Are a financial data company's broker referral premiums and its charges to participate in a computerized research directory subject to New York sales tax?

Plain-English summary

A financial-information company ran a computerized directory that delivered time-sensitive equity research and "Morning Meeting Notes" from Wall Street brokerage firms to portfolio managers, analysts, and traders. It made money two ways and asked whether each was taxable: (1) "premiums" that executing brokers paid it for each customer referred to them, and (2) fees to participate in the directory.

On the referral premiums, the Department said no tax. Sales tax under Tax Law § 1105(c) reaches only the specific services the statute lists, and referring customers to a broker is not one of them. So the premium a broker pays for customer leads is not taxable — with one guardrail: the premium must not be a disguised offset against the charges the broker owes for the taxable information service furnished to its customers.

On the directory fees, the answer split by who pays. The providers (brokerage firms) pay to list and display their research — that is advertising, which § 1105(c)(1) excludes from tax. But the receivers pay to obtain and access that research, and a charge to receive an information service is taxable under § 1105(c)(1). The Department added that when a firm is both a provider and a receiver, the exempt advertising charge and the taxable information-service charge must be separately stated and separately purchasable — otherwise the whole charge is taxable.

What this means for you

Financial-data and research-distribution businesses

Splitting your revenue by function matters. Pure lead-referral or finder's fees fall outside New York's list of taxable services and are not taxed. But when you charge someone to receive compiled research or data, that is a taxable information service. Charging the source (the advertiser/provider) to be listed is exempt advertising; charging the audience (the receiver) to access it is taxable.

Brokerages and firms that both supply and consume research

If you are on both sides of a platform — paying to advertise your own research and paying to receive others' — insist that the exempt advertising charge and the taxable receive-side charge be billed separately, and make sure each can actually be bought on its own. If they are bundled, New York taxes the entire charge.

Accountants and tax professionals

The controlling line is § 1105(c)(1): furnishing/receiving compiled information is a taxable information service, but placing advertising is excluded. Referral compensation is off-list under § 1105(c) entirely, so it escapes tax unless it is really an offset against a taxable charge. Watch bundling — unseparated exempt and taxable components are taxed in full.

Common questions

Q: Are the broker referral premiums taxable?
A: No. Referring customers to an executing broker is not one of the services enumerated in § 1105(c), so the premium is not subject to sales or use tax — as long as it is not used to offset the charges the broker owes for the taxable information service.

Q: Why are the provider's listing fees exempt but the receiver's fees taxable?
A: Listing and displaying the providers' research is advertising, which § 1105(c)(1) excludes from tax. Paying to receive that research is a charge for an information service, which § 1105(c)(1) taxes.

Q: What if a firm both provides and receives on the platform?
A: The advertising charge and the taxable information-service charge must be separately stated and separately purchasable. If they are not, the entire charge is subject to sales tax.

Q: When would a "premium" become taxable?
A: If the premium is really an offset against the charges a broker is required to pay to have the taxable information service furnished to its customers, the Department's exception is lost and the amount is taxable.

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

Citations and references

Statutes:

• Tax Law § 1105(c) (tax imposed on enumerated services only)
• Tax Law § 1105(c)(1) (tax on furnishing/receiving information services; advertising services excluded)

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_20s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (20)S
Sales Tax
March 22, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE

ADVISORY OPINION

PETITION NO. S920611A

On June 11, 1992, a Petition for Advisory Opinion was received from First Call Corporation,
11 Farnsworth Street, Boston, MA 02210.
The issues raised by Petitioner, First Call Corporation, are:
1.

Whether sales lead referral fees (hereinafter "premiums") paid to Petitioner by
executing brokers used in Petitioner's computerized information directory are subject
to sales tax.

2.

Whether fees paid to Petitioner for the right to participate in Petitioner's
computerized information directory are subject to sales tax.

