Is a company's stock-benefit-plan administration and reporting service subject to New York sales tax, and can it get a refund for the paper it uses to print reports that get mailed to out-of-state recipients?

Plain-English summary

Harry Schlachter asked on behalf of a client that provides independent stock benefit plan administration -- developing and adopting stock option, employee stock purchase, and gift/restricted stock plans, coordinating SEC filings with attorneys, helping draft descriptive materials, administering the plans, and issuing periodic reports both company-wide and to individual employees about their own plan activity. Those reports are confidential and never shared with other clients or employees.

New York's sales tax reaches specific, enumerated services only -- everything else falls outside the tax entirely. The Department found that administering stock plans and issuing the related periodic reports simply isn't on that enumerated list, so the client's core service is not subject to sales tax at all.

That untaxed-service finding, though, doesn't extend to the company's own supplies. Because the underlying service isn't taxable, the paper the company buys to print its stock reports is treated as an ordinary retail purchase for its own use -- fully taxable at purchase. The company hoped a refund might apply to at least the portion of paper used for reports mailed to recipients outside New York, pointing to provisions that refund tax on property whose New York use is limited to bulk storage before out-of-state reshipment, or to fabricating/processing/printing before shipment outside the state. The Department rejected that argument: those refund provisions require that the property's entire in-state use be restricted to storage or the listed production steps before leaving the state. Here, the paper isn't just being stored or processed before shipment -- it's the actual medium used to perform and deliver the underlying administration service to the client's own customers. Because the paper's in-state use goes beyond the narrow categories the refund covers, no refund is available for any portion of it, regardless of where the finished reports are ultimately mailed.

What this means for you

Financial administration, plan-management, and back-office service providers

Genuinely non-enumerated back-office and administrative services -- like stock plan administration and its associated reporting -- stay outside New York sales tax entirely. But don't assume the tax-free status of your service extends to your own operating supplies; printing, mailing, and similar materials you buy to perform (rather than resell) the service are ordinary taxable purchases.

Companies hoping to claim an out-of-state-shipment refund on printed materials

The refund for property shipped out of state after storage or basic production steps is narrower than it sounds -- it doesn't cover materials that are actually used to perform or deliver a service, even if the finished product (like a mailed report) ends up outside New York. The relevant question is what the property does while it's still in New York, not where the end product finally lands.

Accountants and tax professionals

This is a useful example of the enumerated-services principle paired with a common refund-provision misunderstanding: a nontaxable service doesn't make the provider's own material purchases nontaxable, and a materials-refund provision aimed at storage/fabrication doesn't stretch to cover materials consumed in actually rendering a service.

Common questions

Q: Is administering an employee stock plan a taxable service in New York?
A: No -- it's not among New York's specifically enumerated taxable services, so the administration fee and related reporting service are untaxed.

Q: If the service is untaxed, are the supplies used to perform it also untaxed?
A: Not automatically -- the company's own purchases of paper (or similar operating supplies) used to perform a nontaxable service are still ordinary taxable purchases for its own use.

Q: Can a company get a refund for materials used to produce reports mailed out of state?
A: Only if the material's entire in-state use is limited to storage or specific production steps (fabricating, processing, printing) before shipment out of state -- materials actually used to perform and deliver a service don't qualify, regardless of the final mailing destination.

Citations and references

Statutes and regulations:

• 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 § 1119(a)(2), (4) (refunds for bulk-storage reshipment and fabricate/print-then-ship-out)
• 20 NYCRR § 534.3 (refunds and credits based on certain uses)

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_41s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-99(41)S
Sales Tax
September 23, 1999

