Is an internet lead-generation company's sale of custom prospect reports to its clients subject to New York sales tax?

Plain-English summary

An accountant described a hypothetical website ("X") that generates sales leads for its clients. A client signs up and picks a category of interest (like antique cars); visitors to the site who are interested in that category can submit their name and address, which gets sent to X. X reviews and edits the submissions and, once a month, sends each client a custom report containing only the names and addresses gathered for that client's specific category -- each category belongs to exactly one client, so no two clients get overlapping information. X bills clients by the number of leads delivered, with no separate charge for site design or ongoing access. The accountant asked whether this lead-generation and reporting service is taxable.

New York taxes the service of furnishing information by collecting, compiling, or analyzing data and reporting it to customers -- but specifically excludes information that's personal or individual in nature and isn't (and isn't likely to be) substantially incorporated into reports given to other customers. Because X isn't selling any tangible property, and because each client's monthly lead report is unique to that client's category of interest (with no overlap or reuse across clients), the reports qualify as personal, individualized information rather than a general information product shared across a customer base. As a result, X's fees for both representing clients on its website and delivering these custom lead reports fall outside the information-services tax and aren't subject to sales or compensating use tax.

What this means for you

Lead-generation websites and similar online referral businesses

A custom report built entirely from information collected specifically for one client -- with no overlap or reuse for other clients -- can qualify as nontaxable "personal or individual" information, even though your underlying business model involves collecting, compiling, and reporting data.

Businesses selling data or reports compiled from multiple sources

If the same underlying data or report content is reused or substantially incorporated into what you sell to other customers, it likely won't qualify for this personal-information exclusion -- the exclusion depends on genuine client-specific exclusivity, not just how the data was collected.

Accountants and tax professionals

This ruling is a clean, internet-era application of the Tax Law § 1105(c)(1) personal-information exclusion -- useful for any online lead-generation, referral, or data-matching business modeled around exclusive, client-specific reports rather than shared or resold data.

Common questions

Q: Is selling leads or contact information collected from a website always taxable as an "information service"?
A: Not necessarily -- if each report is personal and specific to one client (not shared or reused across multiple clients), it can qualify for the personal-information exclusion and escape sales tax.

Q: Does it matter whether the report is delivered electronically or by mail?
A: No -- the delivery method doesn't affect the analysis; what matters is whether the information itself is personal/individual and not substantially incorporated into reports for other clients.

Q: What would make a similar lead-generation report taxable?
A: If the same collected information were reused, aggregated, or substantially incorporated into reports sold to multiple clients, it would likely lose the personal-information exclusion and become a taxable information service.

Q: Does this ruling apply to my lead-generation or online referral business?
A: Not automatically. An Advisory Opinion binds the Department only for the taxpayer and facts it was issued to, and it can't be relied on by anyone else. Your own data practices would need their own analysis.

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_56s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(56)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S960607A

On June 7, 1996, a Petition for Advisory Opinion was received from Michael
E. DeMarco, CPA, O'Keefe & Moret, CPA, PC, 55 Maple Avenue, Suite 508, Rockville
Centre, New York 11570. Petitioner, Michael E. DeMarco, submitted additional
information pertaining to the Petition on August 8, 1996.
The issue raised by Petitioner is whether the representation of clients on
the Internet or the sale of a custom report to clients (electronically or in
print) from leads collected on the Internet, is subject to the sales and/or
compensating use tax.
Petitioner submits the following hypothetical facts as the basis for this
Advisory Opinion.
"X" has a web site on the Internet. A client wishing to obtain leads for
potential customers signs up with "X" by completing an order form. The client
establishes on the order form the category of interest for its potential
customers (e.g., antique cars or antique woodworking). Once its category of
interest has been established, it is added to the web site where there are
numerous listings of categories of interest.
Each category of interest
represents a client of "X."
An individual "surfing the net" and stopping at this web site may see a
category of interest for which he or she would like more information. In that
case, the individual selects the category and provides personal information (name
and address) and presses a button on his or her keyboard. At that point, the
category of interest and personal information are electronically sent to "X."
"X" reviews and edits the information transmitted and collected
for each
client. On a monthly basis, "X" prepares a custom report of leads for each
client. Each report is unique as it only contains the names and addresses for
the specific category of interest for a particular client. Only one client is
represented for each category of interest. The report may be sent electronically
or by mail to the client. "X" then bills the client by the number of leads
provided to the client. There is no charge by "X" to the client for design or
monthly access.
Section 1105 of the Tax Law provides in part:
Imposition of sales tax.--On and after June first, nineteen
hundred seventy-one, there is hereby imposed and there shall be paid
a tax of four percent upon:

-2­
TSB-A-97(56)S
Sales Tax

(a) The receipts from every retail sale of tangible personal
property, except as otherwise provided in this article.
*

*

*

(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,
and excluding meteorological services. (Emphasis added.)
In this case, "X" is not selling tangible personal property.
The
customized report furnished by "X" to each client showing the names and addresses
of prospective customers is personal in nature and will be given only to a
particular client and will not be substantially incorporated in reports furnished
to other persons. Accordingly, petitioner’s representation of clients on the
Internet and the sale of the custom reports are not subject to sales and
compensating use tax.

DATED: September 3, 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.