Are a laboratory's materials-testing and R&D reports on unique client samples subject to New York sales tax as an information service?

Plain-English summary

An accounting firm asked, on behalf of a client, whether the client's materials-testing and R&D reports are taxable. The client is a materials-science and physics researcher who does ion implantation and analysis of semiconductor wafers, metals, and superconductors: it rents accelerator time, implants each sample with a fixed dose of ions, analyzes it, and returns the (now useless) sample to the sender along with a written report of its findings. No product is made or sold — just the report.

New York taxes information services under Tax Law § 1105(c)(1) — collecting, compiling, or analyzing information and furnishing reports to others — but excludes information that is (1) personal or individual in nature and (2) not substantially incorporated into reports furnished to other people. The Department found the report is an information service (it compiles data from analyzing a test sample), so it had to test the exclusion.

Both conditions were met. Because each sample is unique and its test result is unique, the report is personal or individual in nature (first condition). And because the information is not substantially incorporated into reports for others, the second condition is satisfied. The Department added that furnishing copies of the report to the customer's designees at the customer's request does not destroy the exclusion. So the laboratory test reports are a non-taxable information service.

What this means for you

Testing, analytical, and R&D laboratories

A report that analyzes a client's own unique sample and is not recycled into reports sold to others generally qualifies for the personal-or-individual exclusion, even though report-selling is normally a taxable information service. The uniqueness of each sample and result, and keeping the findings confidential to the client (and its designees), are what put these reports outside the tax.

Businesses buying analytical or testing reports

If you commission a lab to test your own material and report back to you (or people you designate), that report is generally not a taxable information service. It is different from buying a standardized report or database that the seller also markets to others.

Accountants and tax professionals

The two-part § 1105(c)(1) exclusion is the whole analysis: the report must be an information service, then be personal or individual in nature and not substantially incorporated into reports for others. The Department relied on prior guidance (Declaratory Ruling 78-02, TSB-H-80(97)S; David J. Converse, TSB-A-81(12)S) that delivering copies to the customer's designees does not break the exclusion.

Common questions

Q: Are the laboratory's test reports taxable?
A: No. Although they are an information service, each report analyzes a unique client sample and is not incorporated into reports furnished to others, so it is personal or individual in nature and excluded from tax.

Q: Why is the report an information service at all?
A: Because it compiles data derived from analyzing a test sample and furnishes a report of the findings — exactly the activity § 1105(c)(1) describes. The exclusion is what makes it non-taxable.

Q: What are the two conditions for the exclusion?
A: The information must be personal or individual in nature, and it must not be (or may not be) substantially incorporated into reports furnished to other persons. Here, the uniqueness of each sample and result satisfied both.

Q: Does sending copies to the customer's designees make it taxable?
A: No. The Department stated that furnishing copies to the customer's designees at the customer's request does not negate the exclusion.

Q: Can another laboratory rely on this opinion?
A: No. An advisory opinion binds the Department only as to the petitioner and the facts described. It illustrates the Department's reasoning, but your facts may differ.

Citations and references

Statutes, regulations, and authorities:

• Tax Law § 1105(c) (tax on enumerated services)
• Tax Law § 1105(c)(1) (information services; exclusion for information personal or individual in nature and not incorporated into reports for others)
• 20 NYCRR § 527.3 (information services)
• Declaratory Ruling 78-02, TSB-H-80(97)S; David J. Converse, TSB-A-81(12)S (copies to a customer's designees do not negate the exclusion)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1993.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a93_13s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (13)S
Sales Tax
February 25, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S921104A

On November 4, 1992 a Petition for Advisory Opinion was received from T. M. Byxbee
Company, CPA's, 21 Aviation Road, Albany, N.Y. 12205.
The issue raised by Petitioner, T. M. Byxbee Company, CPA's, is whether materials testing,
research and development reports provided by Petitioner's client are subject to sales tax under
Section 1105(c)(1) of the Tax Law.
Petitioner's client is a sole proprietorship which performs research and development in
conjunction with other research and development firms in semiconductors, superconductors, metals
and insulators. Petitioner's client is a researcher in Materials Science and Physics doing research in
ion implantation, modification and analysis of Si and GaAs wafers, various metals, and
superconductors. Petitioner's client rents accelerator time on low and high energy accelerators from
either universities or other accelerator facilities. The samples come from R&D centers in this country
and from abroad. The samples are implanted with the required ions from the accelerator with a fixed
dose of energy, analyzed and returned to the sender. No final product is produced or sold as these
are small samples used for R&D. Petitioner's client then sends a report of its findings to its
customers. Although the samples are returned to the customer after the implantation, the samples
have become useless and have no residual value.
Section 1105(c) of the Tax Law imposed 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).
Section 527.3 of the Sales and Use Tax Regulations, states, in part, that:
(a) ... (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) ... (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.

-2­
TSB-A-93 (13)S
Sales Tax
February 25, 1993
The report prepared by Petitioner's client represents a compilation of data derived from
analysis of a test sample. The sale of this report in written form, therefore, constitutes the rendering
of an information service within the meaning and intent of Section 1105(c)(1) of the Tax Law and
Section 527.3 of the Sales and Use Tax Regulations.
Since each sample is unique, as is the test result obtained from it, the report generated by the
Laboratory is "personal or individual in nature", thus satisfying the first condition for exclusion from
taxation as set forth in Section 1105(c)(1) of the Tax Law.
Furthermore, since the information is not substantially incorporated in reports to other
persons, the second condition set forth in Section 1105(c)(1) of the Tax Law is satisfied. It is noted
that if on request of the customer, Petitioner's client furnishes copies of the report to its customer's
designees, such services will not negate the aforesaid exclusion. See St Tx Comm Declaratory
Ruling 78-02, TSB-H-80(97)S; David J. Converse, St Tx Comm Adv Op, August 4, 1981, TSB-A­
81(12)S.
Accordingly, the laboratory test reports sold by Petitioner's client which meet both criteria
contained in the exclusionary clause of Section 1105(c)(1) of the Tax Law constitute the sale of a
non-taxable information service.

DATED: February 25, 1993

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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