Here are the sales tax cases from the TiNY Report for the week of November 4, 2024.
Determination
Matter of Millward Brown, Inc. (by Kantar LLC, as successor) and Dynamic Logic, Inc. (by Kantar LLC, as successor) (ALJ Chu-Fong, October 17, 2024); Div’s Rep. Lori Antolick, Esq.; Pet’s Rep. Leah Robinson, Esq.; Articles 28 and 29/Information Services (Pete Calleri).
The second time was not a charm for Petitioners, companies seeking to prove that their marketing-related services are not subject to sales tax as “information services.”
This determination comes on the heels of a Third Department case from February, Dynamic Logic, Inc. v. New York State Tax Appeals Tribunal, et al. (“Dynamic Logic”). There, Petitioner Dynamic Logic, which later merged with Petitioner Millward Brown, Inc. to form Petitioner Kantar LLC, had appealed a January 2022 Tribunal decision holding that the Dynamic Logic sold taxable information services. In rejecting Dynamic Logic’s arguments, the Third Department acknowledged the Tribunal’s earlier decision that a research tool that “gauges the effectiveness of a particular advertisement by surveying consumers or internet users who have seen the advertisement and comparing the results to responses of those who have not been exposed to it” constituted the sale of information under Tax Law § 1105(c)(1).
While Dynamic Logic involved a prior sales tax period, many of the same services were at issue in the new ALJ determination summarized here. In the new case, Judge Chu-Fong considered three issues:
- whether Petitioners’ services are information services under Tax Law § 1105(c)(1);
- if so, whether any of the services are excluded from tax under the “personal or individual” exclusion; and
- whether the Division erred in applying tax to receipts from sales of services that occurred outside of New York.
Petitioners’ services analyze the effectiveness of marketing, such as individual ads, ad campaigns, and brands, through various methodologies, but primarily online. Petitioners conduct studies to obtain data about their clients’ businesses and then render insights and advice based on that data. Petitioners’ clients consist of advertisers, media agencies, and advertising publishers. In performing their services, Petitioners often rely on consumer surveys to acquire data, after which they analyze the data, form insights, and provide advice.
Regarding the first issue, Judge Chu-Fong extended to Petitioners the holding in Dynamic Logic that all of Petitioners’ services constitute taxable information services under Tax Law § 1105(c)(1). In doing so, he looked to the services’ primary function, which controls whether a service that may involve the transfer of information as an element is actually subject to tax as an information service. The services here include the gathering and examining of data used to provide advice and insights. Importantly, the acquisition of customer information about a client’s business is key in Petitioners rendering their advice. Simply put, Petitioners’ services revolve around acquiring this client information, analyzing it, and distributing that analysis over the internet in the form of actionable advice. Judge Chu-Fong noted that these services are indistinguishable from those in Dynamic Logic and concluded that they are similarly taxable as information services.
Worth noting is Petitioners’ argument that Tax Law § 1105(c)(1) only imposes tax upon the furnishing of information by certain methods (i.e., “by printed, mimeographed or multigraphed matter or by duplicating written or printed matter in any other manner”) and that this shouldn’t include the online “furnishing” done by Petitioners. However, as Judge Chu-Fong noted, Dynamic Logic extended the tax on information services under § 1105(c)(9)(i) to services provided via telecommunication, which includes the internet. Accordingly, Petitioners’ services still qualified as taxable information services.
Turning to the second issue, Judge Chu-Fong considered whether any of Petitioners’ services fell within the exclusion in § 1105(c)(1) 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.”
To determine if information is personal or individual in nature, the source of the information is controlling. Here, the information gathered from clients was not public. The data could not be easily accessed, as it was based on customers’ opinion and clients’ views of their respective markets, which would not have been discovered but for Petitioners’ solicitation. Therefore, it was concluded that the source of the data that drives Petitioners’ services was personal and individual in nature.
However, the next question—whether the information “is not or may not be substantially incorporated in reports furnished to other persons”— was determined to be controlled (again) by Dynamic Logic. Judge Chu-Fong went product-by-product in making his determinations, but the key takeaways are as follows: first, the exclusion does not apply when the reports in question contain information that was also provided to third parties; and second, third-party access to an information service’s aggregated data constitutes the furnishing of information to other persons for the purposes of the exclusion. For example, Petitioners’ “AdIndex” service helped clients ascertain the return on their investment in an ad campaign using surveys and demographic information. Because this service (and more specifically, its data) was both incorporated into Petitioners’ “MarketNorms” product and was available to third parties, this service fell outside the exclusion. However, a product like “CrossMedia (legacy),” whose data was not incorporated into another database and whose studies were not provided to anyone other than the client, was excluded from tax.
Finally, regarding the third issue, Judge Chu-Fong simply concluded that, because the record included numerous examples of sales delivered to clients outside New York State, the notices at issue were modified to remove sales tax on the non-New York State sales. Additionally, the notices at issue were canceled to the extent that tax was asserted on excluded services, and the corresponding refund claim denials were modified to grant refunds for tax paid on sales of excluded services.
