Are a billing-services company's separately stated charges for preparing customer bills, supplying extra report copies, reimbursed pass-through expenses, and envelope stuffing/postage all taxable in New York?

Plain-English summary

Cincinnati Bell Information Systems provides outsourced billing and customer-care services to telecommunications, cable, and internet service provider companies. It takes raw account data from its customers, runs it through proprietary software to generate individual bills, and charges a "subscriber charge" covering printing/formatting/processing, plus separate line items for bill stock, forms, envelopes, and envelope stuffing. Beyond the core bill run, it also produces supplementary reports, microfiche, and tapes for its customers' internal account analysis, and passes through certain handling/freight/delivery costs and postage it incurs along the way. All bills are mailed from outside New York, and Petitioner asked the Department to sort through the sales-tax status of each separate charge component.

The Department drew a clean line based on what's actually enumerated. Processing raw data into finished bills -- the printing, formatting, and processing subscriber charge -- is data processing, and data processing isn't among New York's enumerated taxable services, following the Department's own prior rulings on this same company and similar billing-services providers. Because the underlying service is untaxed, the separately stated bill stock, forms, and envelopes that go along with it aren't treated as a taxable retail sale of tangible personal property in this context either -- they're incidental to the exempt service, not a standalone sale.

Supplementary reports, microfiche, and tapes get a more nuanced answer that turns on exactly what's being supplied. Custom, confidential management reports generated as part of the core service (and never shared with other customers, per Petitioner's confidentiality agreements) aren't taxable. But once Petitioner supplies additional copies separate from the original billing run -- whether by rerunning the program or duplicating onto a different medium like microfiche or tape -- that's a taxable sale of tangible personal property, because Petitioner is now furnishing a physical medium as a distinct transaction. The remaining charges (reimbursed handling/freight/delivery, envelope stuffing, and postage) simply follow whichever underlying transaction they're attached to: untaxed when tied to the core untaxed billing service, but taxable (as part of the taxable "receipt") when tied to a taxable sale of additional report copies mailed into New York.

What this means for you

Billing, data-processing, and back-office outsourcing companies

Your core data-processing/bill-preparation service and the ordinary physical materials that go with it (paper, envelopes, stuffing) can stay outside New York sales tax entirely -- but the moment you sell a customer a genuinely separate, additional copy of a report on its own physical medium, that transaction becomes a taxable sale of tangible personal property, pulling in any reimbursed costs attached to it.

Companies passing through third-party costs (freight, postage, handling) to clients

Pass-through expense reimbursements aren't independently analyzed -- they simply inherit the taxable/nontaxable status of whatever underlying transaction generated them. Track which service category each reimbursed cost is tied to.

Accountants and tax professionals

This ruling is a good template for unbundling a multi-component service invoice: apply the enumerated-services test to the core service first, then separately analyze any distinct sale of tangible personal property (extra copies, additional media) before deciding how pass-through costs and delivery/handling charges should be treated.

Common questions

Q: Is processing raw account data into customer bills a taxable service in New York?
A: No -- data processing to generate bills isn't among New York's enumerated taxable services, following the Department's own consistent rulings on this point.

Q: When does supplying report copies become taxable?
A: When Petitioner furnishes an additional copy separate from the original bill run, on a physical medium (rerun printout, microfiche, tape) -- that's treated as a distinct taxable sale of tangible personal property.

Q: Do postage and handling charges have their own separate tax rule?
A: No -- they simply take on the taxable or nontaxable status of whatever underlying service or sale they're associated with.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(3) (definition of receipt)
• Tax Law § 1101(b)(4) (retail sale)
• Tax Law § 1105(a) (tax on retail sales of tangible personal property)
• Tax Law § 1105(c) (enumerated taxable services)
• Tax Law § 1110 (compensating use tax)
• 20 NYCRR § 526.5(e) (nondeductible expenses in computing taxable receipts)

Prior rulings referenced:

• Cincinnati Bell Information Systems, TSB-A-98(57)S (August 6, 1998)
• CyCare Systems, Inc., TSB-A-93(18)S (March 22, 1993)
• Datamedic Corp., TSB-A-91(58)S (June 10, 1991)
• EMCON, TSB-A-96(79)S (December 16, 1996)
• Northeastern Computer Services, Inc., TSB-A-88(33)S (June 24, 1988)
• STS Systems, Ltd., TSB-A-98(73)S (November 5, 1998)
• Salomon & Leitgeb, CPA's, LLP, TSB-A-97(44)S (July 23, 1997)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1999.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a99_37s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-99(37)S
Sales Tax
July 27, 1999

