
such clause (F) by its author or other creator shall not be deemed a taxable use by such
person.
Technical Services Bureau Memorandum, entitled State and Local Sales and
Compensating Use Taxes Imposed on Certain Sales of Computer Software, March 1, 1993,
TSB-M-93(3)S, provides, in part:
Effective September 1, 1991, State and local sales and compensating use taxes are
imposed on the sale or use of prewritten computer software and certain related services.
The effect of this change in the Tax Law is to broaden the types of computer
software that are subject to sales and use taxes . . . certain software previously considered
“custom” may now be considered prewritten computer software and subject to such taxes
. . . . The only software that is exempt from sales and use taxes under the new law is
software designed and developed to the specifications of a specific purchaser.
Prewritten computer software is any computer software that is not designed and
developed by the author or other creator to the specifications of a specific purchaser.
The sale of prewritten software includes any transfer of title or possession, any
exchange, barter, rental, lease or license to use, including merely the right to reproduce,
for consideration . . . .
*

*

*

Use Tax Exemption
Use tax generally applies to taxable uses of prewritten computer software in the
same manner that the use tax applies to uses of other tangible personal property, except
that: (1) no use tax is imposed on software used by its author if the author does not offer
similar software for sale in the regular course of business, and (2) where software is used
by its author and the author does sell the same or similar software in the regular course of
business, use tax applies and is computed on the cost of the medium (floppy disk,
magnetic tape, etc.) that contains or is used in conjunction with the program.
Opinion
Company is hired to provide automated voice messages to recipients designated by its
customers. To accomplish this, the customer provides Company with an electronic call list
containing proprietary and confidential information on each call recipient. Company uses
software to make the calls that deliver automated voice messages to the customer’s designated

-5TSB-A-09(5)S
Sales Tax
January 29, 2009
recipients. The voice message delivered by Company may prompt the recipient to take an action
and Company’s software will either transfer the call to the customer or the customer’s
representative or provide additional information via an automated recording. Company also
provides clients with reports compiling the results of each call.
Company has developed proprietary software whereby Company has automated the
calling functions provided to its customers. It appears from the facts in this Opinion that the
software is not delivered or transferred to Company's customers by download or in a tangible
format, and that the software may not be accessed online by Company's customers for use.
Therefore, it appears that Company does not license or sell this proprietary software. Rather,
Company is providing automated calling service to its customers.
Services are not subject to sales tax unless they are specifically enumerated as being
subject to tax under section 1105 of the Tax Law. Company’s automated calling services as
described in this Opinion do not constitute any of the enumerated services specified under
section 1105 of the Tax Law. When forwarding the message recipient to the customer or the
customer’s representative, Company’s software program is designed to dial out to the telephone
number of the customer or representative. When the message recipient has been connected to the
customer or the customer’s representative, the Company’s computer system disconnects. Thus
phone service for the call between the message recipient and the customer or customer
representative is not paid by Company. While Company’s services include some elements that
may appear similar to telephone services such as call forwarding services, these elements are not
sufficient to transform Company’s services when considered as a whole into telephone services
subject to sales tax. Company may consume telephone services in the performance of the
services it provides to customers, but Company is not engaged in providing telephone service to
its customers. See Matter of Holmes Electric Protective Co. v McGoldrick, 262 App Div 514
(1st Dept 1941).
Company’s customers also receive a written report of the call results. To the extent the
report is deemed to be an information service, the information provided is personal and
individual in nature relating to the customer call lists and call results, and that information is not
substantially incorporated in reports furnished to other persons. Therefore, charges for such
service were it considered to constitute an information service would qualify for the exclusion
from sales tax for information services as provided in section 1105(c)(1) of the Tax Law. See
Deloitte & Touche LLP, Adv Op Comm T&F, November 24, 2003, TSB-A-03(42)S.
Since Company's services as described in this Opinion do not constitute any of the
enumerated services specified under section 1105 of the Tax Law, the receipts from the sale of
Company's services are not subject to sales tax imposed by section 1105.
Section 1110 of the Tax Law provides that software used by its author is not subject to
use tax if the author does not offer similar software for sale as such or as a component part of
other property in the regular course of business. Therefore, the software Company develops and

-6TSB-A-09(5)S
Sales Tax
January 29, 2009
uses to provide services to its customers is not subject to use tax provided that Company does not
sell the software as such or as a component part of other property in the regular course of
business.

DATED: January 29, 2009

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.