Is a check-guarantee service's per-check fee, which merchants pay to have a customer's check backed against non-payment, subject to New York sales tax?

Plain-English summary

Equifax Services, Inc. and its subsidiary Equifax Check Services, Inc. (formerly Telecredit Service Corporation) jointly asked whether Equifax Check's "Welcome Check" check-guarantee program was subject to sales tax. Under the program, a participating merchant (retailer, hotel, repair shop, etc.) pays Equifax Check at least 50 cents per check offered for guarantee (plus a $50/month minimum for low-volume merchants), and Equifax Check commits to guarantee the check if it meets a checklist of prerequisites -- proper payor information printed on the check, correct signature/endorsement, drawn on a U.S. bank, dated correctly, and so on. Equifax Check then applies only three narrow criteria (transaction limit, existing unpaid dishonored checks from that payor, or a recent pattern of large checks from that payor) to decide whether to guarantee it. Crucially, the program involves no credit analysis, no examination of creditworthiness, and no credit reporting at all -- a perfectly creditworthy customer's check could still be declined under the three criteria, and a poor-credit customer's check could still be guaranteed if it meets them.

The Department held that a check-guarantee service like this is simply not one of the services specifically listed as taxable under Tax Law § 1105(c) or the parallel New York City Administrative Code provision, so none of its fees -- the per-check charge or the monthly minimum -- are subject to New York State or local sales tax.

What this means for you

Check-guarantee and payment-risk companies

A pure check-guarantee service -- distinct from credit reporting or credit analysis -- falls outside the enumerated taxable services list entirely. The Department specifically distinguished this from credit-related services by noting the program involves no creditworthiness assessment; if your service adds any credit-reporting or investigative component, review that separately, since it could shift the analysis (compare the credit/investigation rulings issued the same year, like TSB-A-97(22)S).

Merchants using check-guarantee services

Fees you pay for check guarantee coverage shouldn't carry New York sales tax -- if a vendor is charging you tax on this kind of service, that's worth double-checking against this precedent.

Accountants and tax professionals

This ruling turns entirely on the service NOT fitting any enumerated category in § 1105(c) -- it's a useful precedent for any risk-transfer or guarantee-type financial service that doesn't involve producing/processing tangible property, protective/detective work, information services, or another specifically taxed category.

Common questions

Q: Does this ruling cover credit reporting services too?
A: No -- the Department was careful to note the check-guarantee service involves no credit analysis or credit reporting at all; a service that does include credit reporting would need its own separate analysis.

Q: Does the $50/month minimum fee for low-volume merchants change the analysis?
A: No -- both the per-check fee and the monthly minimum are treated the same way, since both are payment for the same nontaxable check-guarantee service.

Q: Can another payment-services company rely on this ruling?
A: No. This advisory opinion binds the Department only as to Equifax Services, Inc. and Equifax Check Services, Inc. and the specific "Welcome Check" program facts described.

Citations and references

Statutes and regulations:

• Tax Law § 1105(c) (services subject to sales tax)
• Administrative Code of the City of New York § 11-2040 (NYC tax on enumerated services)

Prior rulings referenced:

• H.O. Penn Machinery Co., Inc., Adv Op Comm T&F, June 29, 1995, TSB-A-95(26)S
• TeleCheck Services, Inc., Adv Op Comm T&F, April 19, 1996, TSB-A-96(22)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1997.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a97_09s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(9)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S960731B

On July 31, 1996, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Equifax Services, Inc. and Equifax Check
Services, Inc., P.O. Box 4081, Atlanta, GA 30302-4081.
The issue raised by Petitioners, Equifax Services, Inc. (hereinafter
"Equifax") and Equifax Check Services, Inc. (hereinafter "Equifax Check"), is
whether Equifax Check's receipts from the sale of its check guarantee service to
its New York customers are subject to the tax imposed by Section 1105(c) of the
New York State Tax Law and Section 11-2040 of the New York City Administrative
Code.
Petitioners submit the following facts as the basis for this Advisory
Opinion.
Equifax is a Georgia corporation, authorized to do business in New York,
with its principal office at 1600 Peachtree Street, N.W., Atlanta, Georgia.
Equifax Check, a Delaware corporation, is a wholly-owned subsidiary of Equifax.
Equifax Check is authorized to do business in New York and its principal office
is in Tampa, Florida. Equifax Check was previously known as Telecredit Service
Corporation.
Equifax Check offers to guarantee checks given to merchants (e.g.,
retailers, hotels, motor vehicle repair shops, and other such businesses) via the
"Welcome Check" guarantee program which operates as follows:

