Are advertising market-research services — focus groups, tracking, attitude, copy, and concept studies — a taxable information service?

Plain-English summary

Paul R. Comeau (of Hodgson, Russ, Andrews, Woods & Goodyear) asked whether receipts from certain advertising market-research services are taxable. The services — sometimes called focus groups, and also tracking studies, attitude-and-usage studies, copy research, and concept research — involve interviewing people (by mail, phone, door-to-door, or at malls) about a product, brand, advertisement, or concept, then compiling reports used by the advertising agency or given to its clients to develop or refine campaigns. The reports are not drawn from common databases; each is prepared individually from information gathered during interviews, is confidential and proprietary to the purchaser, and cannot be sold to others or used to serve other clients.

The Department held these services are not taxable.

• They are information services. Collecting, compiling, or analyzing information and furnishing reports is an information service under Tax Law § 1105(c)(1) and 20 NYCRR § 527.3(a)(2).
• But the personal/individual exclusion applies. Section 1105(c)(1) excludes information that is personal or individual in nature and not (or not able to be) substantially incorporated in reports furnished to others. Because each research report is built from the ground up using only the information collected for that particular client, it is personal or individual in nature.
• No common database. The interview information is not derived from, and does not become part of, a common database, and cannot be sold to others or used to service other clients — so the second condition is met too. The research services are therefore not subject to tax.

What this means for you

The source of the data is what decides taxability

This is the recurring New York line for information services: research and reports built only from data you collect for one client, and kept confidential to that client, are personal and individual — and nontaxable. The same work drawn from a shared or resold database sold to many customers would be taxable. It's the source and reuse of the data, not how customized the report looks, that controls.

Keep the client's data genuinely siloed

The exclusion held here because the interview data never entered a common database and couldn't be resold or reused for other clients. If you pool responses, benchmark against other clients' data, or repackage findings for sale, you risk pulling the service into tax. Document that each engagement's data stays with that client.

Advertising agencies and their outside suppliers are treated alike

The Department applied the same analysis whether the research was done in-house by the agency or by an outside research supplier. Either way, the personal/individual character of the reports governs.

Common questions

Q: Is custom market research for one client taxable in New York?
A: No — where the report is built only from data collected for that client and isn't drawn from or added to a common database, it's a personal, individual information service excluded from tax under § 1105(c)(1).

Q: What would make market research taxable?
A: Drawing on a shared/resold database, or repackaging and selling the findings to others. Then the information isn't personal/individual and the exclusion is lost.

Q: Does it matter if an outside supplier does the fieldwork?
A: No. The same treatment applies whether the agency does the research in-house or hires an outside supplier.

Citations and references

Statutes and regulations:

• Tax Law § 1105(c)(1) — tax on information services; exclusion for information that is personal or individual in nature and not substantially incorporated in reports furnished to others
• 20 NYCRR § 527.3(a)(2) — definition of an information service (collecting, compiling, or analyzing information and furnishing reports)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a90_10s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-90 (10)S
Sales Tax
March 14, 1990

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S891109A

On November 9, 1989 a Petition for Advisory Opinion was received from Paul R. Comeau,
Esq., c/o Hodgson, Russ, Andrews, Woods & Goodyear, 1800 One M & T Plaza, Buffalo, New York
14203-2391.
The issue raised by Petitioner, Paul R. Comeau, Esq., is whether receipts from the sale of
certain research services are subject to or exempt from the sales tax imposed under Articles 28 and
29 of the Tax Law.
Advertising agencies perform or purchase research services for their own use or for the use
of their clients. These research services may be called "focus groups", although they are also known
as tracking studies, attitude and usage studies, copy research, and concept research. In each instance,
a researcher conducts interviews by mail, telephone, door-to-door or at a central location such as a
shopping mall. Usually, the interviewer intercepts people (by calling their homes, knocking on their
doors, stopping them in a shopping mall, and so forth) and asks specific questions about a product,
an advertising campaign, the overall market, the text or content of an advertisement, or general
attitudes concerning various concepts which might appear in advertisements. Sometimes advertising
agencies conduct the research with their own personnel, and other times they hire outside
contractors. The results of the research are collected and reports are prepared. The reports are either
furnished to the advertising agencies' customers or used by the advertising agencies to develop or
modify promotional campaigns (which may include television or radio commercials, print
advertising, product packaging, product development, and so forth).
The reports in question are not derived in whole or in part from common data bases. Each
oral or written report is prepared individually from the ground up using information collected during
the interview stage. The collected information does not become part of a common data base.
Information contained in a report is highly confidential, proprietary material for the exclusive use
of the purchaser of the report. The advertising agencies performing these services cannot sell this
information to others or use this information to service other clients.
The specific services rendered may be categorized and described as follows:
FOCUS GROUPS. Generally, a focus group is a discussion/interview with one or more people
in a given location. Sometimes an outside research supplier is hired to conduct focus groups and
sometimes they are done in-house by the advertising agency. The focus group is generally related
to a particular category of product or a client's brand.
TP-9 (9/88)

