Are the charges for confidential product-testing reports about a company's own products a taxable information service?

Plain-English summary

Garden Way Incorporated, a maker and retailer of lawn and garden equipment, hired a Florida company to test its Tuff Cut 22" and 24" lawnmowers. Test operators ran the mowers for hours at a time over about ten weeks, a foreman and mechanic observed, and everyone recorded daily observations in confidential operating logs; the company then delivered confidential reports — and the mowers — back to Garden Way for use in its research and development. The data and analysis were kept secret under an agreement. Garden Way asked whether the charges are a taxable information service under Tax Law § 1105(c)(1).

The Department held the reports are an exempt information service:

• It is an information service. Collecting, compiling, and analyzing the test data and furnishing reports is an information service under § 1105(c)(1) and 20 NYCRR § 527.3.
• But it fits the personal/individual exclusion — both prongs. Section 1105(c)(1) excludes information that is personal or individual in nature and that may not be substantially incorporated in reports furnished to others:
  • Personal/individual: the reports pertain only to Garden Way's own products, so they are uniquely personal and individual.
  • Not substantially incorporated in reports to others: the data and analysis are kept secret and confidential under the agreement, so they may not be given to anyone else.
• The whole charge is non-taxable. Because the reports are a non-taxable information service, the entire amount charged — including the separately stated charges for the test operators, foreman, mechanic, overtime, fuel and oil, UPS shipping, administration, and reports — is not subject to state or local sales tax (citing Re Fortunato Sons Inc., TSB-A-86(30)S).

What this means for you

If you buy or sell custom research, testing, or analysis: A report that is genuinely individual to one customer and kept confidential — not resold or folded into reports for others — is an exempt information service in New York, even though "information services" are generally taxable. The classic example is testing or analyzing the customer's own products under a secrecy agreement.

Both conditions must hold. The information has to be (1) personal or individual in nature and (2) not substantially incorporated in reports furnished to others. Confidentiality is what usually satisfies the second prong. If the same data feeds a common database or shared report, the exclusion is lost and the service becomes taxable. (Contrast TSB-A-89(24)S, a multiple listing service, and the common-database marketing reports in TSB-A-89(37)S — both taxable because the information was shared with others.)

Separately stated costs follow the service. Because the underlying service is exempt, the separately billed labor, overtime, fuel, and shipping charges are all part of the exempt charge — you don't tax them individually.

Common questions

Q: We paid a lab to test only our own products and keep the results secret — is that taxable?
A: No. Reports that are individual to you and kept confidential fall within the § 1105(c)(1) personal/individual exclusion and are exempt.

Q: What makes an information service exempt versus taxable?
A: It's exempt only if the information is personal or individual in nature and may not be substantially incorporated in reports furnished to others. Shared or resold information (e.g., a common database) is taxable.

Q: Are the separately billed labor and shipping charges taxable even if the reports are exempt?
A: No. They're part of the single exempt information-service charge, so the whole amount is non-taxable.

Citations and references

Statute and regulations:

• Tax Law § 1105(c)(1) — tax on information services; excludes information that is personal or individual and not substantially incorporated in reports furnished to others
• Tax Law § 1101(b)(3) — definition of "receipt"
• 20 NYCRR § 527.3 — information services and the personal/individual exclusion
• 20 NYCRR § 526.5(e) — expenses incurred in making a sale are not deductible from receipts

Prior opinion cited:

• Re Fortunato Sons Inc., Advisory Opinion, July 28, 1986, TSB-A-86(30)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1989.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a89_22s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-89(22)S
Sales Tax
July 25, 1989

