Is a bank-account verification service -- where subscribers call in or log on to check whether an applicant's prior checking account was closed for cause -- a taxable information service, even though each answer is about one specific applicant?

Subject

Issue raised by Petitioner, Chex Systems, is whether Petitioner's account verification services are subject to New York State and local sales and use taxes.

What this means for you

A service compiled a network database from financial institutions and, on inquiry (by phone or online), told a subscribing bank whether a particular account applicant had a prior checking account closed for cause (like insufficient funds). The subscriber used that answer -- oral or on-screen, with no separate written documentation -- to decide whether to open the account. Fees were either flat or per-inquiry.

New York taxes "information services" (collecting, compiling, or analyzing information and furnishing reports of it), with credit reports specifically listed as an example -- but excludes information that's genuinely personal or individual and can't be reused in reports to other customers. This case turned on that distinction, and the answer contrasts with cases like the sonographer opinion (TSB-A-95(22)S): even though each inquiry response was specific to one named applicant, the Department relied on an appellate case (Towne-Oller) holding that a report tailored to one client isn't "personal or individual" if it's pulled from the same common data base used to answer every other subscriber's inquiries. Because Chex Systems drew every response from one shared network database, the information wasn't treated as personal/individual, and the exclusion didn't apply.

The opinion also flags a rate wrinkle: the general information-services tax under § 1105(c)(1) is 4%, but information delivered via telephone/telegraph technology (like an oral phone response or an interactive on-line inquiry) falls instead under § 1105(c)(9), which carries a 9% state rate -- as long as the underlying information would have been taxable if delivered on paper in the first place.

Q&A

Q: We provide a verification/lookup service where each answer is about one specific person or account -- doesn't that make it exempt personal information?
A: Not necessarily. What matters is whether the answer is drawn from a shared database used to answer many different customers' inquiries. If it is, the information isn't "personal or individual" in the exempt sense, even though each individual inquiry response is about a specific applicant.

Q: Does it matter whether we deliver the answer by phone, on-screen, or in writing?
A: Yes, for the RATE (not whether it's taxable at all): if the same information would be taxable delivered on paper, delivering it instead by phone or an interactive on-line system pushes it into the § 1105(c)(9) telephone/telegraph-technology category at the higher 9% rate, rather than the standard 4% information-services rate.

Q: What would make an inquiry response genuinely exempt as personal/individual information?
A: Per the excluded examples in the regulations, things like a private detective's client-specific report or an individual insurance damage appraisal, which are not compiled from one shared database serving all customers -- the answer has to be truly unique to that inquiry, not the same lookup process applied to everyone.

Citations

• Tax Law § 1105(c)(1) -- taxes information services (collecting/compiling/analyzing and furnishing reports), excluding personal/individual information not substantially reused in reports to others.
• Tax Law § 1105(c)(9) -- taxes information/entertainment services delivered via telephone/telegraph technology at a higher rate, if the information would otherwise be taxable delivered on paper.
• 20 NYCRR 527.3 -- implements the information-services tax, listing credit reports as an example and explaining oral-vs-written report taxability rules.
• Towne-Oller and Assoc. v. State Tax Commission, 120 AD2d 874, 504 NYS2d 544 -- a report tailored to a client's request isn't "personal or individual" if created from the same raw database used for other customers' reports.

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_14s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-95 (14)S
Sales Tax
May 8, 1995

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S941227A

On December 27, 1994, a Petition for Advisory Opinion was received from Chex Systems,
1550 East 79th Street, Minneapolis, MN 55425.
The issue raised by Petitioner, Chex Systems, is whether Petitioner's account verification
services are subject to New York State and local sales and use taxes.
Petitioner provides account verification services for financial institutions by compiling data
from a network of financial institutions. Upon inquiry, Petitioner advises specific clients whether
individual account applicants had prior checking accounts closed for cause such as nonsufficient
funds. A member institution has the ability to make either an oral or on-line inquiry. At the time
the inquiry is made, the requester makes a decision whether or not to open an account based on the
information provided. Written documentation of the inquiry is not provided to the requester. The
charges for these services are either a predetermined charge or a specific amount per inquiry.
Section 1105 of the Tax Law states, in part:
Imposition of sales tax.-- ... there is hereby imposed and there shall be paid a tax ...
upon:
*
(c)

*

*

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 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.
*

*

*

(9)(i) The furnishing or provision of an entertainment service or of an
information service, which is furnished, provided, or delivered by means of telephony
or telegraphy or telephone or telegraph service (whether intrastate or interstate)

