Are individualized investment-evaluation and consulting reports a firm prepares for pension plan sponsors and money managers taxable information services?

Plain-English summary

SEI (Wayne, Pennsylvania) provides investment evaluation and consulting services to two kinds of clients: sponsors of tax-exempt benefit plans (who use them to monitor the investment performance of the plans they run) and money managers (who use them to monitor their client accounts). Everything SEI produces about a client is confidential and not shared with others. It asked whether six of its services are taxable information services under Tax Law § 1105(c)(1).

Section 1105(c)(1) taxes the furnishing of information — collecting, compiling, or analyzing information and furnishing reports — but excludes information that is "personal or individual in nature and which is not or may not be substantially incorporated in reports furnished to other persons." Regulation § 527.3 restates the exclusion (and Example 3 shows a payroll-computation service that is non-taxable because its results aren't incorporated into reports furnished to others).

The Department found SEI's services fell outside the tax:

• Five services excluded as personal/individual. Investment Policy Planning, Asset Allocation, Investment Performance Analysis, Trading Cost Analysis, and the Custodial Master Trustee Audit each analyze a specific client's own plan, holdings, and transactions. A quarterly report built from one client's portfolio has no carryover to a client with a different portfolio, and SEI keeps each report confidential. So the receipts are excluded from tax under § 1105(c)(1) and § 527.3.
• Investment Manager Search — consulting, not an enumerated service. SEI's Manager Search (screening 1,000+ investment firms, profiling candidates, sitting in on interviews, helping the client choose) is a consulting service that isn't among the taxable services listed in § 1105 at all. And where it results in a written report, that report is personal and individual in nature, so its receipts are also excluded under § 1105(c)(1).

Bottom line: none of SEI's evaluation services are subject to New York sales or use tax.

What this means for you

The "personal or individual" exclusion turns on carryover, not confidentiality alone

New York's information-services tax has a broad exclusion for information that is personal or individual and cannot be substantially incorporated into reports for others. The key question is carryover: could this same analysis be resold or reused for a different customer? When a report is built entirely from one client's own data (its portfolio, transactions, actuarial inputs) and has no value to anyone with a different portfolio, it's personal/individual and untaxed. Confidentiality reinforces the point, but the substance — no reusable, generic output — is what controls.

Advisory and consulting work often isn't an "enumerated" service

Some of SEI's work (the Manager Search) wasn't taxed for an even simpler reason: consulting is not on the list of services § 1105 taxes. New York's sales tax reaches only enumerated services; genuine advisory/consulting work that isn't information-furnishing, TPP, or another listed service generally falls outside the tax entirely.

A report changing hands doesn't automatically make it a taxable information service

SEI hands clients written reports, but that didn't make the service a taxable sale of information. Where the writing is incidental to a personalized analysis — and can't be recycled for others — the exclusion applies. Compare the parallel result in TSB-A-92(6)S (telephone sales-lead reports treated as incidental to a personalized service).

Common questions

Q: Are SEI's investment-performance and evaluation reports taxable in New York?
A: No. Because each is built from the client's own portfolio and can't be substantially incorporated into reports for others, they fall within the personal-or-individual exclusion from the § 1105(c)(1) information-services tax.

Q: Why isn't the Investment Manager Search taxable?
A: It's a consulting service that isn't one of the taxable services enumerated in § 1105, and any written report from it is personal and individual in nature.

Q: Does keeping the reports confidential make them non-taxable?
A: Confidentiality supports the conclusion, but the decisive point is that the analysis is unique to one client's portfolio and has no carryover to other clients.

Q: What would make a data service taxable instead?
A: Producing generic, reusable information — like industry-trend reports or a compilation sold to many customers — that is substantially incorporated into reports furnished to others.

