The New York sales and use tax is imposed on the provision of information services but not where the information services are "personal or individual" in nature. The scope of that important exclusion as it pertains to Internet-based products provided to the hotel industry was the subject of a recently released Advisory Opinion issued by the Department of Taxation and Finance. Advisory Opinion, TSB-A-16(26)S (N.Y.S. Dep't of Taxation & Fin., Aug. 31, 2016, released Oct. 6, 2016).

Facts. The company in question is in the business of providing to clients in the hotel industry online access to a database maintained by the company, which is used by hotels to facilitate marketing and sales. The company asked the Department whether sales tax applied to the following products offered to its hotel clients:

Product A. Clients are provided with online access to a database consisting of hotel reviews pertaining to that hotel culled from over 60 hotel review websites. This online access to clients includes (i) average ratings given by guests in the hotel reviews; (ii) a comparison of the hotel's ratings with those of its competitors; (iii) numeric ratings provided by the company to such subjects as rooms, service, and cleanliness; and (iv) reports containing information taken from the reviews, along with tools for responding online to individual reviews.

Product B. Like Product A, clients are provided with online access to a database, but the information contained in the database is instead derived from survey questions prepared by the company and sent to the hotel's guests after they have completed their stay at the hotel.

Product C. This product is similar to Product B in that it involves the collection of survey information from a hotel's guests, but the survey information is obtained from guests using iPads provided by the hotel client to the guest.

Product D. This product includes each of the three above-described products.

Ruling. The Department first ruled that although each product has several components, their "predominant element" (i.e., the "true object") is the creation of an information database pertinent to the customers' business. Since the company does this by collecting, processing, and analyzing information, the Department concluded that each product involves the furnishing of information services for sales tax purposes.

It was then necessary for the Department to determine whether the information services were "personal or individual in nature." The furnishing of information that is personal or individual in nature, and which may not be substantially incorporated in reports furnished to other persons, is excluded from sales tax under Tax Law 1105(c)(1).

The Department ruled that Product A which offered information derived from what were presumably publicly available websites did not qualify as personal or individual in nature, and it was therefore subject to sales tax because it was derived from common and widely accessible sources. It did not matter to the Department that the reports, screens, and displays were tailored to the customer's specific needs or requests. The Department distinguished these facts from those in Westwood Pharmaceuticals, Inc. v. Chu, 164 A.D.2d 462 (4th Dep't 1990), where the Fourth Department held that marketing reports prepared by A.C. Nielsen Company for a health and beauty products manufacturer were personal or individual in nature, and thus they were not subject to sales tax. The Department noted that, in Westwood Pharmaceuticals, "most of the raw data" collected and used by A.C. Nielsen to provide information to the customer was derived from the customer itself, which the Department considered a material factual difference.

On the other hand, the Department concluded that Products B and C, which involved the furnishing of information obtained from surveys of the hotel's own guests, did qualify for the "personal or individual" exclusion from sales tax so long as the information collected for Products B and C is not provided to other customers or compiled for later use in providing information to other customers. As for Product D, which includes all three other products, both taxable and nontaxable, if the charges for each product are separately stated in the customer's statement and are reasonable in relation to the entire charge, then sales tax will only be imposed on the separately stated charge for Product A.

Additional Insights

The Advisory Opinion reflects the Department's consistent, but narrow, view regarding the scope of the personal or individual exclusion. The Department distinguished the Westwood Pharmaceuticals decision permitting the "personal or individual" exclusion on the basis that most of the raw data obtained by the vendor came from its clients. The Department did not address the Fourth Department's conclusion in Westwood Pharmaceuticals that the most important consideration was that the vendor had created a separate "sample frame" for each client that was never disclosed to any client or used in market reports furnished to other clients, and thus was "unique to each client," which consideration does not depend on the source of the information.

Recently, the scope of the personal or individual exclusion from sales tax was the subject of the Tax Appeals Tribunal decision in Matter of Wegmans Food Markets, Inc., DTA No. 825347 (N.Y.S. Tax App. Trib., Mar. 10, 2016), which held that the furnishing of retail grocery store pricing information reports, although not made available to other clients, did not qualify as personal or individual in nature. Wegmans has filed an Article 78 petition with the Third Department contesting the Tribunal's decision, so further clarification of the scope of the exclusion may be forthcoming.