Are fees for zebra mussel monitoring services -- sampling a customer's water system and providing a written analysis report -- subject to New York sales tax, even though the reports are personal to each customer and not shared with others?

Subject

Klein, is whether fees paid for zebra mussel monitoring services and the resulting written test reports are subject to State and local sales tax.

What this means for you

A company monitors zebra mussels (an invasive species) in water drawn from natural sources and used by industrial/utility customers. It periodically collects and analyzes water samples (and, for some customers, adult-mussel collection racks) to measure density, growth, and mortality rates of the mussels, then prepares a written report for each customer -- unique to that customer's own water system and never shared with or incorporated into any other customer's report.

New York taxes "information services" (collecting/compiling/analyzing data and furnishing reports) but specifically excludes information that's personal or individual in nature and not shared across customers -- which would seem to describe these reports exactly. But the Department doesn't stop there: it also taxes services that "maintain, service, or repair" tangible personal property or real property, which specifically includes diagnostic-type services that keep property in a known state of fitness, efficiency, or readiness -- even if no actual repair happens. Leaning on a 1985 opinion involving nuclear-plant safety inspections (Rochester Gas and Electric), the Department treats zebra mussel monitoring the same way: it's a service that keeps the customer informed of their water system's condition so they can maintain its quality and readiness, functioning like a diagnostic test on their water system. Because that framing applies regardless of whether the resulting report is personal/individual, the personal-information carve-out doesn't rescue the charge from tax -- it's taxable as a maintaining/servicing/diagnostic charge instead.

Q&A

Q: We provide a monitoring or testing service and give the customer a written report unique to their own equipment or property -- is our fee automatically exempt as a "personal information" service?
A: Not necessarily, per this opinion -- if the underlying service is really diagnostic in nature (keeping the customer's property/system in a known condition of fitness, efficiency, or readiness), it can be taxed as a maintaining/servicing/repairing charge under Tax Law § 1105(c)(3) or (5), regardless of the personal-information exclusion that would otherwise apply to a pure information service.

Q: Does it matter that we don't actually repair anything -- we just test and report?
A: No, per this opinion (citing the Rochester Gas and Electric precedent) -- the fact that no actual repair occurs doesn't matter; a diagnostic service that keeps officials informed so they can maintain the property's condition is itself taxable as "maintaining, servicing or repairing."

Q: What kind of monitoring/testing services would this NOT apply to?
A: This opinion doesn't identify a carve-out -- its holding turns on framing the monitoring as a diagnostic/maintenance-type service; a service that genuinely doesn't relate to keeping any tangible or real property in a state of fitness or readiness could be analyzed differently, but that's not addressed here.

Citations

• Tax Law § 1105(c)(1) -- imposes tax on information services, excluding personal/individual information not shared with other customers.
• Tax Law § 1105(c)(3) -- imposes tax on installing, maintaining, servicing, or repairing tangible personal property.
• Tax Law § 1105(c)(5) -- imposes tax on maintaining, servicing, or repairing real property.
• 20 NYCRR § 527.5 -- defines maintaining/servicing/repairing and gives an example taxing a diagnostic-only service (testing an appliance without repairing it).
• Matter of Rochester Gas and Electric Corporation, Dec. St. Tax Comm'n, June 17, 1985, TSB-H-85(84)S -- held nuclear-plant safety inspections taxable as maintaining/servicing real property even without an actual repair; relied on here.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1994.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a94_21s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-94 (21)S
Sales Tax
April 27, 1994