Citations and references

Statutes, regulations, and authorities:

• Tax Law § 1105(c)(1) (tax on furnishing information; exclusion for information personal or individual in nature not substantially incorporated in reports furnished to others)
• Sales and Use Tax Regulations § 527.3 (sale of information services; personal/individual exclusion; Example 3, payroll-computation service)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1992.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a92_5s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-92 (5)S
Sales Tax
January 30, 1992

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S901204C

On December 4, 1990 a Petition for Advisory Opinion was received from SEI, 680 East
Swedesford Road, Wayne, PA 19087-1658.
The issue raised is whether Petitioner, SEI's consulting services, including the furnishing of
information and written reports which Petitioner provides to sponsors of tax exempt benefit plans
and to money managers constitute information services of the type which are excluded from tax
under the provisions of Section 1105(c)(1) of the Tax Law.
Petitioner provides consulting services through its Evaluation Services Division to sponsors
of tax exempt benefit plans (plan sponsors) and to money managers located in New York and other
states. Plan sponsors use Petitioner's individualized services to monitor the investment performance
of the benefit plans under their control, and money managers use Petitioner's evaluation services to
monitor the investment performance of their client accounts. All of Petitioner's informational
services regarding a client are confidential and are not disclosed to other clients or otherwise made
public.
Petitioner's approach to plan management includes four steps. First, Petitioner studies the
client's organization, benefit plans under management, investment policy and activities. Second,
Petitioner identifies areas in need of improvement and develops a strategic plan for that specific
client. Third, Petitioner assists the client in implementing the strategic plan. Fourth, Petitioner
provides regular, ongoing investment advisory services including quarterly and annual investment
performance analytics.
All of the following consulting services are provided to plan sponsor, however, money
managers require only some of these services:

1. Investment Policy Planning
2. Asset Allocation
3. Investment Manager Search
4. Investment Performance Analysis
5. Trading Cost Analysis
6. Custodial Master Trustee Audit
7. Investment Policy Planning
   Through Investment Policy Planning, Petitioner provides objective analysis of the goals, risk
   tolerance, and needs of an individual plan to help a plan sponsor determine the best course of action
   for assets under his or her control. This process considers policy alternatives and their consequences
   on the liabilities of the plan. Using this individualized information, a client is able to examine the
   impact of alternative asset mixes on plan funding status, likely contributions, expense levels, and

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other important variables. This linking of investment performance to specific plan liabilities provides
insight to the plan sponsor necessary to establish and review suitable investment policies.
The establishment of an appropriate investment policy involves setting suitable risk and
diversification levels for assets of a particular plan. Investment policy prescribes an acceptable
course or management for the holdings and assets of the plan and considers both the accruing
liabilities of the plan and the risks of the capital markets.
The Investment Policy Planning process performed by Petitioner for a client involves:
1)

Projecting the financial requirements of the plan by working with the client and the
client's actuary to develop estimates of accruing liabilities and experience
assumptions;

2)

Using this forecast to establish plan objectives for funding liabilities and controlling
contributions over time; and

3)

Formulating an appropriate investment policy for each plan by examining the
likelihood of achieving the plan's particular objectives with alternative asset mixes.
The resulting statement of investment policy establishes ranges of risks permissible
in terms of maximum commitment to asset classes and includes guidelines for
suitable equity and fixed-income investment for the plan being analyzed.

Because the Investment Policy Planning service provided by Petitioner is designed around
a client's specific financial requirements and objectives, all of which are confidential, the information
cannot be substantially incorporated in reports furnished to other persons.

2. Asset Allocation
   The Asset Allocation consulting conducted by Petitioner is intended to define the degree of
   diversification desired by a client for both its classes of assets and its particular types of managers.
   Petitioner works with a client to ensure that the assets held in its plan are well diversified. Petitioner
   will determine and recommend to the client the most efficient portfolio for its particular purposes,
   in terms of desired return and standard deviation parameters, consistent with acceptable asset
   alternatives. In addition, Petitioner will conduct a risk tolerance test and present to the client the
   hypothetical performance results of investment policies for its plan, ranging from very conservative
   to very aggressive. The resulting report is customized and confidential.
   The Asset Allocation service is designed for a particular client based upon the assets held by
   the client and the diversification desired, and therefore, the information developed cannot be
   substantially incorporated into reports furnished to other persons. For example, the risk tolerance test

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conducted for a client is performed using that client's portfolio and investment policies and would
not be acceptable to other plan sponsors. Each risk tolerance test is unique to a particular client.

