New York Rulings on Taxability of Information Services Highlight Importance of Facts in Determining Sales Tax Applicability

Two New York decisions showcase how particular details of a company’s products and services can influence their taxability under the same law.

By Jeff Weinkle, SALT manager

When it comes to the application of sales tax, state laws can be particular, and each company’s specific facts are important to making the correct determination. New York recently published two decisions on the sales taxability of certain information services; the first was a Tax Appeals Tribunal decision on March 3, 2016, and the second was an advisory opinion issued on Feb. 22, 2016. [1] These rulings are great examples of how taxability determinations can be very fact-specific to a taxpayer’s services.

To provide some background, both decisions center on New York’s sales tax law regarding the taxability of information services. [2] New York’s law, which is similar to laws followed by several other states that tax information services, provides that the service of furnishing information to a customer is taxable unless that information is personal or individual in nature and cannot be substantially incorporated into reports for other customers.

In the New York Tax Tribunal Matter of RetailData, the Tribunal ruled that the company’s pricing information services are taxable information services. RetailData provided “competitive price audits” for retailers, which primarily involve the collection of specific product information requested by the client at retailers identified by that client. The company then collects this data by sending personnel to physically scan products at retail establishments. This data is then interpreted by the company, and reports on the pricing data are issued to its customers.

RetailData argued that its reports are not taxable as information services since the resulting reports are individual in nature with respect to each of their clients. The reports are customized to the client in content and format and are not resold, and no significant portion is reused for other clients.

The Tribunal disagreed and determined the services were taxable. The personal or individual exclusion for information services refers to uniquely personal information, and since the pricing information obtained by RetailData is obtained from products on the shelves of businesses open to the public, there is nothing uniquely personal about the prices of these items. [3] In other words, the information was not considered personal, despite the reports being unique to customers, since New York’s interpretation of the term “personal” meant that the data could not come from a source that was unrestricted and widely accessible.

In New York Tax Advisory Opinion TSB-A-16(3)S, the Department of Taxation ruled that a company’s web analytics services are nontaxable information services. The anonymous company requesting this opinion sells a web analytics product that is embedded into a customer’s website. This product tracks data related to visitors’ use of the website, which is then analyzed by the company and reported to the customer. As part of these reports, customers receive anonymized data of other customers of the company in the form of benchmark statistics.

The Department of Taxation ultimately considered these services to be exempt information services. The reports predominantly include data from an individual customer’s website unique to that customer, and the Department of Taxation determined that this was personal in nature and not substantially incorporated into other customers’ reports. With respect to the benchmark statistics, even though information services are considered taxable when the information is or may be substantially incorporated into reports furnished to other customers, the benchmarking data was determined to be a de minimis part of the overall information provided and therefore did not make the entire service taxable.

The analyses of these two services under the same sales tax law for information services show how the particular details of a company’s products or services are important for making an accurate determination of whether they are subject to sales tax. In nearly all states, sellers are liable for uncollected sales tax so the determination of the taxability of a company’s products and services must be examined carefully. Aprio’s SALT Team is experienced at assisting service providers in determining if they should be collecting and remitting sales and use tax.

Contact Jeff Weinkle, SALT manager, at jeff.weinkle@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 April 2016 SALT Newsletter. To view the newsletter, click here.

[1] Matter of RetailData, LLC, DTA No. 825334 (March 3, 2016), and New York Tax Advisory Opinion TSB-A-16(3)S, Feb. 22, 2016.

[2] NY Tax Law §1105(c)(1). Information service is defined as “the furnishing of information by printed, mimeographed or multigraphed matter or by duplicating written or printed matter in any other manner, including the services of collecting, compiling or analyzing information of any kind or nature and furnishing reports thereof to other persons, but excluding 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 other persons, and excluding the services of advertising or other agents, or other persons acting in a representative capacity, and information services used by newspapers, electronic news services, radio broadcasters and television broadcasters in the collection and dissemination of news, and excluding meteorological services.”

[3] This determination was initially made in Matter of Allstate Ins. Co. v State Tax Comm., 1985. In that case, motor vehicle reports were not considered personal or individual in nature because there was unlimited public access.

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.

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