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO: S890329B

On March 29, 1989 a Petition for Advisory Opinion was received from Garden Way
Incorporated, 102nd Street and 9th Avenue, Troy, N.Y. 12180.
The issue raised is whether Petitioner is required to pay sales tax on charges for product
testing services and subsequent reports reflecting the results of such product testing or whether the
charges are for the purchase of information services which are not subject to state or local sales and
use taxes pursuant to the exclusion provided for in section 1105(c)(1) of the Tax Law.
Petitioner is a manufacturer and retailer of garden and lawn equipment. During 1985
Petitioner engaged the services of a Florida company, Sassaman Enterprises, Inc. for the purpose of
testing a line of power mowers manufactured and sold at retail by Petitioner.
Test operators, who were employees of Sassaman Enterprises, Inc., operated Petitioners
products, the Tuff Cut 22" and Tuff Cut 24" lawnmowers, for several hours at a time for a period of
approximately ten weeks. The operation of the lawnmowers was also observed by a foreman and a
mechanic. All of these individuals recorded their daily observations in confidential operating logs.
Weekly test log summaries were also prepared. The data, observation reports and the lawnmowers
were then forwarded to Petitioner for use in Petitioner's product research and development.
Sassaman Enterprises, Inc. presented Petitioner itemized billings which indicated the total
hours, hourly rates and the total amounts charged for the test operators, foreman, mechanic,
administration and reports, and overtime premium. The billings also reflected separate charges for
fuel and oil, and for UPS shipping charges.
The reports received were based upon data compiled by Sassaman Enterprises, Inc. during
the course of operating and observing petitioner's product. The reports relate to specific products and
are highly confidential. Petitioner states that the data and analysis contained in the reports is kept
secret pursuant to an agreement between Petitioner and Sassaman Enterprises.
Section 526.5 of the Sales and Use Tax Regulations provides:
Receipt [Tax Law, §1101 (b)(3)]
(a) Definition. The word receipt means the amount of the sale price of any property and the
charge for any service taxable under articles 28 and 29 of the Tax Law, valued in money,
whether received in money or otherwise. The following subdivisions of this section discuss
elements of a receipt.
*
TP-9 (9/88)

*

*

-2­
TSB-A-89(22)S
Sales Tax
July 25, 1989
(e) Expenses. All expenses ... 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. 20 NYCRR 526.5.
Section 1105(c) of the Tax Law imposes sales tax on "[t]he 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... .
(Emphasis added).
Section 527.3 of the Sales and Use Tax Regulations provides:
(a) Imposition
(2) The collecting, compiling or analyzing information of any kind or nature and the
furnishing reports thereof to other persons is an information service.
*
(b) Exclusions.

*

*

(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. 20 NYCRR 527.3.
Whereas the reports prepared by Sassaman Enterprises Inc. represent a collection of data
derived from an operating analysis of Petitioner's Tuff Cut 22" and Tuff Cut 24" lawnmowers, the
sale of such reports in written form constitutes the rendering of an information service within the
meaning and intent of Section 1105(c)(1) of the Tax Law.
Because the reports pertain only to products manufactured by Petitioner, the reports are
considered to be uniquely personal and individual in nature, thus satisfying the first condition
required for exclusion from taxation. (Tax Law §1105(c) (1), supra).
The second condition for exclusion mandates that the information may not be substantially
incorporated in reports furnished to other persons. The reports furnished to Petitioner meet this
condition in that the data and analysis contained in the reports is kept secret and confidential
pursuant to an agreement between Petitioner and Sassaman Enterprises, Inc.
Moreover, as the reports furnished to Petitioner meet the criteria required under the
exclusionary clause of Section 1105(c)(1) of the Tax Law, such reports constitute a non-taxable
information service. Accordingly, the total amounts charged to Petitioner (including the separately

-3­
TSB-A-89(22)S
Sales Tax
July 25, 1989

stated charges for test operators, the foreman, the mechanic, overtime, fuel and oil, UPS,
administration and reports) are considered to represent the total receipts for such non-taxable
information service and are not subject to state or local sales tax. Re Fortunato Sons Inc., Advisory
Op St Comm, July 28, 1986, TSB-A-86(30)S.

DATED: July 25, 1989

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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