3. Investment Manager Search
   Plan sponsors use Petitioner's Manager Search services in order to select the most appropriate
   money managers to handle their particular investments. The manager search process is unique,
   methodical and disciplined, to ensure that the final selection reflects an informed decision.
   Petitioner monitors the quantitative and qualitative aspects of over 1,000 investment firms
   and meets with these managers to obtain the latest information on their organizations, investment
   process, philosophy, and performance. Using this background information, Petitioner works closely
   with a client to develop the plan's criteria, and then helps the client to narrow the field of potential
   candidates by preparing detailed profiles of selected organizations. After assisting in structuring and
   conducting interview meetings. Petitioner's professionals provide input into the client's final
   decision.
   The Investment Manager Search process involves the following steps:
   1)

Petitioner's consultants meetwith the client to develop criteria for the selection of
potential candidates;

2)

Petitioner's due diligence committee identifies suitable candidates;

3)

Petitioner's analysts develop profiles and performance histories on managers best
qualified to meet client criteria;

4)

Petitioner's consultants meet with the client committee to review candidates and
narrow the field of managers to be interviewed;

5)

The client analyzes recommended managers and with Petitioner's assistance selects
the most appropriate candidates for a personal interview and presentation;

6)

Petitioner contacts the managers and establishes a presentation schedule; and

7)

Petitioner attends interviews and helps the client make final selection decisions.

The Investment Manager Search process is unique to a particular client and his or her
operation and needs. Confidentiality, personalities and a prospective manager's interaction with the
plan sponsor restrict the carryover of information that could be substantially incorporated in reports
furnished to other persons.

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4. Investment Performance Analysis
   Through these consulting services, Petitioner provides detailed information on all major asset
   categories of a client's fund, as well as on the activity and performance of the investment manager
   of that particular fund. Based on monthly asset and transaction statements received from the client's
   custodian, Petitioner produces quarterly investment performance reports that analyze all components
   of overall portfolio results, including the evaluation of all major asset classes. Complete rate-of­
   return and relative performance evaluation information is provided so that the client can effectively
   monitor the funds under its control. Petitioner measures both time-weighted and dollar-weighted
   returns for all asset classes for periods ranging in length from one quarter to ten years. Risk for
   domestic equities is measured in terms of point-in-time and historical betas as well as standard
   deviations of quarterly returns. Risk for domestic bonds, international bonds, equities, and real estate
   is measured in terms of the standard deviation of quarterly returns. Quarterly reports display the risk/
   return profile of each class.
   Considering the plan sponsor's specific objectives and policy constraints, Petitioner uses
   equity, bond, and balanced fund backgrounds to provide relative performance measurements.
   Petitioner's consultants use the confidential results of the fund performance analysis as a diagnostic
   tool to provide investment advice to the client. These professionals analyze and interpret the resultant
   information and present the findings to the client. Besides answering specific questions, Petitioner
   makes recommendations to improve the performance of the client's particular plan.
   As with other consulting services performed by Petitioner, the Investment Performance
   Analysis is based upon the holdings and transactions of a client's particular fund and the customized,
   confidential information provided to that client regarding the fund's performance is not and may not
   be substantially incorporated into reports furnished to other clients. For instance, a quarterly
   investment report is prepared using information from the client's portfolio and has no carryover to
   another person with a different portfolio. Obviously, the rate-of-returns and relative performance of
   each portfolio for each client must differ because the assets and asset classes themselves differ.
5. Trading Cost Analysis
   The Trading Cost Analysis service is used to measure all the costs associated with trading
   equities, including commission costs and execution or market impact costs, relative to a client's plan.
   Petitioner reviews each securities transaction in the client's equity portfolio, calculates total
   commissions and execution costs and evaluates results against those of other portfolios. Petitioner
   also reviews the manager's use of brokers to ensure that the right types of brokers are being used for
   different types of equity transactions.

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The preparation of a Trading Cost Analysis is not unlike the preparation of accounting
information for a financial institution. These types of services are uniquely personal to a client and
the confidential data developed is not and may not be substantially incorporated in reports furnished
to others.

