Are annual fees for a computer service that matches investors with businesses seeking capital a taxable information service, or exempt personal information?

Plain-English summary

Venture Capital Network (VCN) of New York, Inc. is a not-for-profit membership corporation running a computer-assisted referral program that matches potential investors with businesses seeking capital. It's funded by annually renewable application fees: participants fill out questionnaires, the computer matches an Investment Interest Profile with an Investment Opportunity Profile, and VCN sends a report each time a match is made (searches run constantly, with no limit on matches). VCN asked whether it must collect tax on the fees.

The Department held the fees are a taxable information service.

• VCN's argument. It said the fees weren't taxable because members aren't guaranteed a report, and — citing New York Life Ins. Co. — that any reports fell within the § 1105(c)(1) exclusion for personal/individual information.
• It's an information service. VCN's activity is like credit reporting or a computerized dating service — compiling and matching data and furnishing reports. Searches, surveys, mailing lists, and credit reports are examples of taxable information services, and under 20 NYCRR § 527.3(a)(4) an annual fee that entitles a subscriber to reports is taxable.
• The exclusion needs BOTH conditions. To be excluded under § 1105(c)(1), information must both be personal/individual in nature and not substantially incorporated in reports to others.
• VCN fails both. Unlike the uniquely personal confidential character reports in New York Life (which met both conditions), VCN's information isn't uniquely personal, and it's supplied for the express purpose of sharing with other participants — indeed, multiple matches, each generating a report, are desirable. So the annual fee, which entitles a participant to a report whenever a match is made, is taxable under § 1105(c)(1).

What this means for you

A matchmaking or referral service that shares information among participants is a taxable information service in New York. Compiling profiles and furnishing reports — matching investors to businesses, buyers to sellers, or people to people — is the kind of "collecting, compiling, and furnishing reports" the tax reaches. Being a nonprofit doesn't change that.

The personal/individual exclusion is narrow — and sharing defeats it. To escape tax, the information must be uniquely personal AND not substantially incorporated in reports to others. Data you gather precisely so you can share it with other participants isn't personal or individual in that sense, so the exclusion doesn't apply.

"No guarantee of a report" doesn't help. An annual/subscription fee that entitles a participant to reports when matches occur is taxable, even if a given member might never get a match.

Common questions

Q: We run a service that matches members with each other and send reports. Do we charge sales tax on the fees?
A: Yes. That's a taxable information service in New York — like credit reporting or a computerized dating service — and an annual fee entitling members to reports is taxable.

Q: Isn't our members' information personal, so it's excluded?
A: No. The exclusion requires the information to be uniquely personal AND not substantially incorporated in reports to others. Because you gather and share the information specifically to match participants, it isn't personal/individual in the required sense.

Q: Members aren't guaranteed a match or report. Does that make the fee non-taxable?
A: No. A subscription/annual fee that entitles a member to reports when matches occur is taxable regardless of whether any particular member gets one.

Q: We're a nonprofit. Does that exempt the fees?
A: Not by itself. The taxability turns on the nature of the service, not the provider's nonprofit status.

Citations and references

Statute, regulation, and case:

• Tax Law § 1105(c)(1) — taxes the furnishing/collecting/compiling of information and furnishing reports, but excludes information that is personal or individual in nature and is not (or may not be) substantially incorporated in reports furnished to others
• 20 NYCRR § 527.3(a)(4) — searches, surveys, mailing lists, and credit reports are examples of information services; a fee for a written report is taxable, and an annual subscription fee entitling the subscriber to reports (or reduced charges) is taxable
• Matter of New York Life Ins. Co. v. State Tax Commission, 80 A.D.2d 675 — confidential character reports of a uniquely personal nature qualified for the exclusion (both conditions met); the mere possibility of incorporation into reports to others isn't "substantial incorporation" without proof of actual use — distinguished here because VCN's information is shared by design; see also Sales Tax Information Letter No. 26 (1967) (computerized dating service is taxable)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1988.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a88_11s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-88(11)S
Sales Tax
January 21, 1988

