Are an internet risk-management education platform, and separate market-risk and credit-risk analysis/forecasting services sold to financial professionals, subject to New York sales tax?

Plain-English summary

Deloitte & Touche asked this question on behalf of an unnamed financial-technology client (referred to only as "the Company") that runs three distinct offerings. First, an internet-based interactive educational program teaching risk-management methodology to corporate and academic students, with online courses and exercises that tutors score and provide feedback on, plus monitored online discussions. Second, a market risk analysis and forecasting service for sophisticated financial clients: customers download Company-provided software (of no independent value on its own, just an access tool), enter their private portfolio data online, and receive statistical forecasts of the probability distribution of their portfolio's value over time -- an integrated package of software, historical market data (also available from other vendors, but incidental here), and forecasting analysis, updated daily. Third, an analogous credit risk analysis and forecasting service using historical default-rate data to forecast a client's exposure to counterparty default risk. Clients also receive free supporting publications, never sold separately and given away to anyone who asks.

New York's sales tax reaches only services specifically enumerated in the statute, plus retail sales of tangible personal property. The Department found none of the Company's three services fits: interactive educational services aren't on the enumerated list regardless of delivery format; the market risk analysis and forecasting service is, at its core, an electronic financial consulting service -- also not enumerated; and the credit risk analysis and forecasting service is analyzed the same way. As a result, the Company isn't required to collect sales tax on any of the three offerings.

Note on this ruling's later history: the facts here are identical, word for word, to a follow-up ruling issued about seven weeks later under the client's own name, TSB-A-00(2)S (The RiskMetrics Group LLC) -- confirming "the Company" in this redacted opinion is RiskMetrics. This ruling was also cited as controlling precedent in the same year's TSB-A-00(9)S (Measurisk, LLC), a similar portfolio-risk-analysis ruling.

What this means for you

Financial risk-management, analytics, and fintech platforms

Genuine financial consulting/advisory services -- portfolio risk analysis, credit risk forecasting, and similar sophisticated financial modeling -- generally sit outside New York's enumerated taxable-service categories, even when delivered through required proprietary software and updated with daily market data.

Online education and training providers

Interactive, internet-delivered educational courses -- including graded exercises and tutor feedback -- aren't a taxable service in New York regardless of the delivery medium, following the same "enumerated services only" principle.

Accountants and tax professionals

Because this ruling was requested through counsel (Deloitte & Touche) on an anonymized basis, it's a useful example of how the Department's redacted opinions can later surface under the actual taxpayer's name -- compare this ruling word-for-word against TSB-A-00(2)S if you need the named-party version for citation purposes.

Common questions

Q: Are all internet-delivered financial services exempt from sales tax in New York?
A: Not automatically -- it depends on whether the specific service matches one of the statute's enumerated taxable categories. Genuine financial consulting/analysis and educational services generally don't.

Q: Does bundling free publications with the risk-analysis service change the tax treatment?
A: Not here -- the publications are incidental to the main analysis service, never sold separately, and given away even to non-clients, so they don't introduce a separate taxable transaction.

Q: Can another company rely on this ruling?
A: No. It binds the Department only as to this petitioner's facts. Other providers should confirm their own services are genuinely consulting/analysis in character and not structured in a way that matches a different enumerated taxable category.

Citations and references

Statutes:

• Tax Law § 1105(a) (tax on retail sales of tangible personal property)
• Tax Law § 1105(c) (tax on enumerated taxable services)

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_58s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-99(58)S
Sales Tax
December 3, 1999

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S990209A

On February 9, 1999, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Deloitte & Touche LLP, Two World Financial Center, New York, New York
10281-1414. Petitioner, Deloitte & Touche LLP, submitted additional information with respect to
the Petition on March 15, 1999, June 30, 1999, October 4, 1999 and October 6, 1999.
The issues raised by Petitioner are:
(1) Whether the interactive educational services provided by Petitioner's client, (the
“Company”), are subject to sales and compensating use tax.
(2) Whether the market risk management analysis and forecasting services provided by the
Company to clients are subject to sales and use tax.
(3) Whether the credit risk management analysis and forecasting services provided by the
Company to clients are subject to sales and use tax.
Petitioner submits the following facts as the basis for this Advisory Opinion.
The Company provides interactive educational services via an Internet web site to students
from both the corporate and academic worlds. The courses and exercises are designed to train
students in the field of risk management, particularly in understanding the methodologies and
techniques of risk quantification. Students are able to take courses and perform exercises
interactively online. The Company’s tutors score the exercises and provide timely feedback to the
students. Furthermore, the tutors also respond to questions and monitor online discussions among
the students concerning different risk management techniques.
As its principal service the Company provides, for an annual fee, risk management analysis
and forecasting services to its clients. The Company provides its clients with an integrated service
of analysis and forecasting of the risk associated with their portfolios of positions in financial
instruments (the "market risk analysis and forecasting service") or their assumption of credit risk in
their business or investment activities ( the "credit risk analysis and forecasting service"). The
clients are typically high-level, technically sophisticated financial professionals. The analysis
provided by the Company is used for management information and reporting purposes, setting limits
with regard to risk tolerance, allocation of resources, performance evaluation of investment
portfolios and meeting of current and future regulatory reporting requirements.

