Is a real-estate document-archiving firm's fee for retrieving, scanning, cataloging, storing, and reproducing building-permit and related documents subject to sales tax, and are its computers exempt production equipment?

Subject

Issues raised by Petitioner, Metropolitan Archives, is whether the sale of archival services to the real estate industry and the purchase of computers used to provide such services are subject to sales tax.

What this means for you

An archival firm serving building owners offered several distinct services: (1) retrieving public building-permit records from the NYC Department of Buildings and scanning them into a searchable database; (2) scanning documents the subscriber supplies directly; (3) providing a free catalog of a subscriber's archived documents; (4) searching its database and delivering results (orally or in hard copy) on request; (5) a flat monthly database-maintenance fee; (6) manually searching the city agency for documents not yet in the database; and (7) expediting services helping architects/contractors/owners file permit applications.

The core distinction: data conversion vs. information service. New York's tax on "information services" only reaches situations where a business collects/analyzes information and creates something new -- a report reflecting fresh intelligence. Where a business instead just converts existing information from one form/medium to another without interpreting or recasting it (paper to digital, in this case), courts have held that's a sale of tangible personal property, not an information service. Because the firm's scanning process just digitizes documents without adding new analysis, the Department found:

• Scanning charges and database maintenance fees -- taxable as sales of tangible personal property (the digitized documents/reproductions), since all costs leading up to that sale (including scanning and maintenance) are part of the taxable receipt.
• Reproduced documents delivered back to a subscriber on request -- also taxable as tangible personal property.
• Manual DOB searches for subscribers without database records -- taxable as an information service if the results are given in writing, or under the telephone/telegraph information-service provision if delivered by phone; but oral reports of the client's own information are untaxed.
• Free catalogs -- since given away, not sold, they don't qualify for any resale exclusion (there's no sale to begin with).
• Expediting services (permit-filing assistance, document retrieval) -- not a taxable enumerated service at all.
• Computers used to provide these services -- no exemption exists for computers or other machinery used to provide information services, regardless of whether the underlying service is itself taxable or not.

Q&A

Q: We scan a client's paper documents into a searchable digital database and charge scanning/maintenance fees -- is that a taxable information service or something else?
A: Per this opinion, it's data CONVERSION, not an information service -- you're not creating new intelligence, just changing the document's format. That makes it a sale of tangible personal property (the resulting digital file/reproduction), taxable under the general retail-sale provision, with all related fees (scanning, maintenance) included in the taxable receipt.

Q: If we search a database and give a client an answer purely verbally, over the phone, is that taxable?
A: An answer given only orally about the client's OWN information is not taxable. But if you deliver the same answer in writing, or through an interactive/telephone information-service mechanism, it can become taxable under the information-services or telephone-service provisions.

Q: Can we buy computers used for this business tax-free as production equipment?
A: No -- the opinion is explicit that there's no exemption for computers or other equipment used to provide information services, whether or not the services themselves end up being taxable.

Q: Do we owe tax on a free directory/catalog we give clients at no charge?
A: No -- since it's given away rather than sold, there's no sale (taxable or otherwise) to analyze; it simply falls outside the tax entirely (and can't be purchased tax-free as a "resale" either, since there's no resale happening).

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 written reports).
• Tax Law § 1105(c)(9) -- taxes information/entertainment services delivered via telephone/telegraph.
• 20 NYCRR 526.5(e) -- expenses incurred by a vendor making a sale (including telephone/telegraph charges) aren't deductible from taxable receipts.
• Northeastern Computer Services, Inc., Adv Op Comm T&F, June 24, 1988, TSB-A-88(33)S -- the tax status of a prepared document depends on whether the job is data conversion or the furnishing of information.
• Taxability of Major Data Entry Techniques, TSB-M-81(3)S -- data arranged to a purchaser's specs without creating new information, delivered on a medium, is a sale of tangible personal property.
• Finserv Computer Corp. v. Tully, 463 N.Y.S.2d 924, affd 61 N.Y.2d 947 -- converting information from one medium to another without interpreting/recasting it is a sale of tangible personal property, not an information service.
• Allstate Insurance Company v. State Tax Commission, 115 AD2d 831 -- furnishing government records (even from a single source) is an information service; the personal/individual exclusion doesn't cover information filed as an unlimited-access public record.

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_5s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-95 (5)S
Sales Tax
February 9, 1995

