A taxpayer’s services to measure the effectiveness of advertising were subject to New York sales and use tax since they qualify as taxable information services. The taxpayer measures advertising effectiveness by surveying consumers or internet users who have and have not seen an advertisement that it is testing, compares and analyzes the results, and informs its clients as to how well the ad performed and how they can improve performance. The taxpayer is not an advertiser or an advertising agency. The taxpayer’s clients may furnish the data and information collected by the taxpayer in their own reports to the public and their clients.
The taxpayer argued that its primary function is to provide consulting services. However, the Administrative Law Judge (ALJ) in the case found that its primary function is to collect information regarding the effectiveness of its clients’ advertising by conducting surveys, analyze that information, and furnish that information and analysis to its clients via reports. The ALJ noted that collecting, compiling and analyzing information is the essence of an information service, and product and marketing surveys are specifically listed as an example of an information service in the tax regulations. The ALJ went on to note that “The information collected by petitioner is integral to its function, and without the collected data, petitioner would have nothing to analyze and report to its clients.”
The ALJ next examined whether the taxpayer’s services fall within the tax regulation’s exclusion for “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.” The ALJ found that the source of the information was personal and individual in nature. However, the taxpayer’s clients may furnish the data and information collected through the taxpayer’s services in their own reports to the public and its clients. The taxpayer’s contract shows that the information obtained may be substantially incorporated into reports furnished to others. As a result, the exclusion does not apply, and the services are taxable as information services. (Dynamic Logic, INC., New York Division of Tax Appeals, Administrative Law Judge Unit, DTA No. 828619, January 14, 2021)