-2­
TSB-A-95 (14)S
Sales Tax
May 8, 1995
of whatever nature, such as entertainment or information services provided through
800 or 900 numbers or mass announcement services or interactive information
network services. Provided, however, that in no event (i) shall the furnishing or
provision of an information service be taxed under this paragraph unless it would
otherwise be subject to taxation under paragraph one of this subdivision if it were
furnished by printed, mimeographed or multigraphed matter or by duplicating written
or printed matter in any other manner nor (ii) shall the provisions of cable television
services to customers be taxed under this paragraph.
Section 527.3 of the Sales and Use Tax Regulations provides, in part, as follows:
(a)
Imposition. (1) Section 1105(c)(1) 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.
(3)
Among the services which are information services are credit reports,
tax or stock market advisory and analysis reports and product and marketing surveys.
Example 1: A company distributes a newsletter to its
subscribers weekly, showing the range of daily market prices for
certain commodities. The newsletter comprises a taxable information
service.
Example 2: A company publishes a bound volume monthly,
which it furnishes to its subscribers. The volume contains
information with respect to current advertising rates of various media
in different localities. This publication is a taxable information
service.
Example 3: A firm which supplies to business concerns
listings of prospective customers' telephone numbers is providing a
taxable information service and must collect the appropriate tax on
the charges for such service.
Example 4: A computer service company owns a service
program consisting of analyses of law cases and statutes. It is asked
by a customer to research all references to the word "assessment".
The fee for the printout received by the customer constitutes a taxable
receipt from an information service, as the citations listed may be
given to another subscriber requesting the same information.

-3­
TSB-A-95 (14)S
Sales Tax
May 8, 1995
(4)
Charges for credit information services, other than those that are
transmitted orally, are subject to tax. The following rules shall apply in determining
taxability of services that include both oral and written reports.
(i)

Any fee for a written report is taxable.

(ii) Any fee for an oral report is taxable if the oral report is
preliminary to the written report.
(iii) An annual fee for subscribing to a service is taxable if it entitles
the subscriber to a certain number of free reports, or to reduced
charges on reports, unless the subscriber is entitled only to oral
reports.
(b)
Exclusions. (1) Sales tax does not apply to receipts from sales of
information services which are for resale as such.
(2)
The sales tax does not apply to the receipts from the sale of
information which is personal or individual in nature and which is not or may not be
substantially incorporated into reports furnished to other persons by the person who
has collected, compiled or analyzed such information.
Example 1: The report submitted by a private detective
agency to its clients is a personal report, the charge for which is not
taxable.
Example 2: Automobile insurance damage appraisals
performed for insurance companies are individual reports, the fees for
which are not subject to sales tax.
Example 3: A computer service company has a program
consisting of withholding tax tables. Using the same program, it
computes the payroll for several subscribers. The fee charged to each
subscriber is not taxable as it is for an information service, the results
of which are not incorporated into reports furnished others.
*

*

*

(3)
Sales tax does not apply to receipts from sales of information services
which are only furnished orally. See paragraph (4) of subdivision (a) of this section.
(emphasis added)
In Towne-Oller and Assoc. v. State Tax Commission, 120 AD2d 874, 504 NYS2d 544, the
court held that the reports at issue, although tailored to satisfy the information request of the client,
were not of a personal or individual character since the reports were created from the same raw data
base used in preparation of similar reports to other customers, and that data base was derived from
one general source.

-4­
TSB-A-95 (14)S
Sales Tax
May 8, 1995
In the instant case, subscribers to Petitioner's account verification services contact Petitioner
by telephone or an on-line computer to receive information of a specific applicant's checking account
history. At the time the inquiry is made, Petitioner provides an oral or a printed on-line response to
assist subscribers in making the decision as to whether or not to open an account based on the
information provided. Such information is made available from a common data base which is used
to satisfy all subscriber inquiries.
In accordance with Sections 1105(c)(1) and (9) of the Tax Law and Section 527.3 of the Sales
and Use Tax Regulations, the furnishing of printed information via electronic readout or display or
orally, if it would otherwise be subject to tax if furnished by printed matter, is subject to sales and
use taxes unless the information provided is personal or individual in nature. Pursuant to TowneOller and Assoc. v. State Tax Commission, supra, information, although tailored to satisfy the
request of a particular client, is not personal or individual in nature if created from the same raw data
base used in preparation of similar reports to other customers. Accordingly, since Petitioner uses
the same data base to satisfy all of its subscriber's inquiries, the information furnished aurally or on­
line is not personal or individual in nature, and is, therefore, subject to State and local sales and use
taxes pursuant to Sections 1105(c)(1) and (9) of the Tax Law and Section 527.3 of the Sales and Use
Tax Regulations. It is noted that if the tax is imposed under Section 1105(c)(1) of the Tax Law the
State rate is 4% and that if the tax is imposed under Section 1105(c)(9) of the Tax Law the State rate
is 9%.

DATED: May 8, 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.