-2­
TSB-A-99(58)S
Sales Tax
December 3, 1999

Specifically, the Company’s market risk analysis and forecasting service works as follows.
Initially, clients must download software provided by the Company. The software is provided via
CD-ROM. This software is of no value in itself but is necessary to access the Company’s on-line
services. Clients also receive a password which enables them to connect to the Company’s Internet
website. Clients enter private portfolio data online into Company’s server. The service then utilizes
statistical modeling techniques to forecast various measures of the probability distribution of the
value of that portfolio over time in order to measure the risk associated with that portfolio. The
forecasts are based on the Company’s forecast of the probability distribution of various financial
time series whose value is highly correlated with the value of the portfolio, and the forecasts are
updated daily as new data become available. Further, the service permits the client to display various
measures of the risk associated with the portfolio in a format accessible to client management and
government regulators.
The Company’s service is an integrated analysis of portfolio risk that includes software,
historical data and forecasting services. The historical financial data provided to subscribers are
commonly available through other vendors of financial information, and such data sets are incidental
to the basic analysis used in connection with the Company’s software to make forecasts of the
probability distributions of various time series. These forecasts are the basis for the Company’s
analysis of the risk characteristics of the client's portfolio.
In addition to the market risk analysis and forecasting service described above, the Company
provides a credit risk analysis and forecasting service that is designed for analyzing and forecasting
credit risk by electronic format or through interactive Internet exchange. Similar to the market risk
service described above, the Company’s credit risk analysis service utilizes historical data on default
rates of various types of entities to forecast the probability distribution of future default rates. These
forecasts are used to analyze the credit risk exposure of a client whose business or investment
activities expose it to credit risk. In other respects, the credit risk analysis service is similar to the
market risk analysis service, the difference being that the credit risk analysis service deals with
analysis of credit risk from entities that may default on obligations. The market risk analysis service
deals with analysis of market risk arising from changes in the market price of positions in financial
instruments.
Clients also receive publications prepared by the Company that assist them in using the
services and that keep them up to date with developments in the field of risk management analysis.
There is no additional or separately stated fee for these publications, and they are provided incidental
to the Company’s integrated risk analysis. It would be unusual for a client to buy the Company’s
service unless it had a specific portfolio whose risk characteristics it wanted to analyze. The
publications are never sold separately. In fact, they are given away free of charge, upon request by
any non-clients of the Company.

-3­
TSB-A-99(58)S
Sales Tax
December 3, 1999
Applicable Law
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:
(a) The receipts from every retail sale of tangible personal property, except
as otherwise provided in this article....
Section 1105(c) of the Tax Law imposes the sales tax upon the receipts from every sale,
except for resale, of certain enumerated services.
Opinion
Issue #1
The Company provides interactive educational services in the field of risk management via
the Internet. Educational services, whether or not provided in an interactive format over the Internet,
are not among the services enumerated as taxable under Section 1105(c) of the Tax Law.
Accordingly, the Company is not required to collect sales tax on charges for Internet educational
services.
Issue #2
The Company’s market risk analysis and forecasting service is an integrated service of
analysis and forecasting of the risks associated with their client’s position in financial instruments.
Such service, in essence, is an electronic financial consulting service, which is not one of the services
enumerated as taxable under Section 1105(c) of the Tax Law. Accordingly, the Company is not
required to collect sales tax on charges to its clients for the market risk analysis and forecasting
service.
Issue #3
The Company’s credit risk analysis and forecasting service provides the service of analyzing
and forecasting its client’s credit risk. Such service is not one of the services enumerated as taxable

-4­
TSB-A-99(58)S
Sales Tax
December 3, 1999

under Section 1105(c) of the Tax Law. Accordingly, the Company is not required to collect sales
tax on charges to its clients for the credit risk analysis and forecasting service.

DATED: December 3, 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.