Petitioner contacts institutional investment firms (hereinafter "customers") that would like
to receive the information provided by Petitioner, but do not want to pay the required fees. In such
instances, the customers are advised that the information service may be provided to them and the
cost would be underwritten by a specific executing broker (hereinafter "broker"). In return it is
expected that the customer will use such broker when making trades motivated by access to the
information service. Because such arrangements are ultimately beneficial to the broker, in addition
to paying the fees charged by Petitioner for its information services, they also pay a premium to
Petitioner for each customer that is referred to them in this manner. Each charge is separately
invoiced. Sales tax is only collected upon fees paid by the broker for receiver services provided to
customers.
Petitioner is also an information provider for the delivery and retrieval of time-sensitive
equity research, comments and opinions published by the top Wall Street brokerage firms (the
"providers"). This product is referred to and mandated as "Morning Meeting Notes" (hereinafter
"notes"). Petitioner provides portfolio managers, analysts and traders who work for institutional
investment firms and other financial institutions (the "receivers") with instant access to notes. Notes
are fully indexed and may be searched by as many as ten categories including company, industry and
portfolio. Petitioner charges fees to both providers and receivers to participate in this information
publishing service. Sales tax is collected upon fees charged to receivers only.
The messages of providers are solely communicated to Petitioner in Massachusetts via
dedicated phone lines leased by Petitioner from various telecommunication companies. Such
communication is made by means of a computer terminal or modem supplied to the providers by
Petitioner. After provider information is received, Petitioner employees edit, index and validate the
information. Thereafter, the notes are transmitted via various telecommunication vehicles leased by
Petitioner to PC terminals at the premises of the receivers. Information sent to receivers may also
be communicated via satellite, radio transmission or interstate telephone line leased by Petitioner or

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TSB-A-93 (20)S
Sales Tax
March 22, 1993
through alternative third party delivery systems. The PC terminals are supplied to the receivers by
Petitioner for their delivery network only, not for third party delivery networks.
Petitioner will maintain the notes in the host database for access by receivers for ninety days,
organized in accordance with the institution's request.
Petitioner's information publishing service allows providers to advertise their equity security
research, morning meeting notes, and other equity information to receivers. The placement of this
research creates a competitive advertising market for the purchase and sale of securities among the
providers who place competing research. Much like a phone book, most providers assign a contact
name and a phone number so the reader of the advertisement can follow-up with a phone call. The
receiver obtaining this research is expected to do business with the provider responsible for it.
Providers have the option to pick and choose the receivers who will have access to the information
they make available to Petitioner.
Petitioner's information publishing service allows receivers to obtain timely information to
properly manage their security portfolios and to obtain research recommendations from different
sources on one terminal.
Concerning issue "1", Section 1105(c) of the Tax Law imposes tax upon the receipts from
every sale, except for resale, of certain enumerated services. The referral of customers to executing
brokers is not one of the service enumerated under Section 1105(c) of the Tax Law. Therefore, the
premium received by Petitioner from brokers for customer referrals is not subject to sales and use
taxes, provided, however, that the premium paid by brokers is not an offset against the charges the
brokers are required to pay to have the taxable information service furnished to their customers.
Regarding issue "2", Section 1105(c)(1) of the Tax Law imposes a tax on receipts from the
sale of the service of the" ... furnishing of information by printed, mimeographed, or multigraphed
matter ... but ... excluding the services of advertising ... "(emphasis added)
The listing and displaying of providers equity security research, morning meeting notes, and
other equity information constitutes the placing of advertising. Accordingly, the charges by Petitioner
to providers for listing and displaying their information is exempt from sales tax pursuant to Section
1105(c)(1) of the Tax Law.
It is noted, however, that the fee paid by receivers to receive the computerized information
directory is subject to sales tax pursuant to Section 1105(c)(1) of the Tax Law as a charge paid to
receive an information service.

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Sales Tax
March 22, 1993
Moreover, where a provider of such information is also a receiver of such taxable information
service, the charges for advertising must be separately stated from the charges for receiving the
taxable information service and such services must be able to be purchased separately. Otherwise,
the entire charge for such services is subject to sales tax.

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.