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S940714A

On July 11, 1994, a Petition for Advisory Opinion was received from Metropolitan Archives,
Inc., 214 West 29th Street, 12th Floor, New York, New York 10001.
The issues raised by Petitioner, Metropolitan Archives, is whether the sale of archival
services to the real estate industry and the purchase of computers used to provide such services are
subject to sales tax.
Petitioner is an archival firm for the real estate industry. Petitioner performs any one or all
of the following services for a building owner (Subscriber).
Petitioner will obtain information from the New York City Department of Buildings (DOB)
relating to a subscriber's property. This information, which relates to work performed in the
subscriber's property which needs DOB work permits, approvals, inspections etc., is public
information which can be accessed by the general public. Once the information (architectural and
engineering drawings as well as related paperwork) is obtained, the hard copy is scanned into a
computer system at which time attributes are assigned to each document to facilitate easy retrieval
at a later date. The scanning process converts the document to a digital image which the computer
can recognize. Petitioner charges a subscriber, based on the number of documents scanned, a fee
to retrieve the documents from the DOB and scan the documents into the computer.
Petitioner will obtain information (architectural and engineering drawings as well as related
paper work) directly from the subscriber. This information is the property of the subscriber. The
same scanning process as above is performed. A fee is charged based on the number of documents
scanned.
Petitioner will provide a catalog of the documents which reside in its data base related to the
subscriber's property. The catalog will be a sorted listing of the attributes assigned to the documents.
No fee will be charged for the production of the catalog.
Petitioner will search its computer database upon a request for information from the
subscriber. The information requested will be given to the subscriber verbally or reproduced in hard
copy based on the data in petitioner's system. A fee will be charged based upon the number of
information requests.
Petitioner will charge a flat monthly maintenance fee to the subscriber to maintain the
database. The maintenance fee is based upon the size of the computer database related to a
subscriber's documents.

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TSB-A-95 (5)S
Sales Tax
February 9, 1995
Petitioner will provide a manual search of the DOB for documents of subscribers who do not
have their information scanned into the database. Petitioner will charge the subscriber a fee based
on the complexity of the search and the number of visits required to be made to the DOB.
Petitioner will provide expediting services to architects, contractors and building owners.
Services will include assistance in the filing of applications to obtain building permits and retrieval
of any original documents needed from the DOB. Petitioner will charge a fee on a per application
and search basis.
Section 1105(a) of the Tax Law imposes a tax upon "[T]he receipts from every retail sale of
tangible personal property, except as otherwise provided in this article."
Section 526.5(e) of the Sales and Use Tax Regulations provide that "[A]ll expenses,
including telephone and telegraph and other service charges, incurred by a vender in making a sale,
regardless of their taxable status and regardless of whether they are billed to a customer are not
deductible from the receipts".
Section 1105(c) imposes a tax upon:
(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.
(2)
Producing, fabricating, processing, printing or imprinting tangible personal
property, performed for a person who directly or indirectly furnishes the tangible
personal property, not purchased by him for resale, upon which such services are
performed.
*

*

*

(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) of
whatever nature, such as entertainment or other services provided through 800 or 900
numbers or mass announcement 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 . . .

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TSB-A-95 (5)S
Sales Tax
February 9, 1995
The tax status of documents prepared by Petitioner depends on whether the completed job
constitutes data conversion or the furnishing of information. Northeastern Computer Services, Inc.
Adv Op Comm T & F, June 24, 1988, TSB-A-88(33)S.
If data is arranged to the purchaser's specifications without creating new information and is
merely a change in the form, the transfer to the client of the medium on which the client's source data
is recorded constitutes the sale of tangible personal property, taxable in accordance with the
provisions of section 1105(a) of the Tax Law. See, Taxability of Major Data Entry Techniques.
TSB-M-81(3)S.
Moreover, where information already in a customer's possession is merely converted from
one form or medium to another, without interpreting or recasting it, so that the form of the
information changes but not the intelligence contained therein, there is a sale of tangible personal
property rather than the sale of an information service. (Finserv Computer Corp. V. Tully, 463
N.Y.S. 2d 924, affd 61 N.Y.2d 947)
In Allstate Insurance Company v. State Tax Commission, 115 AD2d 831, the court held that
the furnishing of New York State Department of Motor Vehicle records by Hooper Holmes, Inc. to
Allstate was the furnishing of an information service even if the information was collected from a
single source. Additionally, the court held that the exclusion from tax for information which is
personal or individual in nature refers to uniquely personal information and does not apply to
information filed with a government agency as a public record to which there is unlimited public
access.
Placing a clients' documents on computer for later retrieval is part of the process by which
petitioner keeps its clients' documents available. As Petitioner's clients' request their documents
back, Petitioner reproduces such documents by computer. It is the sale of the reproduced documents
that is subject to the sales tax imposed under section 1105(a) of the Tax Law, (i.e., receipts from the
sale of tangible personal property). All expenses or charges leading to the sale of the tangible
personal property are part of the receipt subject to tax. This includes Petitioner's scanning charges
and maintenance fees as well as any other charge which may precede the sale of the reproductions.
Petitioner's manual search of the DOB for documents of subscribers who do not have
information in Petitioner's data base is subject to sales tax under Section 1105(c)(1) of the Tax Law
if the information Petitioner provides subscribers is written, and Section 1105(c)(9) if it is provided
by telephone or telegraph. Information provided to Petitioner's clients that is based upon its clients'
documents which is provided only orally, is not subject to tax.
There are no sales tax exemptions for the purchase of computers or other machinery or
equipment used to provide information services regardless of whether or not such services are
subject to sales tax.

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TSB-A-95 (5)S
Sales Tax
February 9, 1995
Petitioner's expediting service which includes assistance in filing applications to obtain
building permits and the retrieval of any original documents from the DOB is not one of the services
subject to the sales tax.
Since Petitioner's catalogs are given away rather than sold, they may not be purchased for
resale.

DATED: February 9, 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.2