Are a consultant's personal reports taxable, and is consulting that is bundled into the price of taxable training tapes taxable too?

Plain-English summary

A behavioral scientist (a client of Morton L. Coren, P.C.) does two kinds of work for his business customers:

• Consulting. He interviews the customer's employees, develops training strategies, and delivers oral and written reports — and sometimes scripts for videos. These reports are personal and individual in nature and are not substantially incorporated into reports furnished to other people.
• Video tapes. He also produces training video tapes for sale (on selling techniques, customer service, etc.). The cost of the tapes includes both his professional and production services and his consultation with the customer.

The Department separated the two.

• The reports and scripts are not taxable. The written reports fall within the personal-or-individual exclusion in § 1105(c)(1) — information that is personal or individual and not substantially reused for others is not a taxable information service. The scripts are outside the sales tax entirely.
• The tapes are taxable — and so is consulting baked into their price. A video tape is taxable tangible personal property. Under § 1101(b)(3) and § 526.5(e), the receipt subject to tax is the full sale price with no deduction for expenses or components, and a sale is treated as a single sale when its parts cannot be bought separately (Penfold v. State Tax Commission). So the scientist must collect tax on his entire charge for tapes delivered into New York, including the portion representing consulting done in connection with the tapes.
• A separate contract changes the result. If the consulting services (the reports and scripts) are supplied and billed under a separate contract or agreement, apart from the tape sale, then those consulting charges are not taxable — while the tapes remain taxable.

What this means for you

Personal, one-off reports aren't a taxable information service

If what you deliver is genuinely personal and individual to the one client — and you don't recycle it into products sold to others — it falls outside the § 1105(c)(1) information-service tax. A consultant's tailored written analysis and recommendations are the classic example of the exclusion.

Bundling nontaxable consulting into a taxable product makes the whole thing taxable

This is the trap. The moment you fold your consulting into the price of a taxable item — here, training tapes — the "single sale" rule taxes the entire charge, consulting included, because the customer can't buy the pieces separately. You can't sell a taxable tape "with free analysis" and treat part of the price as exempt.

Separate contracts, separately billed, preserve the exemption

The clean fix is structure: put the nontaxable consulting under its own contract and invoice, distinct from the contract to buy the tapes. Done that way, the consulting stays nontaxable and only the tapes are taxed. Cosmetic line-item splitting on one invoice is not enough — the services must be genuinely separable and separately purchasable.

Expenses don't come out of the taxable base

Remember that § 1101(b)(3) and § 526.5(e) forbid deducting expenses — travel, meals, model fees, and the like — from a taxable receipt. When the sale is taxable, tax applies to the whole billed amount, not just the "product" line.

Common questions

Q: Are a consultant's personal written reports taxable in New York?
A: No. Reports that are personal and individual and not substantially incorporated into reports for others fall within the exclusion in § 1105(c)(1).

Q: I include some consulting in the price of a training video. Is the consulting taxable?
A: Yes. When consulting is bundled into the price of a taxable tape and can't be bought separately, the entire charge is taxed as a single sale (Penfold).

Q: How can I keep the consulting nontaxable?
A: Supply and bill the consulting under a separate contract from the tape sale. Then the consulting is nontaxable and only the tapes are taxed.

Q: Can I subtract my travel and other expenses from the taxable amount?
A: No. Under § 1101(b)(3) and § 526.5(e), expenses are not deductible from a taxable receipt.

Citations and references

Statutes and regulations:

• Tax Law § 1105(c)(1) — tax on information services, excluding information that is personal or individual and not substantially incorporated into reports for others
• Tax Law § 1101(b)(3) — "receipt" is the full sale price with no deduction for expenses
• 20 NYCRR § 526.5(e) — expenses incurred in making a sale are not deductible from the receipt

Cited authority:

• Penfold v. State Tax Commission, 114 AD2d 696 (1985)

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_33s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-90 (33)S
Sales Tax
June 29, 1990

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S900312B

On March 12, 1990 a Petition For Advisory Opinion was received from Morton L. Coren,
P.C., 638 Meadow Court, Westbury, New York 11590.
The issue raised by Petitioner, Morton L. Coren, P.C., is whether the sale of certain tangible
personal property and services rendered by Petitioner's client, a behavioral scientist, are subject to
the sales tax.
Petitioner's client, a behavioral scientist, conducts interviews with employees of his
customers and develops strategies for training his customers' employees. He then prepares oral
and/or written reports and discusses his recommendations with his customers. He may also prepare
scripts for the production of video tapes. The only material supplied by him to his customers under
these circumstances are the typewritten reports and scripts. These reports are personal and individual
in nature and are not substantially incorporated in reports furnished to other persons.
In addition to the consulting services described above the behavioral scientist produces video
tapes for sale to his customers. The tapes are used for training employees in selling techniques,
customer service and other matters. The cost of producing the tapes includes both professional and
production services including consultation with his customers.
Section 1105(c)(1) of the Tax Law imposes sales tax upon
"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...."
Therefore the sale of the behavioral scientist's reports, which are personal and individual in
nature and are not substantially incorporated in reports furnished to other persons, are not subject
to sales tax in accordance with Section 1105(c)(1) of the Tax Law. The sale of his scripts do not
come within the scope of the Sales Tax Law and are thus not subject to tax.
Section 1101(b)(3) of the Tax Law defines receipt as "[T]he amount of the sale price of any
property and the charge for any service taxable...without any deduction for expenses...."
Section 526.5 (e) of the Sales and Use Tax Regulations explain the above section of law as
follows:
TP-9 (9/88)

-2­
TSB-A-90 (33)S
Sales Tax
June 29, 1990
(e) Expenses. All expenses, including telephone and telegraph and other service charges,
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.
Example 1:

A photographer contracts with a customer to furnish photographs at $50 each
in addition to expenses.
The customer is billed as follows:
Photographs (2)
Model fees
Meals
Travel
Props (Flowers)
Total due
Receipt subject to tax is $200

Example 2:

$100
60
10
25
5
$200

An appliance repairman charges $10 per hour plus expenses when on a
service call. The customer is billed as follows:
3 hrs. at $10
Travel
Parts
Meals
Total due
Receipt subject to tax is $70

$ 30
15
20
5
$ 70

The effect of Section 1101(b)(3) is to treat as a single sale any sale in which any of the
components cannot be singly purchased. Thus, even though the components of a particular sale can
be separately stated, calculated or estimated, if they cannot be separately purchased, the combination
of the items listed must be considered as one. Penfold v. State Tax Commission, 114 AD 2d 696
(1985). Accordingly, the behavioral scientist must collect sales tax on his entire charge for tapes
which are delivered into New York State including any portion of such charges for the tapes which
represent the charges for consulting services that were performed in connection with the preparation
of the tapes.
However in the event the consulting services, including the typewritten reports and scripts,
are supplied and billed pursuant to a separate contract or agreement apart from the contract or
agreement for the sale of the tapes, then the charges for such consulting services will not be subject
to sales tax although the charges for the tapes will be subject to said tax.
DATED: June 29, 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.