New York Court Holds that Competitive Price Audits Constitute Taxable Information Services

In applying the “personal and individual” exclusion to otherwise taxable information services, New York’s high court looked to the nature of the information as opposed to the manner in which the service was customized to the purchaser’s specifications.

By Jess Johannesen, SALT Manager

New York is one of a number of states that imposes sales tax on “information services,” which New York statutes define to include “the services of collecting, compiling, or analyzing information of any kind or nature and furnishing reports thereof to other persons.”[1]  Generally, those states provide an exception for information that is personal or individual in nature, and New York’s statute excludes from taxable information service “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 others.”[2]

On June 27, 2019, the New York Court of Appeals (the state’s highest court) issued an opinion in which it determined that the taxpayer’s purchase of information services did not qualify for the personal or individual exclusion.[3]

The case involves Wegmans Food Markets, a regional supermarket chain headquartered in Rochester, NY, with locations in the northeast and mid-Atlantic regions (about half of its stores are in New York).  Wegmans monitors its competitors’ retail prices as part of its own pricing strategy and engages RetailData, LLC to perform competitive price audits (CPAs).  Wegmans selects the products, the period, the competitors and the specific locations that RetailData should surveil.  RetailData then travels to the specified locations and collects information by scanning prices from store shelves.  RetailData validates the information, creates reports, and furnishes the reports to Wegmans, and the CPAs are kept confidential to prevent Wegman’s competitors from discovering the products it monitors.

RetailData did not collect and remit sales tax on its sales to Wegmans.[4]  New York audited Wegmans for sales/use tax and concluded that Wegmans’ purchases of CPAs and the corresponding reports from RetailData were taxable information services.  Wegmans protested the audit determination and the case ultimately made its way to the Court of Appeals.

In its opinion, the Court focused on the fact that the information itself (i.e., the price of products a grocery stores) is publicly available, widely-accessible, and not confidential and could be incorporated into reports furnished to others.  The fact that RetailData customized the report based on Wegman’s selection of the particular products, competitors and locations did not convince the Court that the furnished information was personal or individual in nature.

While this decision is an important reminder for businesses to consider each state’s rules and terminology when determining sales taxability, this decision is also an important reminder about a business’ obligation to self-assess use tax on its purchases.  Purchasers should not assume that just because a seller does not charge sales/use tax that none is due.  Particularly in cases where the seller has nexus with the purchaser’s state and does not collect the tax, the seller may have determined that its product or service was not taxable.  Nonetheless, purchasers must make their own independent taxability determinations since they can be held liable for the tax.

Aprio’s SALT team is experienced at assisting businesses in determining if they should be collecting and remitting (or accruing and self-remitting) sales/use tax.  We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Jess Johannesen, SALT manager, at jess.johannesen@aprio.com or Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at jeff.glickman@aprio.com for more information.

This article was featured in the July 2019 SALT Newsletter.

[1] N.Y. Tax Law § 1105(c)(1).

[2] Id.

[3] In the Matter of Wegmans Food Markets, Inc. v. Tax Appeals Trib. Of New York, NY Court of Appeals, Dkt. No. 56, 06/27/2019.

[4] In Aprio’s April 2016 SALT Newsletter, we wrote about a New York Tax Tribunal Matter in which RetailData, LLC argued that its CPA reports are not taxable information services since the reports are individual in nature with respect to each of their clients.  Please refer to this April 2016 Newsletter article for more information.

Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.