Are a company's data-processing services (statements, claims, billing reports) and its microfiche-conversion service subject to New York sales tax?

Plain-English summary

A data-processing company took client data (by modem or magnetic tape) and produced statements, insurance claims, and letters that it mailed to the clients' patients, insurers, credit-union members, and cardholders, plus accounts-receivable reports and aged trial balances. It also converted client information from magnetic tape to microfiche, keeping the master and sending copies to the client. It asked whether its data-processing and microfiche charges are subject to sales tax.

New York taxes only specifically listed services, and its information-service tax (Tax Law § 1105(c)(1)) excludes information that is "personal or individual in nature" and not incorporated into reports furnished to others. The Department split the company's work:

• Personalized processing — accounts-receivable reports, aged trial balances, customer account statements, and medical insurance claim forms — is personal or individual in nature and qualifies for the § 1105(c)(1) exclusion, provided the information is not incorporated into reports furnished to others and the work actually involves collecting, compiling, or analyzing the client's data. (The regulations treat payroll preparation the same way — not a taxable information service.)
• But if the company merely converts data to written form and/or prints personalized or non-personalized form letters, those charges are taxable.

Microfiche conversion is different. When the company simply transfers information the client already has from magnetic tape to film — changing the form of the information but not the intelligence in it — it is not performing an information service (the Finserv v. Tully rule). Because it hands the client a copy of the microfiche master, its total charge for the conversion is a taxable sale of tangible personal property under § 1105(a).

What this means for you

Data-processing and billing-service companies

Sort your services by what they actually do. Genuinely processing a client's data into personalized statements, claims, and account reports is generally an exempt personal-or-individual information service. But two adjacent activities are taxable: mere form conversion or form-letter printing (a taxable activity), and producing a physical deliverable like microfiche (a taxable sale of tangible personal property). The exemption depends on collecting/compiling/analyzing the data and keeping the output confidential to the client.

Healthcare billing and statement processors

Producing patient statements and insurance claim forms from a client's data can qualify as an exempt personal-or-individual information service. Watch the boundary: if you are really just reformatting or printing, or delivering a tangible medium, tax applies.

Accountants and tax professionals

The framework is § 1105(c)(1)'s personal-or-individual exclusion (with the payroll example in § 527.3(b)(2)) versus the Finserv form-conversion rule that makes a deliverable like microfiche a § 1105(a) sale of tangible personal property. The presence of a physical master copy handed to the client is what tipped the microfiche service into a taxable sale.

Common questions

Q: Are the company's billing and account-report services taxable?
A: No, when they are personalized processing — accounts-receivable reports, aged trial balances, account statements, and insurance claim forms — that qualifies for the § 1105(c)(1) personal-or-individual exclusion, provided the information is kept to the client and the work involves collecting, compiling, or analyzing the data.

Q: When would those data-processing charges become taxable?
A: If the company merely converts data to written form or prints personalized or non-personalized form letters, those charges are taxable rather than an exempt information service.

Q: Why is the microfiche conversion taxable?
A: Because it just changes the form of information the client already has, without recasting the intelligence in it, so it is not an information service. Since the client receives a copy of the microfiche master, the whole charge is a taxable sale of tangible personal property under § 1105(a).

Q: Does "confidential to the client" alone make a service exempt?
A: It is necessary but not sufficient. The service must be an information service that is personal or individual in nature; mere form conversion or a tangible deliverable is taxed regardless of confidentiality.

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. It illustrates the Department's reasoning, but your facts may differ.

Citations and references

Statutes, regulations, and authorities:

• Tax Law § 1105(a) (tax on retail sales of tangible personal property)
• Tax Law § 1105(c) (tax on enumerated services only)
• Tax Law § 1105(c)(1) (information services; exclusion for information personal or individual in nature)
• 20 NYCRR § 527.3(b)(2), Example 3 (payroll preparation is not a taxable information service)
• Finserv Computer Corp. v. Tully, 463 N.Y.S.2d 923, aff'd 61 N.Y.2d 947 (form conversion is a sale of property, not an information service)
• Technical Services Bureau Bulletin, Computers, 1978-1(S) (data-processing/information services)

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_18s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (18)S
Sales Tax
March 22, 1993

STATE OF NEW YORK
COMMISSIONER 0F TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S920922A

