The Appellate Division, Third Department, of the state of New York has upheld a Tax Appeals Tribunal Ruling that a business that creates and provides recommendations based on data from advertising campaigns is providing taxable information services. The Appellate Division maintained the lower court’s ruling that the services of consulting provided with the reports did not make the service a nontaxable consulting service and also addressed the question of whether the information services themselves were taxable.
In New York, nontaxable information services are excluded from sales tax if information provided to customers cannot be incorporated in reports furnished to other persons. The company performs its analysis based on surveys about advertising campaigns and incorporates portions of those survey results into their larger database. When subsequent reports are created, this benchmarking data is used to gauge the effectiveness of the customer’s campaign against their industry peers. The courts determined that this meant that the information created in the reports could be incorporated into reports furnished to other persons and was therefore taxable.
The rules about information services in New York, and across many other states, can be tricky to apply to a business model. In this case, the entire reports being generated may not have been able to be reproduced, but because portions of them could, they didn’t fall outside of the state’s definition of taxable services. Taxpayers should examine their products from a state’s perspective to find any ways that their service could be seen as taxable and can pursue options like letter rulings and state guidance if the rules are ambiguous. (Matter of Dynamic Logic, Inc. v. Tax Appeals Tribunal of the State of N.Y., 2024 NY Slip Op 01136, (App. Div.)).