The Department of Taxation and Finance has ruled that the sale of customized business analytics reports prepared using the customer’s own data is not subject to New York State sales or use tax. Advisory Opinion, TSB-A-12(24)S (N.Y.S. Dep’t of Taxation & Fin., Sept. 27, 2012). The Department concluded that the information was personal and individual in nature, and included only a de minimis amount of publicly available data. The Department also ruled that the customer’s limited use of the seller’s self-created software was part of the overall information service being provided, and was not itself subject to sales tax.

The seller is an Australian company that provides customized business analytics reports to its customers over the Internet. Those reports are prepared by gathering data from a customer’s own payroll, human resources, and other business systems. At the customer’s request, the seller, at no additional charge, includes a de minimis amount of data from public sources, such as average industry statistics, so that the customer can compare its own data with a benchmark. The seller uses its own selfwritten proprietary software to prepare the reports. The seller has no offices in New York State, and its proprietary software was never transferred into New York.

In general, services consisting of “compiling or analyzing information of any kind or nature and furnishing reports thereof to other persons” are subject to sales under Tax Law § 1105(c)(1). However, § 1105(c)(1) contains an exclusion from the sales tax for “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. . . .” At issue was the taxability of the information services and related software.

The Department concluded that although the gathering of data from its customers’ data systems, the mapping of that data, and the use of that data to create customizable reports constituted a taxable information service under Tax Law § 1105(c)(1), the seller’s information services were personal and individual to the customer, and the seller could not furnish the reports to anyone else. Accordingly, the Department ruled that the information services fell under the exclusion from sales tax for personal information not furnished to other persons. The Department also noted that, so long as the amount of public benchmarking statistics in some of the reports was de minimis, it would not cause the seller to lose the exclusion. However, if it was more than de minimis, then the entire information service would be taxable.

The Department also addressed whether the seller’s own use of its proprietary software to pull, integrate, and analyze data from its customers’ systems was subject to sales or use tax, and concluded that such use was not. First, pursuant to Tax Law § 1110(a)(B), the seller’s use of its own specialized software was not subject to tax because it wrote the software itself. The Department noted that, although the software was not sold to the seller’s customers, the ability of New York customers to customize their reports using the software had some of attributes of use of the software in New York, and therefore the transaction could be considered a sale subject to tax. However, the Department concluded that because the customer’s use of the software was limited to parameters set by the seller, and was a single aspect of a more comprehensive service that was integrally related to the overall service being provided, the transaction constituted the sale of an information service subject to the exclusion from tax and not the taxable sale of computer software.

Additional Insights. The Advisory Opinion is noteworthy because the Department found that the use of the seller’s software was not a taxable sale, in part because the use was integrally related to the overall service provided by the seller, and was limited. This result seems correct and in keeping with the general rule that a small and incidental part of a service transaction that is integrally related to the overall service being provided will not be taxed separately and apart from the service transaction itself.