The New York State Department of Taxation and Finance issued an advisory opinion regarding whether three different financial advice services are subject to New York sales and use tax. Section 1105(c)(1) of the New York Tax Law imposes sales tax on receipts from the “furnishing of information” by printed matter, including the collection, compilation, or analysis of information of any kind or nature and furnishing reports on the same. However, the statute excludes from the scope of “furnishing of information”: 

  1. Information that is personal or individual in nature; and 
  2. Information that is not or may not be substantially incorporated into reports furnished to others.

New York courts have further qualified the first criterion by requiring that an information service be “uniquely” personal or individual in nature.

The Department of Taxation and Finance addressed the provision of pricing information associated with derivatives (referred to as “Service P”). To facilitate this service, information is first purchased and gathered from various public and private sources, stored in a confidential database, culled and refined, and later combined using proprietary and confidential algorithms. The second service (“Service R”) relies on the same proprietary and confidential algorithms and database as Service P, but it also involves providing clients with independent valuations determined by the provider’s experts. The advice provided is unique to the requesting client, and it is neither stored nor reused. The third service (“Service V”) involves providing mark-to-market data, the subject and extent of which depends on the type of financial product and the needs of a specific client. Service V relies on the same proprietary and confidential algorithms and database as Services P and R, but the service depends heavily on the technical skills and judgment of the provider’s experts. Service V may include developing strategies for valuing financial products, revaluing financial products or generating data when available data is otherwise insufficient or nonexistent, and providing follow-up analysis.

The Department determined that Service P is a taxable information service because it fails to meet the exception criteria under Tax Law § 1105(c)(1). With respect to the first criterion, the information provided as part of Service P comes from a common database. Perhaps more importantly, the information archived in the database comes from both private and public sources; public information is neither personal nor individual in nature. With respect to the second criterion, the information provided is substantially incorporated in reports furnished to other clients because it is based on the same proprietary formulas and database.

The Department determined that Services R and V are not taxable information services and are not within the list of other enumerated services subject to sales and use tax. While these services bear some similarities to Service P, they require the substantial involvement of the provider’s experts. The Department determined that Services R and V are more akin to non-taxable consulting services because the provider’s experts apply their skills, experience, and judgment in providing the services.

This Advisory Opinion is the latest demonstration of the shift in the Department’s treatment of the taxability of financial advice services, a process that started with Advisory Opinion TSB-M-10(7)S issued on July 19, 2010.