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S990504B

On May 4, 1999, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Harry Schlachter, 6201 Fifteenth Avenue, Brooklyn, New York 11219.
The issues raised by Petitioner, Harry Schlachter, are:
1) Whether the administration of a stock plan as described below is subject to sales tax.
2) Whether the purchase of paper used to produce reports in connection with the stock plan
is subject to sales tax.
3) If the purchase of paper is subject to sales tax, whether Petitioner is eligible for a refund
of the sales tax paid on that portion of the paper sent outside of New York State.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner has a client that is an independent provider of stock benefit plan administration
services. It offers complete administration of stock option, employee stock purchase and gift and
restricted stock plans. The services include, but are not limited to, developing and adopting the
plans, coordinating with attorneys to assure quick filing with the SEC, assisting in the development
of descriptive materials, administering the plans, recording of plan information and issuing of
periodic reports to its corporate clients and its clients’ employees. The reports detail plan activity
on a company-wide basis, and, in the case of reports issued to employees, cover transactions of the
employee under the plan. The information in these reports is confidential and is not furnished to
other corporate clients or employees.
Petitioner submitted sample service agreements entered into by its client.
Applicable Law & Regulations
Section 1101(b)(4) of the Tax Law defines, in part, a retail sale as follows:
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 of the

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TSB-A-99(41)S
Sales Tax
September 23, 1999

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 a tax upon, "[T]he receipts from every retail sale
of tangible personal property, except as otherwise provided in this article."
Section 1119(a) of the Tax Law provides, in part:
Subject to the conditions and limitations provided for herein, a refund or
credit shall be allowed for a tax paid pursuant to subdivision (a) of section eleven
hundred five or eleven hundred ten . . . (2) on the sale or use of tangible personal
property purchased in bulk, or any portion thereof, which is stored and not used by
the purchaser or user within this state if that property is subsequently reshipped by
such purchaser or user to a point outside this state for use outside this state . . . (4) on
the sale or use within this state of tangible personal property, not purchased for
resale, if the use of such property in this state is restricted to fabricating such property
(including incorporating it into or assembling it with other tangible personal
property), processing, printing or imprinting such property and such property is then
shipped to a point outside this state for use outside this state . . . .
Section 534.3 of the Sales and Use Tax Regulations provides, in part:
Refunds and Credits Based on Certain Uses. (Tax Law, Sec. 1119(a)). (a)
Authorization. Where a sales or compensating use tax has been correctly, legally,
and constitutionally imposed and paid on the purchase of tangible personal property,
a refund or credit of State and local taxes paid pursuant to subdivision (a) of section
1105 or section 1110 of the Tax Law on the sale or use will be allowed to the
purchaser or user when, to the satisfaction of the Department of Taxation and
Finance, the purchaser shows that such tangible personal property was used in one
of the following manners:
*

*

*

(2) the tangible personal property was purchased in bulk, or any portion
thereof, stored in New York State and not otherwise used in New York State by the
purchaser or user, but was reshipped to a point outside New York by such purchaser
or user for use outside of New York State . . .
*

*

*

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Sales Tax
September 23, 1999

(4) the tangible personal property was not purchased for resale, but its use in
this state was restricted to fabricating (including incorporating it into or assembling
it with other tangible personal property), processing, printing, or imprinting such
property, and such property was shipped outside of this State for use outside of this
State (see subdivision (e) of this section) . . . .
Opinion
While Article 28 of the Tax Law imposes the sales and compensating use tax upon the sale
of all tangible personal property with certain exceptions, it only imposes a tax on certain specifically
enumerated services. See Section 1105(c) of the Tax Law. The administration of stock plans and
issuing of periodic reports respecting such stock plans, as described above, are not specified taxable
services and, therefore, are not subject to sales tax.
Since the services rendered by Petitioner’s client are not taxable, purchases of paper used by
Petitioner’s client to print its stock reports are retail purchases subject to tax under Section 1105(a)
of the Tax Law. Refunds under Section 1119(a)(2) or (4) of the Tax Law are limited to sales or use
tax paid on property the use of which is restricted to storing, fabricating, processing, printing or
imprinting, prior to the property being shipped outside New York. Petitioner’s client does not use
the paper in the manner specified above, but, uses the paper to perform the services described above
for its customers. Therefore, Petitioner’s client is not eligible for a refund of sales tax paid on any
portion of its purchases of paper for use in printing the stock reports.

DATED: September 23, 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.