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S981119A

On November 19, 1998, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Cincinnati Bell Information Systems, Inc., 600 Vine Street, Cincinnati, Ohio
45201.
The issue raised by Petitioner, Cincinnati Bell Information Systems, Inc., is whether its
separately stated charges for the following components of its billing and customer-care services are
subject to sales or compensating use tax:
(1) Preparing bills, including a subscriber charge for printing, formatting and processing of
data and separate charges for bill stock, forms and envelopes.
(2) Supplementary reports, microfiche or tapes which are above and beyond those initially
provided at the time of the original bill preparation.
(3) Reimbursed handling, freight and delivery expenses which are incurred in conjunction
with the performance of its services and passed through to its customers.
(4) Stuffing envelopes and postage reimbursement on mailings both into and outside of New
York State.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner provides billing and customer-care services to companies in the
telecommunications, cable television and Internet service provider industries. Petitioner primarily
serves its customers by processing data and creating bills using proprietary software. The raw data
from which bills are calculated is provided by Petitioner’s customers. Petitioner processes this raw
data through its computer program which creates new data suitable for generating individual bills.
Petitioner creates bills and, in turn, charges customers a subscriber charge which covers the
printing, formatting and processing of the information, and separately charges for bill stock, forms,
envelopes and envelope stuffing. Petitioner also generates reports, microfiche, tapes, etc. for use by
its customers in evaluating account and billing information.
Petitioner passes through to its customers certain costs, such as handling and freight/delivery
charges, which are incurred when performing its services. Petitioner also charges its customers for
postage fees it incurs when delivering billings to the U.S. Postal Service for ultimate destinations

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Sales Tax
July 27, 1999

both within and without New York. All bills are mailed from locations outside New York. All
purchases of bill stock, forms and envelopes by Petitioner are made outside New York.
Petitioner has long-term written agreements with all of its customers. Under the terms of
these agreements, all information disclosed to Petitioner is considered proprietary and confidential
and cannot be disclosed to outside parties.
Applicable Law and Regulations
Section 1101(b) of the Tax Law states, in part:
When used in this article for the purposes of the taxes imposed by
subdivisions (a), (b), (c) and (d) of section eleven hundred five and by section eleven
hundred ten, the following terms shall mean:
*

*

*

(3) Receipt. The amount of the sale price of any property and the charge for
any service taxable under this article, valued in money, whether received in money
or otherwise, including any amount for which credit is allowed by the vendor to the
purchaser, without any deduction for expenses or early payment discounts and also
including any charges by the vendor to the purchaser for shipping or delivery
regardless of whether such charges are separately stated in the written contract, if
any, or on the bill rendered to such purchaser and regardless of whether such
shipping or delivery is provided by such vendor or a third party. . . .
(4) Retail sale. (i) A sale of tangible personal property to any person for any
purpose, other than (A) for resale as such or as a physical component part of tangible
personal property, or (B) for use by that person in performing the services subject to
tax under paragraphs (1), (2), (3), (5), (7) and (8) of subdivision (c) of section eleven
hundred five where the property so sold becomes a physical component part of the
property upon which the services are performed or where the property so sold is later
actually transferred to the purchaser of the service in conjunction with the
performance of the service subject to tax. . . .
Section 1105(a) of the Tax Law imposes sales tax upon:
The receipts from every retail sale of tangible personal property, except as
otherwise provided in this article.

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Sales Tax
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Section 1105(c) of the Tax Law imposes tax upon the receipts from every sale, except for
resale, of certain enumerated services.
Section 1110 of the Tax Law provides, in part:
(a) Except to the extent that property or services have already been or will be
subject to the sales tax under this article, there is hereby imposed on every person a
use tax for the use within this state on and after June first, nineteen hundred seventy­
one except as otherwise exempted under this article, (A) of any tangible personal
property purchased at retail . . .
Section 526.5 of the Sales and Use Tax Regulations provides, in part:
*

*

*

(e) Expenses. All expenses . . . incurred by a vendor 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.
Example 1: A photographer contracts with a customer to furnish photographs at
$50 each in addition to expenses.
The customer is billed as follows:
Photographs(2)
Model fees
Meals
Travel
Props(Flowers)
Total due
Receipt subject to tax is $200

$100
60
10
25
5
$200

Opinion
Petitioner provides billing and customer-care services to companies in the
telecommunications, cable television and Internet service provider industries. Petitioner primarily
serves its customers by processing customer furnished raw data, from which bills are calculated,
through its own computer program which creates reformulated data suitable for generating individual
bills. After producing the bills, Petitioner inserts them in envelopes and delivers them to the U.S.
Postal Service for ultimate destinations both within and outside of New York. Petitioner passes
certain costs incurred in performing this part of its service, such as postage, handling and
freight/delivery charges, through to its customers.

