The New York State Department of Taxation and Finance has advised that the provision of data mined from the Internet to advertisers is the provision of a taxable information service and is not exempt as “personal or individual in nature.” Advisory Opinion, TSB-A-16(18) (S) (N.Y.S. Dep’t of Taxation & Fin., May 5, 2016).

Facts. The Petitioner provides a service that makes information about groups of individual Internet users available to its customers, who then provide advertisements to each individual user in the group. The Petitioner collects data by paying chosen sets of websites to place a small piece of computer code, known as an HTML tag, on selected pages, each of which generates a “cookie” when a user interacts with that website. That cookie collects data about the website and the “EndUsers,” and becomes associated with an End-User’s Internet browser so it can continue to collect new information about subsequent behavior of the End-User as he or she travels to other websites. 

The Petitioner collects and generates specific and unique data about the Internet usage of the End-Users and segments the data into a useable format for its customers. All segments are created specifically for advertisers to target with advertising. Petitioner’s customers then make the segments available to their clients for ad targeting. Each customer can select its mix of segments, and, potentially, each customer could receive a different mix of data. The segments are created exclusively by Petitioner, but approximately 5% come from offline data providers, collected from a source other than on the Internet or any other digital source, such as data collecting by TV ratings companies about viewing habits.

Petitioner’s customers use the service to deliver targeted online advertisements gathered via cookies about EndUsers’ visits to websites. The cookies and the data have variable useful lives and decrease in value over time, so up-to-date information is most valuable to Petitioner’s customers. For example, hotels may want to reach an End-User who has purchased an airplane ticket as quickly as possible, so it is important that information about the End-User be promptly available. Petitioner generates information gathered via hundreds of billions of cookies each month. 

Advisory Opinion. Without any discussion or analysis, the Department concluded that Petitioner’s service is a taxable information service under Tax Law § 1105(c)(1), which imposes sales tax on receipts from the service of “furnishing [ ] information …. including the services of collecting, compiling, or analyzing information of any kind or nature and furnishing reports thereof….” It then also concluded that Petitioner’s service was not exempt as “personal or individual in nature” and not “substantially incorporated in reports furnished to other persons,” because the information is not “‘uniquely personal.’” In reliance on cases such as Allstate Ins. Co. v. Tax Comm’n, 115 A.D. 2d 831 (3d Dep’t 1985), and Matter of ADP Collision Estimating Services, Inc., DTA No. 804973 (N.Y.S. Tax App Trib., Aug. 8, 1991), the Department found that information is not “uniquely personal or individual in nature” if it comes from a common source that is not itself confidential. Since most of the information about End-Users was collected by Petitioner from providers who can sell the same information to others, the information was found not to be uniquely personal, even though no two customers will get exactly the same information, with the Department noting that, even where it was found to be a “virtual mathematical impossibility” for customers to receive duplicate information, the service was held by the courts to be insufficiently personal or individual to be exempt. Rich Products Corp. v. Chu, 132 A.D.2d 175, 177 (3d Dep’t 1987).

Additional Insights

This Advisory Opinion is consistent with the increasingly narrow parameters that have been drawn by the courts and the State Tax Appeals Tribunal on the category of information that will be regarded as personal or individual in nature. Although not mentioned in the Advisory Opinion, two decisions issued just a few months ago by the Tribunal held that, as long as the source of the information being furnished is publicly available, it does not matter that the data was not obtained from a common database or that it was not substantially incorporated into reports furnished to other customers. Matter of RetailData, LLC, DTA No. 825334 (N.Y.S. Tax App. Trib., Mar. 3, 2016); Matter of Wegmans Food Markets, Inc., DTA No. 825347 (N.Y.S. Tax App. Trib., Mar. 10, 2016) (see discussion in the April issue of New York Tax Insights).