Is developing and maintaining a client's confidential membership database an exempt 'personal or individual' information service, or a taxable sale?

Plain-English summary

A company built and maintained a computer database of a nonprofit trade association's membership, taking raw member information from the client and processing it into membership lists, tables, charts, and graphs analyzing membership growth by region, country, and organization type. Everything was confidential and for the client's internal use only — nothing was sold to third parties. The company asked whether this is an information service that is "personal or individual in nature," and so excluded from tax under Tax Law § 1105(c)(1).

The Department explained the governing test but declined to give a final answer on the facts presented. New York's line runs between data conversion and the furnishing of information:

• If data is merely arranged to the customer's specifications — tables, graphs, charts, printouts — without creating new information, that is a change in form only and is a taxable sale of tangible personal property under § 1105(a). The same is true where information already in the customer's possession is simply converted from one medium to another without recasting the intelligence in it (the Finserv v. Tully rule).
• If the work instead requires processing data through a computer under program control to produce genuinely new information — rather than handing back the customer's own data in a more convenient form — it is an information service.

Crucially, a report must first qualify as an information service before the "personal or individual in nature" exclusion in § 1105(c)(1) can even be reached. The Department held that the petition was not detailed enough to classify each report, tabulation, or product the company furnished under its data-processing agreement, so that determination must be made through administrative (audit) procedure rather than in the advisory opinion.

What this means for you

Data-processing and database-service companies

Whether your output is taxable turns on a two-step question: first, is it data conversion (a taxable product) or a true information service; and only if it is an information service, is it "personal or individual" and thus excluded. Reformatting a client's own data into charts and lists — without generating new information — is generally a taxable sale, even when it looks analytical. Genuinely computing new information can qualify as an information service.

Businesses buying database or reporting services

The "it's confidential and just for us" fact does not by itself make a charge exempt. The personal-or-individual exclusion only helps once the service is an information service in the first place. Expect vendors and auditors to look product-by-product at whether new information was created.

Accountants and tax professionals

This is a partial non-ruling: the Department set out the § 1105(a) vs § 1105(c)(1) framework (with Finserv, the Northeastern Computer Services conversion/information distinction, and TSB-M-81(3)S) but expressly left classification of each deliverable to administrative procedure because the facts were too general. Treat it as guidance on the test, not a holding on these products.

Common questions

Q: Did the Department rule that this database service is exempt?
A: No. It explained the data-conversion vs information-service test but declined to classify the company's reports and products, saying the petition lacked enough detail and that the determination must be made by administrative procedure.

Q: When is this kind of work a taxable sale?
A: When data is merely arranged to the customer's specs (tables, charts, printouts) without creating new information, or when the customer's own information is just converted from one form or medium to another. That is a taxable sale of tangible personal property under § 1105(a).

Q: When is it an information service?
A: When the work requires processing data through a computer under program control to produce genuinely new information, rather than returning the customer's own data in a more convenient form.

Q: Doesn't "personal or individual in nature" make it exempt?
A: Only if it is an information service to begin with. A report must qualify as an information service before the personal-or-individual exclusion in § 1105(c)(1) can apply.

Q: Can another company rely on this opinion?
A: No. An advisory opinion binds the Department only as to the petitioner and the facts described — and here it did not even reach a final classification. It illustrates the test, but your facts may differ.

Citations and references

Statutes and authorities:

• Tax Law § 1105(a) (tax on retail sales of tangible personal property)
• Tax Law § 1105(c)(1) (information services; exclusion for information personal or individual in nature)
• Finserv Computer Corp. v. Tully, 463 N.Y.S.2d 924, aff'd 61 N.Y.2d 947 (form conversion is a sale of property, not an information service)
• Northeastern Computer Services, Inc., TSB-A-88(33)S; TSB-M-81(3)S (data conversion vs furnishing of information)

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_16s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (16)S
Sales Tax
February 25, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S921005B

On October 5, 1992, a Petition for Advisory Opinion was received from Alan/Anthony, Inc.,
145 Avenue of the Americas, 2nd Floor, New York, New York 10013.
The issue raised by Petitioner, Alan/Anthony, Inc., is whether the development and
maintenance of a computer database of its client's membership is an information service which is
"personal or individual in nature" within the meaning of the exclusion from tax contained in Section
1105(c)(1) of the Tax Law, and, therefore, not subject to sales tax.
Petitioner developed and maintained a computer database of the membership of a nonprofit
trade association located in Staten Island, New York. All information entered into the database is
provided by Petitioner's client and is personal, private and confidential in nature.
Petitioner's company receives "raw" information from the client in the form of
correspondence listing names, addresses and information about the operations and finances of the
members. Petitioner enters the information into the database and performs substantial processing of
it in order to generate membership lists, tabulated tables, charts and graphs which interpret and recast
the "raw" information into completely new forms. No copies of the lists, tables, graphs and charts
are sold to third parties, but are for the client's internal use only.
Supporting documents submitted with petition include a copy of the applicable section of the
letter of agreement, a copy of a sample invoice for the service, and the following samples of
documents generated for the client from the database:
A.

Membership Listing (European Members by Country)

B

Graph Analysis of Worldwide Membership Growth, 1985 - 1991

C.

Graph Analysis of Membership Growth by Region. 1985 - 1991

D.

Pie Graphs of Membership Growth by Region, 1985 and 1991

E.

Graph Analysis of Membership Growth by Type of Organization

F.

Year-By-Year Demographic Analysis of Membership

Section 1105(a) of the Tax Law imposes sales tax on the receipts from every retail sale of
tangible personal property, except as otherwise provided in the statute.

-2­
TSB-A-93 (16)S
Sales Tax
February 25, 1993
Section 1105(c)(1) imposes sales tax on:
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, and excluding the
services of advertising or other agents, or other persons acting in a representative
capacity, and information services used by newspapers, radio broadcasters and
television broadcasters in the collection and dissemination of news. (emphasis added)
The tax status of documents prepared by Petitioner depends on whether the completed job
constitutes data conversion or the furnishing of information. Northeastern Computer Services, Inc.,
Adv Op Comm T & F, June 24, 1988, TSB-A-88(33)S.
If data is arranged to the purchasers' specifications in tables, graphs, charts or other paper
printouts without creating new information but merely a change in form, such medium on which the
client's source data is recorded constitutes the sale of tangible personal property, taxable in
accordance with the provisions of Section 1105(a) of the Tax Law. See, Taxability of Major Data
Entry Techniques, TSB-M-81(3)S.
Moreover, where information already in a customer's possession is merely converted from
one form or medium to another, without interpreting or recasting it, so that the form of the
information changes but not the intelligence contained therein there is a sale of tangible personal
property rather than the sale of an information service. (Finserv Computer Corp. v. Tully, 463 N.Y.S.
2d 924, affd 61 N.Y.2d 947).
Conversely, the preparation of a report is deemed an information service if it requires the
Petitioner to process data through a computer system under the control of a program for new
information, rather than merely render back information supplied by the customer in a more
convenient form, supra.
A report must qualify as an information service before its eligibility for the exclusion
contained in Section 1105(c)(1) of the Tax Law can be established.
The Advisory Opinion function is limited to setting forth the applicability of pertinent
statutory and regulatory provisions to a specified set of facts. The information contained in the
Petition is not sufficiently detailed for a final classification, for tax purposes, of each report,
tabulation or product Petitioner furnishes under a data processing agreement. This determination
must necessarily be made by administrative procedure.
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.