On September 22, 1992 a Petition for Advisory 0pinion was received from CyCare Systems,
Inc., 7001 N. Scottsdale Road, Suite 1000, Scottsdale, AZ 85283.
The issue raised by Petitioner, CyCare Systems, Inc., is whether its charges for data
processing services and microfiche processing services are subject to sales tax.
Petitioner receives data from clients, via modem or magnetic tape. Based on the data
received, Petitioner produces statements, claims or letters which Petitioner mails or transmits to
clients' medical patients, insurance carriers, credit union members and credit card holders.
Also, based on the data received, Petitioner generates accounts receivable reports, aged trial
balances, and other recordkeeping reports which are submitted to the appropriate clients.
Petitioner also converts client information which is stored on magnetic tape to film. Petitioner
retains the resulting microfiche masters and forwards copies of the masters to the clients. Petitioner
collects New York sales tax on the charges for the copies and remits the sales tax collected on the
applicable sales tax returns. Because of client confidentiality, Petitioner is prohibited from
incorporating this information into reports for outside parties.
Section 1105(a) of the Tax Law imposes tax on "[t]he receipts from every retail sale of
tangible personal property, except as otherwise provided in this article."
Section 1105(c) of the Tax Law imposes sales tax on all receipts from the sale, except for
resale, of certain specified services. Services which are not specifically described in the statute are
not subject to sales tax.
Section 1105(c)(1) of the Tax Law imposes a sales tax on the receipts from every sale, except
for resale, of the service of "[t]he 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(b)(2), Example 3 of the New York State Sales and Use Tax Regulations
explains that the preparation of payrolls for customers by computer service companies is not a
taxable information service as payrolls are considered to be personal and individual in nature and
the information contained in a payroll may not be furnished to other parties.

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TSB-A-93 (18)S
Sales Tax
March 22, 1993
The exclusion from the tax provided under Section 1105(c)(1) of the Tax Law also applies
to the preparation of accounting reports, accounts receivable, accounts payable, tax reports, etc. (see
pg. 4 of the New York State Department of Taxation and Finance Technical Services Bureau
Bulletin, Computers, 1978-1(S).
New York State Department of Taxation and Finance Technical Services Bureau Bulletin
Computers, 1978-1(S), page 3 also states:
5.

Data Processing Services - Information Services Information services are commonly provided by data processing
centers. An information service may consist of a data processing
company using its own facilities to process customer data to produce
information. The data may be provided to the data processing
company in source document form, as machine readable media, or
entered directly into the company's computer facilities via devices
located at the customer's premises. Output may be in the form of
reports on paper or other media, or may be the transmitted
electronically to the customer's site.
Information services are subject to tax (section 1105(c)(1)), unless the
information output (paper or other media) is:
(1)

personal or individual in nature to the recipient, and

(2)

the data processing company cannot or may not incorporate
a substantial portion of the same information in reports which
it furnishes to other persons.

Accordingly, Petitioner's charges to clients for data processing services which pertain to the
preparation of accounts receivable reports, aged trial balances, customer account statements, and
medical insurance claim forms for submission to an insurance carrier are all considered to be
personal or individual in nature and will qualify for the exclusion from tax provided under Section
1105(c)(1) of the Tax Law provided the information contained therein is not incorporated into
reports furnished to other parties and provided that the service rendered by Petitioner requires
collecting, compiling or analyzing the data submitted by the client. If Petitioner merely converts data
received on magnetic tape to written form and/or prints personalized or non-personalized form letters
from such data than the charges to the client for such activities will be subject to sales tax.
When Petitioner performs a microfiche conversion service for a client whereby information
already in the client's possession is transferred from magnetic tape to film, Petitioner is merely
converting the information from one form or medium to another without interpreting or recasting
it, so that the form of information changes but not the intelligence contained therein and is not

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TSB-A-93 (18)S
Sales Tax
March 22, 1993
considered to be performing an information service (Finserv Computer Corp. v. Tully, 463 NYS 2d
923, affd 61 NY2d 947). Since Petitioner supplies the client with a copy of the microfiche master,
Petitioner's total charge to the client for the conversion is considered to be a charge for the sale of
tangible personal property and is subject to the tax imposed under Section 1105(a) of the Tax Law.

DATED: March 22, 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.