Is the fee a firm pays a third-party mainframe host to store and let it access its own previously-purchased databases -- with no hardware transferred -- a taxable information service or a taxable computer-timeshare rental?

Subject

Whether the service provided by XYZ Co.

What this means for you

A professional-services firm buys general-information databases from various vendors, already paying (or self-assessing) sales/use tax on those purchases. Because the databases and hardware requirements are too large to run on its own computers, the firm arranges for the database vendor to transmit the data directly to a third-party mainframe host ("XYZ Co."), which stores it and lets the firm access and use its own data remotely via its own PCs and modems, for a flat monthly fee. The host doesn't transfer any hardware, doesn't use the firm's data itself, and can't tailor the output -- only the firm can.

The Department analyzed this under two possible tax theories and rejected both:

• Not a taxable rental of the computer. Under New York's "computer timesharing" guidance, a customer's remote access to a host's computer through a terminal or modem isn't a taxable transfer of possession of that computer, since the customer never gets custody, control, or the right to direct the use of the physical machine itself.
• Not a taxable information service. New York taxes services that collect, compile, or analyze information and furnish reports of it. Here, the host isn't compiling or analyzing anything -- it's merely storing the firm's own, previously-purchased data and giving the firm (and only the firm) access back to it. Since there's no information-gathering or analysis service being sold, § 1105(c)(1) doesn't reach the arrangement either.

The result: the flat monthly hosting fee is untaxed computer timesharing, not a taxable rental or a taxable information service.

Q&A

Q: We store our own purchased data on a vendor's remote servers and pay a monthly access fee -- is that taxable?
A: Not under this opinion's facts -- as long as the vendor is purely storing/hosting your own data (not compiling, analyzing, or supplying new information), and you're accessing it remotely without taking possession of any hardware, the fee is untaxed computer timesharing.

Q: What would make this taxable instead?
A: If the host were doing the information-gathering, compiling, or analysis itself (rather than merely storing data you already purchased and own), the charge would likely be a taxable information service. Similarly, if the arrangement involved an actual transfer of hardware or exclusive control over specific equipment, a rental analysis could apply instead.

Q: Does it matter that we already paid sales/use tax on the underlying database purchase?
A: Yes -- this opinion assumes the data itself was already taxed (or exempt) at the point of purchase from the original vendor. The hosting fee analyzed here is a separate, distinct charge for storage/access, not a resale of the data.

Citations

• Tax Law § 1105(a) -- imposes sales tax on retail sales of tangible personal property.
• Tax Law § 1105(c)(1) -- taxes information services (collecting/compiling/analyzing and furnishing reports to others).
• 20 NYCRR 526.7(e)(5) -- a transfer of possession doesn't require the right to move the property; remote computer access through a terminal isn't a taxable transfer of possession of the computer.
• Technical Services Bureau Bulletin, Computers, 1978-1(S), February 6, 1978 -- computer timesharing charges for remote terminal access aren't a taxable transfer of possession of the computer, though the information provided may separately be taxable.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1995.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a95_12s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-95 (12)S
Sales Tax
April 21, 1995

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S941125A

On November 25, 1994 a Petition for Advisory Opinion was received from Price Waterhouse
LLP, 1177 Avenue of the Americas, New York, NY 10036.
The issues raised by Petitioner, Price Waterhouse LLP, are:
1.

Whether the service provided by XYZ Co. to Petitioner is an information service
subject to the sales tax imposed under section 1105(c)(1) of the Tax Law.

2.

Whether the service provided by XYZ Co. is a nontaxable computer timeshare
service.

Petitioner purchases general information databases from various companies. The information
is general in nature and may be incorporated into reports furnished to others. Petitioner is billed
directly by the information provider and is solely responsible for the payment of all charges incurred
as a result of the use of the information provider's service. Petitioner either pays sales tax to the
vendor or self-assesses and remits the compensating use tax directly to New York State.
Due to the size of the databases and the computer hardware requirements, Petitioner does not
store the information on its own computers. Rather, Petitioner will have the information provider
transmit the database, for which a fee was previously paid to the vendor, directly to a third party,
XYZ Co. For a flat monthly fee, XYZ Co. will allow Petitioner to access and utilize the information
stored on XYZ Co.'s mainframe computer.
Petitioner is able to access and utilize its data stored on XYZ Co.'s mainframe computer by
using its own personal computers and modems. XYZ Co. does not transfer any hardware to
Petitioner in connection with the computer mainframe data storage. Only Petitioner can tailor the
output from the data storage bank. XYZ Co. does not use Petitioner's information in any fashion.
All of the information transferred in connection with the above arrangement is done so on-line.
Section 1105(a) of the Tax Law imposes tax on "[t]he receipts from every retail sale of
tangible personal property...."
Section 1105(c)(1) of the Tax Law imposes 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

-2­
TSB-A-95 (12)S
Sales Tax
April 21, 1995
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...."
Technical Services Bureau Bulletin, Computers, 1978-1(S), 2/6/78, at page 3, item 4, defines
timesharing as "[t]he charges made to customers for use of a computer, which the customer has
access to through a remote terminal device, are not deemed to be a taxable transfer of possession of
the computer. However, all or part of the transaction may be taxable according to the type of
information provided...."
Section 526.7 of the Sales and Use Tax Regulations states, in part:
Sale, selling or purchase. [Tax Law, §1101(b)(5)]
(e) Transfer of possession. (5) It is not essential for a transfer of possession to
include the right to move the tangible personal property which is the subject of a
rental, lease or license to use.
Example 14: A corporation contracts with a computer center for access time on the
computer center's equipment through the use of a terminal located in
the corporation's office. The terminal is connected to the computer
by telephone. The corporation's access to the computer through the
terminal is not deemed to be a transfer of possession of the computer
subject to tax. However, the transaction may be taxable based on the
information provided to the customer.
In the instant matter, since the XYZ Co. merely stores Petitioner's previously purchased
databases on its mainframe computer and allows Petitioner on-line access for purposes of utilizing
Petitioner's stored information, the flat monthly fee charged Petitioner by XYZ Co. is a fee for
computer timesharing. As there is no transfer of title or possession of the computer in this
transaction, the transaction is not subject to the sales tax imposed under section 1105(a) of the Tax
Law. (See, 20 NYCRR 526.7(e)(5) and TSB Bulletin, 1978-1(S), supra.)
Likewise, since Petitioner has previously purchased the databases from a third party and
arranged for the storage of the databases on XYZ Co.'s mainframe computer, XYZ Co.'s transactions
with Petitioner are not sales of information services and accordingly the receipts from the fees
charged to Petitioner for the computer timesharing are not subject to the tax imposed on the sale of
information services under section 1105(c)(1) of the Tax Law.
DATED: April 21, 1995

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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