Service Excluded from New York Sales Tax Since It Was Not Furnished to Others
The New York State Tax Appeals Tribunal held that an information service was not subject to sales tax because although the service provider had the right to provide the information to others, it did not have the technical ability to do so. In re Dynamic Logic, Inc. (by Kantar LLC, as successor-in-interest), DTA No. 828619 (N.Y. Tax App. Trib. Jan. 20, 2022).
Facts: Dynamic Logic, Inc. (“Dynamic”) provides various services to its clients that measure the effectiveness of a client’s advertising. One of its services, a “CrossMedia” study, surveys consumers who have viewed an advertisement and analyzes their responses. Dynamic then provides its findings and conclusions to the client.
Dynamic’s clients grant it the right to use the data it collects from all of its services—not limited to its CrossMedia services—in Dynamic’s “MarketNorms” database, a database of anonymized and aggregated results that can be used for benchmarking purposes. Significantly, Dynamic does not include any data that it collects as part of a CrossMedia study in its MarketNorms database as it has not been able to create a database that could be used for benchmarking purposes out of the CrossMedia data.
The Decision: The Tribunal first concluded that the CrossMedia service is an information service since it consists entirely of the evaluation of advertising campaigns through the collection and analysis of information. It then looked to whether the service was excluded from tax as information that is “personal or individual in nature and which is not or may not be substantially incorporated in reports furnished to other persons.” (Tax Law § 1105(c)(1)) (Emphasis added).
Since the Administrative Law Judge (“ALJ”) below had found that the information furnished by Dynamic in a CrossMedia study was personal and individual in nature, and the Division of Taxation did not file an Exception to that conclusion, the Tribunal did not address the issue.
The Tribunal then rejected the ALJ’s holding that since Dynamic had the right to use the data collected from a CrossMedia study, “such information may be substantially incorporated into reports furnished to others” within the meaning of the statute. (Emphasis in original.) In re Dynamic Logic, Inc. at 22. Specifically, the Tribunal held that “[t]he possibility that information could be furnished to third parties in the future if the service provider develops a means to do so does not disqualify an information service from the statutory exclusion under the ‘substantially incorporated’ component.” Id. Accordingly, receipts received from a CrossMedia study were not subject to sales tax.
The Tribunal’s conclusion is significant and could provide other service providers the ability to fit within the exclusion from tax.
This article is one in a series of articles written for the February 2022 edition of The BR State + Local Tax Spotlight.