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Sales Tax
March 14, 1990

TRACKING STUDIES.
A tracking study is a research procedure used to measure the degree
to which an advertising campaign achieves clearly defined objectives. Because it is implemented to
track the effects of a particular advertising campaign on a particular brand, the information obtained
is highly customized to a client's needs.
An outside research supplier is hired to conduct the study. It may use any one of many interviewing
procedures. Generally, these could include any of the following procedures:

1. Telephone interviews. Interviewers in a WATS facility call a
   random sample of the target group around the country (or in a
   specified area if the advertising is regional).
2. Door-to-door interviews. The supplier will usually sub-contract
   different field services around the country to interview people by
   going door to door (this could also take place regionally).
3. Central location interviewing. Generally this involves mall
   interviews. Again, different field services in different cities are
   subcontracted to conduct a certain number of interviews by
   intercepting people in malls, screening them to make sure they belong
   to the target group, and then interviewing them.

The results of a tracking study are generally submitted to the client in report form. However,
it is possible to receive results orally.
ATTITUDE AND USAGE STUDIES. Attitude and usage studies are designed to analyze
consumers' attitudes towards--and use of--a particular brand within a particular category. While the
main focus of the study will be on a client's brand, questions will also be included on competitive
brands in order to understand the overall market. However, each study is customized to a particular
client's needs.
An outside research supplier is hired to conduct the study. The methods of interviewing are
the same as those used in the tracking studies mentioned above.
COPY RESEARCH. Copy research is also generally conducted by an outside research supplier.
The interview methodology is the same as that used for tracking studies with the "mall intercept"
being the most widely used method for copy research. Copy research involves obtaining information
about an advertisement or a group of advertisements. The client may have three or four campaigns
running on the same brand and they want to know which one is the most persuasive. Generally,
people are shown one or more commercials and then asked to respond to questions about the
commercial(s).

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Sales Tax
March 14, 1990

CONCEPT RESEARCH/QUANTITATIVE. The purpose of this type of research is to evaluate the
size of market opportunity for a new product, to measure the appeal of various versions of a new
concept or several concepts, or to determine what target group was most interested in the concept.
This type of research is similar to tracking studies in that the same interview methodology is used.
The only difference is that the questions pertain to a client's concept rather than a client's brand.
The usual first step in research of this kind is exposing the concept to respondents. The
concept may take a variety of forms, from a "white card" containing a brief, typed description to a
script with illustrations or an "ad-like object" on a storyboard or videotape.
Following exposure to the concept, respondents will answer a series of questions about the
product they saw or read about. The content and order of the questions depends upon the objective
of the test. Common objectives include:
1.

Gauging the appeal of a genuinely new product -- one
that would require the consumer to change his/her
attitude or behavior in the general category.

2.

Testing how well variations (e.g., formulation,
fragrance, packaging) of a new or existing product
fulfill consumer expectations that the concept evokes.

3.

Measuring the relative appeal of different positionings
of a product.

Some tests include a demonstration or a home usage trial period, others are limited to
exposure to the concept alone.
CONCEPT RESEARCH/QUALITATIVE. This research method is used to explore the appeal
and/or the best communication approach for a new product. In-depth interviews are conducted
among consumers to gain insight on issues that apply directly to the concept or product under
consideration. The interviews can be conducted individually or in groups.
Section 1105(c) of the Tax Law imposes tax upon...[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

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Sales Tax
March 14, 1990

be substantially incorporated in reports furnished to other persons....
Section 527.3(a)(2) of the Sales and Use Tax Regulations defines an information service as
"[t]he collecting, compiling or analyzing information of any kind or nature and the furnishing reports
thereof to other persons... ".
Accordingly, since the advertising agencies or the outside contractors collect, compile or
analyze information and furnish reports thereof to other persons, the advertising agencies and the
outside contractors are considered to be performing and providing information services.
Inasmuch as the research reports furnished to clients by the advertising agencies or outside
contractors are prepared by using only the information collected for a particular client during
interviews conducted to obtain specific data for use in providing information to such client, the
information contained in the reports furnished to the client meets the statutory test of being personal
or individual in nature. Additionally, because the information collected during the interview is not
derived in whole or in part from common data bases nor may be entered into a common data base,
and is not or may not be sold to others or used to service other clients, the statutory test that the
information furnished is not or may not be substantially incorporated in reports furnished to other
persons is also met.
Accordingly, the research services as heretofore described provided by the advertising
agencies or outside contractors are not subject to the tax imposed under Section 1105(c)(1) of the
Tax Law but fall within the exclusion from tax provided by such section in that they are personal or
individual in nature and are not or may not be substantially incorporated in reports furnished to
others.

DATED: March 14, 1990

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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