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S870811B

On August 11, 1987, a Petition for Advisory Opinion was received from Venture Capital
Network (VCN) of New York, Inc., P.O. Box 248, Lake Placid, New York 12946.
The issue raised is whether Petitioner is required to collect sales tax on the application fees
paid by participants in its computer-assisted referral program for matching potential investors with
business enterprises seeking investment capital.
Organized as a not-for-profit New York membership corporation and aided by the Economic
Development and Technical Assistance Center (TAC) of the State University College at Plattsburgh,
Petitioner hopes to encourage the creation of jobs through stimulating investment in small business
in northern New York. Start-up expenses for VCN were funded by a grant TAC received from a New
York business corporation unconnected with VCN. Ongoing administrative expenses are paid solely
by the annually renewable application fees.
Petitioner compiles information about opportunities for capital investment and identifies
interested investors from questionnaires completed by each program participant. If, after processing
this information, the computer matches an Investment Interest Profile with an Investment
Opportunity Profile, the latter profile is forwarded to the investor who may then request the business
"executive summary" and profit and loss statement submitted with the questionnaire and, lastly, the
business name and address. Petitioner states that searches are constantly run and a report is sent each
time a match is made, without any limitation. Providing only this introductory matching service,
Petitioner will not add comments or advice to the reports; its role ceases when names and addresses
have been exchanged.
Petitioner asserts the application fees are not taxable receipts because VCN members are not
guaranteed a report. Citing Matter of New York Life Ins. Co. v. State Tax Commission, 80 AD2d
675, Petitioner further takes the position that, were the reports held information services, they would
fall under the exclusionary provision contained in Tax Law § 1105(c)(1).
The Tax Law imposes a tax on the receipts from every retail sale of tangible personal
property and from every sale of certain specified services, except where such property or services
are purchased for resale. Among the taxed services is the furnishing of information by printed,
mimeographed or multigraphed 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.

RODERICK G. W. CHU, COMMISSIONER
GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (3/83)

-2­
TSB-A-88(11)S
Sales Tax
January 21, 1988

The term "sale, selling or purchase" includes the rendering of any taxable service for a consideration
or any agreement therefor. Tax Law § 1105(a), (c)(1); §1101(b) (5).
Searches, surveys, investment letters, mailing lists, and credit reports are examples of
information services. The latter are subject to these rules:
(i)
(ii)
(iii)

Any fee for a written report is taxable.
Any fee for an oral report is taxable if the oral report is preliminary
to a written report.
An annual fee for subscribing to a service is taxable if it entitles the
subscriber to a certain number of free reports or to reduced charges
on reports . . . . 20 NYCRR527.3(a) (4).

The taxability of charges made for a computerized dating service was addressed in
Department of Taxation and Finance Sales Tax Information letter No. 26, May 26, 1967:
The person using the [dating] service is supplied with a detailed questionnaire
to find out his or her background, interests, likes and dislikes, and other
physical and mental characteristics. The answers are put through a computer,
and the person is matched with compatible persons of the opposite sex living
in the same geographical area. The person is then supplied with the names,
addresses and phone numbers of several persons of the opposite sex.
The service would be excluded from information services taxable under
section 1105(c)(1) if a psychologist gave examinations to two persons on an
individual basis in order to determine their compatibility. But where such a
service is standardized and information concerning compatibility is supplied
to other persons in the area who are seeking a suitable date, it is my opinion
that such service is not personal or individual in nature.
Consequently, the charge made for a computerized dating service is subject
to the New York State and local sales and use tax.
Clearly, Petitioner renders information services similar to credit reporting or dating services
for a consideration - the annual fee. To exempt this charge from taxation both criteria for exclusion
contained in Section 1105(c)(1) of the Tax Law, cited above, must be met.
In the case of New York Life Insurance, supra, both conditions were fulfilled. Confidential
character reports, purchased by an insurer, containing highly personal information about individuals
were held to be of the uniquely personal and individual nature contemplated by the statute. It was
further ruled that the mere possibility of inclusion of data kept in the seller's file into reports to others
was not sufficient to establish "substantial incorporation" in the absence of proof that the information
was in fact so used.

-3­
TSB-A-88(11)S
Sales Tax
January 21, 1988

Petitioner has presented no information which would indicate that the information supplied
by it is of the uniquely personal and individual nature contemplated by the statute. Furthermore, not
only is there no prohibition against furnishing the information to other participants but it is supplied
for that express purpose and multiple matches, each generating a report, are desirable.
Accordingly, since the annual fee entitles a participant to receive a report whenever a match
is made, it is taxable pursuant to Tax Law § 1105(c)(1).

DATED: January 21, 1988

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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