New York Addresses Distinction between Non-Taxable Consulting Services and Taxable Information Services

Oct 22nd, 2012

The New York State Department of Taxation and Finance (DTF) released an advisory opinion confirming that consulting services are not subject to tax when they are distinguishable from taxable information services. N.Y. Advisory Op. of the Commr. of Taxn. and Fin. TSB-A-12(22)S (Aug. 29, 2012).

The party that requested the opinion sells a variety of consulting services, generally on a limited subscription basis. Under such a subscription, the consulting business matches its clients with its group of independent contractor consultants. In turn, the consultants offer the clients guidance ranging from background information on a particular topic to in-depth technical analysis of a discrete issue or subject. The consultants provide this information through oral consultations, custom written research reports, and industry and subject matter specific meetings and seminars.

The consulting business had previously received an advisory opinion from the DTF confirming that its services are distinguishable from information services and, therefore, not subject to tax. See N.Y. Advisory Op. of the Commr. of Taxn. and Fin. TSB-A-08(18)S (Mar. 24, 2008). However, the consulting business requested another advisory opinion because it may also provide its clients with the following additional features:

  1. Its clients may access software (through e-mail or online) to assist in selecting consultants;
  2. It may provide custom written reports detailing the responses of a number of experts to a series of questions developed specifically with the client; or
  3. A customer may separately contract with Petitioner to have an expert draft a written in-depth "special project" custom research report.

Given these additional features and services, the consulting business needed to know whether its offerings were subject to tax.

New York taxes receipts from the service of furnishing information by printed, mimeographed, or multigraphed matter, or by duplicating written or printed matter in any manner. This includes collecting, compiling, or analyzing information of any nature and furnishing reports to other persons. N.Y. Tax Law sec. 1105(c)(1); 20 N.Y. Comp. Codes R. and Regs. 527.3(a). New York also taxes receipts from the service of furnishing information by means of telephony or telegraphy or telephone or telegraph service, but only to the extent it would otherwise be subject to tax if provided in printed form. N.Y. Tax Law sec. 1105(c)(9). However, New York does not tax information services which are personal or individual in nature and which are not or may not be substantially incorporated in reports furnished to other persons. N.Y. Tax Law sec. 1105(c)(1); 20 N.Y. Comp. Codes R. and Regs. 527.3(b)(2). And, charges for information transmitted orally are also excluded from sales tax. See 20 N.Y. Comp. Codes R. and Regs. 527.3(b)(3).

After reviewing the facts presented and a sample contract, the DTF concluded that the consulting business's new offerings do not change the analysis of the consulting business's services: those services are not taxable information services. First, the DTF explained that providing its clients access to software to facilitate the provision of its oral consultation services is not subject to tax. Second, the DTF noted that the written research reports do not constitute a taxable information service, as long as (1) the primary function of consulting business's service is obtaining advice and analysis from consultants, (2) the information provided is not derived from any common data source, and (3) that information is not and may not be substantially incorporated into reports furnished to others.