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Sales Tax
July 27, 1999

Billing services which pertain to the preparation of customer account statements by
processing raw data from which the bills are calculated are not among the enumerated services
subject to tax under Section 1105(c) of the Tax Law (see Cincinnati Bell Information Systems, Adv
Op Comm T&F, August 6, 1998, TSB-A-98(57)S; CyCare Systems, Inc., Adv Op Comm T&F,
March 22, 1993, TSB-A-93(18)S; Datamedic Corp., Adv Op Comm T&F, June 10, 1991,
TSB-A-91(58)S). Accordingly, the subscriber charge described in Item (1) which includes the
printing, formatting and processing portions of Petitioner’s service is not subject to sales or
compensating use tax.
Also described in Item (1) are charges for bill (paper) stock, forms and envelopes, which
Petitioner shows separately on its customer billings. Petitioner’s transfer of these items to its
customer in connection with its billing service is not a taxable retail sale (see EMCON, Adv Op
Comm T&F, December 16, 1996, TSB-A-96(79)S; Northeastern Computer Services, Inc., Adv Op
Comm T&F, June 24, 1988, TSB-A-88(33)S). Therefore, Petitioner’s separate charges to its
customer for the bill stock, forms and envelopes are not subject to sales or compensating use tax.
However, if Petitioner transfers such materials to a customer in connection with a taxable retail sale
of tangible personal property, as described below in Item (2), Petitioner’s receipts from its customer
would be taxable receipts under the definition of "receipt" provided in Section 1101(b)(3) of the Tax
Law and Section 526.5(e) of the Sales and Use Tax Regulations; and Petitioner may purchase such
materials for resale.
With regard to Item (2), Petitioner generates reports, microfiche, tapes, etc. for use by its
customers in evaluating account and billing information. The reports are generated from information
Petitioner develops and to which Petitioner alone has access, and are customized to each customer’s
needs. Petitioner is prohibited from incorporating this information into reports for outside parties
pursuant to the long-term written agreements Petitioner has with each of its customers. Such
management reports which are personal and individual in nature and which are not or may not be
substantially incorporated in reports furnished to other persons are not subject to sales tax
(Cincinnati Bell Information Systems, supra). However, if Petitioner supplies additional copies to
its customer, separate and apart from the sale of the billing services, whether such copies are
prepared by rerunning or continuous running of the same computer program or by duplicating onto
a medium different from the original, e.g., microfiche or tapes, all charges for such additional copies,
including delivery charges and expenses, are subject to sales and compensating use taxes under
Sections 1105(a) and 1110(a) of the Tax Law, when Petitioner supplies the medium for the copies
(see EMCON, supra; Northeastern Computer Services, Inc., supra).
Concerning Item (3), when Petitioner makes a nontaxable sale as described in Item (1) above,
the amount charged to its customers, including reimbursed expenses for handling, freight and/or
delivery, is not subject to tax. On the other hand, when Petitioner makes a taxable sale as described
in Item (2) above, amounts attributable to reimbursed expenses are includable as taxable receipts,
under the definition of "receipt" provided in Section 1101(b)(3) of the Tax Law and Section 526.5(e)

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of the Sales and Use Tax Regulations (see STS Systems, Ltd., Adv Op Comm T&F, November 5,
1998, TSB-A-98(73)S; Salomon & Leitgeb, CPA’s, LLP, Adv Op Comm T&F, July 23, 1997,
TSB-A-97(44)S).
With regard to Item (4), Petitioner’s charges for stuffing envelopes and postage
reimbursement on mailings both into and outside of New York State in connection with its billing
services are not subject to tax. However, all such charges made in conjunction with the taxable sale
of additional report copies mailed into New York, as described in Item (2), are subject to tax.

DATED: July 27, 1999

NOTE:

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

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