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S921125B

On November 25, 1992 a Petition for Advisory Opinion was received from Mark S. Klein,
Partner, Hodgson, Russ, Andrews, Woods & Goodyear, 1800 One M & T Plaza, Buffalo, N.Y.
14203.
The issue raised by Petitioner, Mark S. Klein, is whether fees paid for zebra mussel
monitoring services and the resulting written test reports are subject to State and local sales tax.
Petitioner represents X, a company that monitors the existence, growth, density, and settling
of zebra mussels in water that is drawn from natural bodies of water and used by X's customers. X
analyzes water samples drawn from locations on a customer's premises and then provides the
customer with a written report documenting the findings of such analyses.
X periodically (e.g., weekly) collects water samples from a customer's water system. The
samples are filtered and concentrated on site. The concentrated samples are then conveyed to a
laboratory where they are analyzed under magnification to determine the density, live-dead ratio and
life stage densities of zebra mussel veligers. A "veliger" is the larval stage of a mussel or other
mollusk.
For some customers, X also monitors adult zebra mussels by putting specially designed PVC
racks into the customer's water system. X periodically (e.g., monthly) removes the racks and
transports them to a laboratory where the adult mussels adhering to the racks are counted and
measured. The racks are then returned to their original sites.
X analyzes the raw data it obtains and calculates settling rates, growth rates, and mortality
rates. X incorporates these calculations, along with the raw data, into written reports which it
prepares for its customers on a periodic basis (e.g., monthly). The reports include brief summaries
and numerous tables and graphs.
A customer's report pertains only to the analysis of water samples taken from that customer's
premises and is uniquely individual to that customer. In addition, the information in X's reports is
not incorporated in reports furnished to other persons.
Section 1105(c) of the Tax Law imposes 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

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TSB-A-94 (21)S
Sales Tax
April 27, 1994
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....
(3)
Installing tangible personal property, ... or maintaining, servicing or repairing
tangible personal property, ... not held for sale in the regular course of business,
whether or not the services are performed directly ... or by any other means, and
whether or not any tangible personal property is transferred in conjunction therewith,
....
(5)
Maintaining, servicing or repairing real property, property or land, ... whether
the services are performed in or outside of a building ....
Section 527.3 of the New York State Sales and Use Tax Regulations states, in part:
Sale of information services. (Tax Law, § 1105[c][1])
(a) Imposition. (1) Section 1105(c) 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.
Section 527.5 of the Regulations states, in part:
Installing, repairing, servicing and maintaining tangible personal property. [Tax Law,
§1105(c)(3)]
(a)
Imposition. (1) The tax is imposed on the receipts from every sale of the
services of installing, maintaining, servicing or repairing tangible personal property,
by any means including coin-operated machines, whether or not any tangible personal
property is transferred in conjunction with the services.
(3)
Maintaining, servicing and repairing are terms used to cover all activities that
relate to keeping tangible personal property in a condition of fitness, efficiency,
readiness or safety or restoring it to such condition.
Example 6:

A company operates a diagnostic service in which it
tests an appliance for a set fee, but does not repair the
appliance. The charge for the diagnostic service is
taxable.

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TSB-A-94 (21)S
Sales Tax
April 27, 1994
Section 527.7 of the Sales and Use Tax Regulations states, in part:
Maintaining, servicing or repairing real property. [Tax Law, § 1105(c)(5)]
(a)
Definitions. (1) Maintaining, servicing and repairing are terms which are
used to cover all activities that relate to keeping real property in a condition of
fitness, efficiency, readiness or safety or restoring it to such condition....
In the Matter of the Petition of Rochester Gas and Electric Corporation, Dec St Tx Comm.,
June 17, 1985, TSB-H-85(84)S, various inspections performed at petitioner's nuclear plant were
determined to be part of the normal activities that related to keeping real property in a condition of
fitness, efficiency, readiness or safety. It did not matter that an actual repair was or was not done,
but that the service rendered was an activity which was part of the process of keeping property in a
state of readiness and fitness. The inspections in issue accomplished that service by keeping
petitioner's officials informed of the condition of the plant so as to assist them in maintaining the
plant at its standard level of efficiency and readiness. Therefore, the inspections were properly
subject to tax as the maintaining, servicing or repairing of real property within the meaning and
intent of Section 1105(c)(5) of the Tax Law and Section 527.7(a)(1) of the Sales and Use Tax
Regulations.
In the instant matter, when X performs the zebra mussel monitoring service, X is considered
to be rendering a service that keeps X's customers informed of the condition of the water so as to
assist them in maintaining the water quality at its standard level of efficiency and readiness.
Accordingly, X's fees are considered to be charges for diagnostic services and are subject to the tax
imposed under Section 1105(c)(3) and (5) of the Tax Law and Section 527.5 of the Sales and Use
Tax Regulations. The fact that X furnishes the results of the monitoring in the form of a written
report to the customer and the fact that such report is considered to be personal and individual in
nature does not preclude X's charges for the zebra mussel monitoring service from being subject to
the tax imposed under Section 1105(c)(3) and (5) of the Tax Law and Section 527.5 of the Sales and
Use Tax Regulations.

DATED: April 27, 1994

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

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