The New York State Tax Appeals Tribunal has affirmed an ALJ decision holding that certain data analysis services performed for members of the financial services industry constituted the furnishing of a taxable information service for sales tax purposes. The decision sheds light on the scope of the important sales tax exclusion for information that is “personal or individual in nature.” Matter of SunGard Securities Fin. LLC, DTA No. 824336 (N.Y.S. Tax App. Trib., Mar. 16, 2015).

Facts. SunGard Securities Finance LLC (“SunGard”) provides consulting and related data processing services to securities broker- dealers, banks, and other financial institutions. The primary focus of the appeal concerned SunGard’s “Lending Pit” service, in which SunGard obtains, compiles, analyzes, processes, and maintains customer trade data on a daily basis. Customers can view their own current data compared to their historical data over a secure Internet connection using SunGard’s proprietary web-based application. Customers also have the ability to view how their data compares with benchmarks formulated by SunGard using data obtained from all SunGard’s customers. The Lending Pit service also incorporates market data from public sources to allow SunGard’s customers to compare their own data to the market data. Data reports are delivered to customers over the Internet, based substantially on the customer’s own data, which is confidential, and those reports are never sold or marketed to other parties. A customer cannot access confidential individual data of other SunGard customers.

SunGard also furnishes to customers an ancillary “Board Reporting” service, which involves the periodic furnishing of a written report to management evaluating the customer’s own lending program, including a comparison with market performance benchmarks. Another component of SunGard’s Lending Pit service, “Performance Analytics,” involves the furnishing of a written report showing customer earnings results compared with the results of other securities lenders in the industry.

ALJ decision. The sales tax is imposed on the furnishing of information services, but not on information that is personal or individual in nature and which may not be substantially incorporated in reports furnished to other customers (the “personal or individual” exclusion). Tax Law § 1105(c)(1). In dispute was whether SunGard was furnishing taxable information services for the period December 1, 2006 through May 31, 2009. At the administrative hearing level, SunGard argued that it was not providing an information service, but that even if it was, the information qualified for the “personal or individual” exclusion. The ALJ held for the Department, concluding that the primary purpose for the Lending Pit service was the furnishing of information, which made it an information service. The ALJ went on to hold that the information did not qualify for the “personal or individual” exclusion because it was available to other customers in aggregate form or through inclusion in various reports. On appeal to the Tribunal, SunGard did not contest that it was providing an information service, but continued to claim that the service qualified for the “personal or individual” exclusion. (The ALJ also held that SunGard’s Smart Loan Service did not involve the taxable sale or licensing of proprietary software, an issue that the Department did not appeal.)

Tribunal decision. The Tribunal affirmed the ALJ’s decision that none of SunGard’s services qualified for the “personal or individual” exclusion for information services. Although SunGard argued that the essential element of the Lending Pit reports was the analysis of each individual client’s portfolio, using the customer’s own data, the Tribunal found that the record contained contradictory evidence, including a SunGard Subscriber Agreement that allowed SunGard to use client data in the aggregate to analyze and distribute information. The Tribunal acknowledged that the reports furnished to clients are based substantially on the customer’s own data, but found that those reports also contained substantial amounts of other information. Moreover, the Tribunal concluded that much of the information in those reports came from SunGard’s own database that SunGard also used to prepare reports for other customers. The Tribunal was even more emphatic regarding the Board Reporting and Performance Analytics services, finding that the evidence indicated that those services involved the furnishing of an analysis based on comparisons to market data generated by SunGard’s own database.

Additional Insights

In its appeal to the Tribunal, SunGard did not dispute that it was providing an information service so that the Tribunal’s focus was on whether SunGard had demonstrated that its customers were only allowed access to their own data. The Tribunal found, however, that SunGard’s customers were also given access to other data, albeit in aggregate form so as not to identify any customer’s individual data in isolation. The Tribunal noted that SunGard did not submit documents into evidence or present testimony that might have explained any discrepancies in the record, although it is not clear that this had a significant impact on the outcome of the case.

Aside from any evidentiary shortcomings, the underpinning of the Tribunal’s decision suggests that the Tribunal will view as taxable the furnishing of financial analysis services that also contain aggregate financial industry information as a yardstick, which would seemingly be a component of any financial analysis. Although not addressed by the Tribunal, the threshold question for similarly-situated taxpayers will continue to be whether the primary function of what is being furnished is an information service or more in the nature of a nontaxable advisory or consulting-type service.