Are non-destructive testing services and reports a taxable information service?

Plain-English summary

PCA Engineering, Inc. performs non-destructive testing — evaluating the physical characteristics of materials (usually metal) in utilities, structures, buildings, machines, and equipment without damaging them. Its methods include magnetic particle, ultrasonic, liquid penetrant, eddy current, leak, and acoustic-emission testing, all applying engineering principles. It summarizes the results in a report given only to the client (though sometimes also provided, on the client's behalf, to the local fire authority where the tested item is located). Its work is supervised by licensed engineers certified at the highest non-destructive-testing level. PCA asked whether charges for these services and reports are taxable.

The Department held they are not taxable.

• The testing report is an information service. Collecting data from testing and evaluating designated materials and furnishing a report is an information service under Tax Law § 1105(c)(1).
• But it fits the personal/individual exclusion. Section 1105(c)(1) excludes information that is personal or individual in nature and not substantially incorporated in reports furnished to others (see 20 NYCRR § 527.3(b)(2)). PCA's report pertains only to the particular materials the client designated and is furnished only to the client (or those the client specifically designates, such as the fire authority) — meeting both conditions, like the forage-testing (Converse, TSB-A-81(12)S), concrete-testing (Fortunato Sons, TSB-A-86(30)S), and power-mower-testing (Garden Way, TSB-A-89(22)S) reports.
• Licensed-engineer advice is outside the tax. Separately, to the extent the work is technical advice rendered by a licensed professional engineer — evaluations, specifications, tests, and analyses that only a licensed PE may legally prepare — it is not a sale of property or an enumerated service and is outside the scope of the sales tax (R.H. McDermott Corp., TSB-A-88(22)S).

What this means for you

Client-specific test reports are nontaxable information

A testing report prepared about the specific items your client asks you to test, and delivered only to that client (or whomever the client designates), is a personal, individual information service — excluded from tax under § 1105(c)(1). Sharing it with a fire authority on the client's behalf doesn't break the exclusion.

Two independent grounds keep this untaxed

This opinion rests on both the information-service exclusion and the professional-engineering exclusion. The Department reached the same conclusion in the companion asbestos-monitoring opinion, TSB-A-90(16)S, which cites this ruling. Genuine licensed-PE technical advice is outside the sales tax even when delivered as a written report.

The exclusion depends on not pooling or reselling the data

Keep each engagement's data client-specific. If you drew on a shared database or sold the same findings to multiple parties, the information would no longer be personal and individual, and the exclusion could be lost.

Common questions

Q: Do we charge sales tax on non-destructive testing reports?
A: No. A report about the specific materials your client designated, furnished only to that client, is a personal, individual information service excluded from tax under § 1105(c)(1).

Q: We sometimes send the report to the fire department — does that lose the exclusion?
A: No, as long as it's furnished on the client's behalf to a party the client designates; it's still not substantially incorporated in reports furnished to others.

Q: What about the engineering judgment in our work?
A: Technical advice rendered by a licensed professional engineer is outside the sales tax entirely, an independent basis for non-taxability.

Citations and references

Statutes and regulations:

• Tax Law § 1105(c)(1) — tax on information services; exclusion for personal or individual information not substantially incorporated in reports furnished to others
• 20 NYCRR § 527.3(b)(2) — regulatory statement of the personal/individual exclusion

Cited authority:

• David J. Converse, Adv Op St Tax Comm, August 4, 1981, TSB-A-81(12)S — forage-testing reports
• Fortunato Sons Inc., Adv Op St Tax Comm, July 28, 1986, TSB-A-86(30)S — concrete-sample testing reports
• Garden Way Incorporated, Adv Op Comm T & F, July 25, 1989, TSB-A-89(22)S — power-mower testing reports
• R.H. McDermott Corp., Adv Op Comm T & F, March 2, 1988, TSB-A-88(22)S — licensed-engineer advice outside the sales tax
• Opinion of Counsel, 1966 NYTB-2, p. 58 — reports legally renderable only by licensed professional engineers

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_4s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-90 (4)S
Sales Tax
February 15, 1990