1. A participating merchant who desires to present checks made payable to
   the merchant for guarantee by Equifax Check pays Equifax Check a fee of no less
   In addition, certain low volume
   than fifty cents for each check offered.
   merchants pay Equifax Check a minimum of $50.00 per month for maintaining a check
   guarantee account with Equifax Check.
2. Equifax Check agrees to guarantee checks given to the participating
   merchant if such checks have been presented in accordance with the Welcome Check
   guarantee agreement.
3. No information about the customer's creditworthiness or credit report
   of any sort is provided to the participating merchant pursuant to the Welcome
   Check agreement.
   Rather, it is the merchant which provides information to
   Equifax Check about the merchant's customer and the customer's check.
4. The participating merchant must inform Equifax Check that the following
   prerequisites have been met in order for Equifax Check to consider whether or not
   to guarantee a proffered check:

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TSB-A-97(9)S
Sales Tax

a.

the name of the individual or business
commercially imprinted on the check;

payor

is

b.

the residence address, phone number, and driver's
license or non-driver identification card number of the
individual payor, or business address, business phone
number
and
license
number
of
the
business
representative, are listed on the check;

c.

the check is payable to the participating merchant;

d.

the check is properly signed by the payor/customer;

e.

the check is endorsed by the participating merchant;

f.

the check is drawn on a United States bank;

g.

the check is for the full amount of the purchase; and

h.

in the case of an individual customer, the check bears
the same date that Equifax Check agreed to purchase the
check, or in the case of a business customer, the same
or previous date.

5. Equifax Check applies only the following three criteria in considering
   whether or not to guarantee a check meeting the above prerequisites which is
   offered by the participating merchant for guarantee:
   a.

does the check exceed the transaction limit in the
participating merchant's agreement with Equifax Check;

b.

does Equifax Check currently hold dishonored checks from
the payor which remain unpaid; and

c.

has the payor recently presented several large checks
which Equifax Check has agreed to purchase?

6.

Equifax Check will then either:

a.

commit to purchase the check
"guarantee" the check, or

if

dishonored,

i.e.,

b.

decline to make such a commitment, advising the
participating merchants of such business decision and
which of the three exclusive criteria noted in paragraph
5 above are the basis for its decision.

7. There is no credit analysis, no examination of creditworthiness, and
   no credit reporting in this process. A very solvent, very creditworthy customer
   could fail to meet the exclusive criteria employed by Equifax Check (see
   paragraph 5 above) and that customer's check would not be guaranteed.

-3­
TSB-A-97(9)S
Sales Tax

Conversely, the customer could have a particularly poor credit history/record and
be most uncreditworthy, and his/her check presented consistent with the
prerequisites and criteria noted would be guaranteed by Equifax Check.
Applicable Law and Opinion
Section 1105(c) of the New York State Tax Law and Section 11-2040 of the
New York City Administrative Code impose tax on receipts from the sale of certain
enumerated services. The check guarantee service provided by Equifax Check is
not one of the enumerated services subject to tax under Section 1105(c) of the
New York State Tax Law or Section 11-2040 of the New York City Administrative
Code. The fees paid in connection with this service, i.e., the fee of not less
than fifty cents for each check offered for guarantee and the minimum fee of
$50.00 per month for maintaining a purchase agreement account with low volume
merchants, therefore, are not receipts subject to New York State and local sales
and compensating use taxes.
(See H.O. Penn Machinery Co., Inc., Adv Op Comm
T&F, June 29, 1995, TSB-A-95(26)S and TeleCheck Services, Inc., Adv Op Comm T&F,
April 19, 1996, TSB-A-96(22)S.)

DATED: February 24, 1997

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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