6. Custodial Master Trustee Audit
   Through its Custodial Master Trustee Audit service Petitioner is able to monitor a wide range
   of custodian activities and report exceptions to the trustees of a trust fund. The reports allow the
   trustees to monitor trade executions, income receipts, and cash management by the custodian, and
   help to ensure that the trust's assets are correctly reflected in its record.
   Petitioner examines all assets of the fund and all transactions that took place during the
   quarter, and compares the results with the bank's trust statements. Specific discrepancies on trust
   documents are listed with a brief statement of each discrepancy's probable cause and estimated dollar
   impact to the fund. The service also summarizes the fund's daily cash balance during the quarter and
   estimates the interest that would have been earned if all daily cash balances over $1,000 had been
   invested at the average monthly Treasury bill rate.
   The Custodial Master Trustee Audit service is similar in many respects to Petitioner's Trading
   Cost Analysis service in that both review and analyze transactions, assets, costs, etc., and result in
   preparation of a confidential report for the client that is unique to that client's pension fund or trust
   fund. In both situations, there is no carryover of information compiled or prepared for one client that
   can be substantially incorporated into a report prepared for another client.
   The sources of information used by Petitioner in performing Investment Policy Planning
   analysis, Asset Allocation analysis, Trading Cost Analysis, and the Custodial Master Trustee Audit
   and in preparing the reports resulting from such services are derived from the client's actuary, the
   specific client's current plan asset allocation, and monthly asset and transaction statements received
   from the client's customer or investment manager.
   The sources of information for the Investment Performance Analysis are monthly asset and
   transaction statements received from the client's custodian or investment manager, and also from
   third parties (Compustat, IDSI, Moody's Financial and Fitch).
   Clients must purchase Petitioner's evaluation services for each separate portfolio that
   Petitioner manages. For example, a client with two or three equity portfolios being separately
   managed by investment advisors would sign up for Petitioner's evaluation service for each portfolio.
   An additional fee for Petitioner's evaluation services is required for each portfolio. If a client signs
   up for Petitioner's evaluation service with respect to only one portfolio, the reports and the evaluation
   services it receives would only relate to that portfolio and would not apply to other portfolios of the
   client. Thus, Petitioner's evaluation service is customized to a specific portfolio of a particular client
   and does not result in a generic report on industry trends.

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Section 1105 of the Tax Law states. in part
Imposition of sales tax.--. . .there is hereby imposed and there shall be paid a tax. .
.upon
(c) 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. . .
Section 527.3 of the Sales and Use Tax Regulations states, in part:
Sale of information services.--(Tax Law. Sec. 1105(c)(1). (a) Imposition. (1)
Section 1105(c)(1) of the Tax Law imposes a tax on the receipts from the service of
furnishing information by printed, mimeographed or multigraphed matter or by
duplicating written or printed matter in any manner such as by tapes, discs, electronic
readouts or displays.
(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. (1) Sales tax does not apply to receipts of information services which
are for resale as such.
(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.
Example 3: A computer service company has a program consisting of withholding
tax tables. Using the same program, it computes the payroll for several subscribers.
The fee charged to each subscriber is not taxable as it is for an information service,
the results of which are not incorporated into reports furnished others.
The reports furnished by Petitioner present information relating to securities transactions and
position and are designed to allow plan sponsors to monitor the investment performances of benefit
plans under their control and to allow money managers to monitor the investment performance of

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their client accounts. The report relating to an individual account is unique because it is based on
particular holdings in that account. Petitioner holds such reports in confidence and takes measures
to insure that the information pertaining to an individual account is not disclosed to other clients.
Therefore, Petitioner's receipts from charges for the reports which result from Petitioner's
Investment Policy Planning analysis, Asset Allocation analysis, Investment Performance Analysis,
Trading Cost Analysis and the Custodial Master Trustee Audit are considered to fall within the
exclusion from tax under the provisions of Section 1105(c)(1) of the Tax Law and Section 527.3 of
the Sales and Use Tax Regulations.
Petitioner's Investment Manager Search service is considered to be a consulting service and
the receipts from the service, which is not one of the taxable services enumerated under Section 1105
of the Tax Law, are not subject to state or local sales tax. Where this service results in Petitioner
furnishing the client with a written report, the information contained in the report will be considered
personal and individual in nature and as such information will not be incorporated in reports
furnished to other persons the receipts from the charges for this service will also be excluded from
tax under the provisions of Section 1105(c)(1) of the Tax Law and Section 527.3 of the Sales and
Use Tax Regulations.

DATED: January 30, 1992

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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