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S8912l5D

On December 15, 1989, a Petition for Advisory Opinion was received from PCA
Engineering, Inc., 127 Royal Avenue, P.0. Box 227, Hawthorne, New Jersey 07507.
The issue raised by Petitioner, PCA Engineering, Inc., is whether charges paid for
"Non-Destructive Testing" services and reports are subject to sales and use tax.
Petitioner is engaged in the business of providing services to its clients which include the
service of testing, investigating and evaluating the physical characteristics of materials, generally of
a metallic nature, which are incorporated into or are a principal element of utilities, structures,
buildings, machines and equipment, through certain testing methods which are not destructive to the
material to be tested (hereinafter "Non-Destructive Testing"). The principal Non-Destructive Testing
methods utilized by the Petitioner are: (i) magnetic particle testing, (ii) ultrasonic testing, (iii) liquid
penetrant testing, (iv) eddy current testing, (v) leak testing (including the sonic, halogen gas, flame
ionization, gas chromatograph, foam, hydrostatic/dynamic, chemical indicators, electric vacuum and
pigging methods), and (vi) acoustic emission testing. Each of these testing methods requires the
application of engineering principles and data.
The results of the Non-Destructive Testing services provided by the Petitioner to its clients
are summarized by Petitioner in a report which is provided to the client for whom the services are
rendered and is not substantially incorporated in reports provided to other persons. The report is
provided by the Petitioner exclusively to its client with the exception that the report is often also
provided on behalf of the client to the local fire authority in which the tested utility, structure,
building, machine or equipment is located to facilitate the safeguarding of life, health and property.
In addition to satisfaction of the applicable requirements of the laws of the State of New York
concerning the licensed practice of engineering within the State of New York, the Petitioner is
further governed by standards established by the American Society for Non-Destructive Testing. All
Non-Destructive Testing services and reports are supervised and reviewed by the Petitioner's
personnel who, as well as being engineers, are certified as Non-Destructive Testing Level III
specialists, the highest certification level recognized by the American Society for Non-Destructive
Testing.
An example of the services provided by the Petitioner is the testing of the structural
components of a storage tank to detect any internal or external flaws and measure geometric
characteristics of the structure.
TP-9 (9/88)

-2­
TSB-A-90 (4)S
Sales Tax
February 15, 1990

Section 1105(c) of the Tax Law imposes a tax on 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.... (Emphasis added).
Regulation Section 527.3(b)(2) further explains Section 1105(c)(1) of the Tax Law as
follows:
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....
Furthermore, forage testing reports (David J. Converse, Adv Op St Tax Comm, August 4,
1981, TSB-A-81(12)S); concrete sample testing reports (Fortunato Sons Inc., Adv Op St Tax Comm,
July 28, 1986, TSB-A-86(30)S); and power mower testing reports (Garden Way Incorporated, Adv
Op Comm T & F, July 25, 1989, TSB-A-89(22)S) have all been determined to meet the exclusionary
requirements of Section 1105(c)(1) of the Tax Law.
Since the report prepared by the Petitioner represents a collection of data derived from
testing, investigating and evaluating specific materials designated by the client, the sale of such
report 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 report pertains only to the particular materials designated by the particular client,
the report is considered to be uniquely personal or individual in nature, thus satisfying the first
condition required for exclusion from taxation pursuant to Section 1105(c)(1) of the Tax Law.
The second condition for exclusion mandates that the information may not be substantially
incorporated in reports furnished to other persons. The report furnished to the client meets this
condition in that the data and analysis contained in the report is furnished only to the client, and is
not furnished to other persons not specifically designated by the client.
Therefore, as the report furnished to the client meets the criteria required under the
exclusionary clause of Section 1105(c)(1) of the Tax Law, as further illustrated by the section of the
Regulations and the opinions cited above, such report constitutes a non-taxable information service.

-3­
TSB-A-90 (4)S
Sales Tax
February 15, 1990

Accordingly, the amount of the charge for the "Non-Destructive Testing" report is considered
to be a receipt from the sale of a non-taxable information service and is not subject to state or local
sales tax.
It is further noted that the furnishing of technical advice by a licensed professional engineer
is not deemed to be the sale of tangible personal property or the sale of an enumerated service even
if a written report is furnished as an incident to the engineering service being performed. Such a
professional service is outside the scope of the sales tax.
Accordingly, to the extent that the services rendered by Petitioner constitute the rendering
of technical advice by a licensed professional engineer, the charge for said services is not subject to
sales or use tax. (R.H. McDermott Corp., Adv Op Comm T & F, March 2, 1988, TSB-A-88(22)S.)
It must be emphasized that this opinion as it relates to engineering services is limited to the
tax status of reports and documents (e.g., evaluations, specifications, tests and analysis) which being
based upon the principles of mathematics and the physical sciences, may legally be rendered only
by licensed professional engineers. Opinion of Counsel, 1966 NYTB-2, p. 58.

DATED: February 15, 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.