Two recent Administrative Law Judge decisions involving the taxability of information services address the scope of the exclusion from sales tax for information that is “personal and individual in nature.” Both decisions hold that, because the source of the information being furnished was readily accessible to the general public, the “personal and individual” exclusion did not apply. Matter of RetailData, LLC, DTA No. 825334 (N.Y.S. Div. of Tax App., Jan. 22, 2015); Matter of Wegmans Food Markets, Inc., DTA No. 825347 (N.Y.S. Div. of Tax App., Feb. 19, 2015).

RetailData decision. RetailData, LLC provides price-checking services for grocery and retail establishments throughout the United States, including New York State. Among its New York clients is the Wegmans supermarket chain. RetailData conducts what are known as “competitive price audits” for its clients. This involves collecting pricing information of specified retail products – usually, comparable private-label products – sold in a competitor’s stores at specified locations. RetailData obtains this data either by having its employees visit the competitor’s stores and use a UPC scanner to collect pricing information (with the store’s permission), or sometimes more discretely by using a smart phone (without the store’s permission).

The pricing data is then validated and transmitted to clients electronically or in printed form. This data is used by RetailData’s clients to tailor their own pricing and marketing strategies. The pricing reports furnished to one client were never sold to another client, although on rare occasions RetailData sold historical pricing data containing pricing information obtained for other clients. There was no dispute that the information provided by RetailData was obtained from publicly available sources, i.e., the goods on display on sales floors and shelves in competitors’ stores.

RetailData did not collect New York sales tax on its charges for its services. After an audit, the Department assessed sales tax against RetailData for failing to collect and remit sales tax for the period June 1, 2005 through May 31, 2011, on the grounds that the company was providing a taxable information service.

There was no dispute that RetailData was providing an information service. However, an information service is not taxable if it (i) is personal and individual in nature to each client and (ii) may not be substantially incorporated into reports furnished to other clients. Tax Law § 1105(c) (1). RetailData claimed that the information furnished to clients was not taxable under this provision. The ALJ held, however, that RetailData was furnishing a taxable information service, and that the information was not “personal and individual in nature.”

RetailData claimed that the reports it furnished to clients were tailored for each client and were never sold to other clients. It also argued that it was not furnishing information derived from a common or published database, a relevant factor that has been cited in other decisions involving information services. For example, in Rich Products Corp. v. Chu, 132 A.D.2d 175 (3d Dep’t 1987), appeal denied, 72 N.Y.2d 802 (1988), the Appellate Division held that the provision of customized marketing data derived from one widely accessible database and used for all reports for clients did not qualify as “personal and individual” and thus was taxable.

The ALJ rejected RetailData’s argument and emphasized that it is the source of the information that determines whether the information qualifies as personal and individual. According to the ALJ, the information being furnished was “compiled from a widely available public source, stores open to the public,” and therefore could not be considered personal and individual, even if the reports themselves were not actually resold to others. The ALJ distinguished RetailData’s facts from those in other cases where the information was found to be personal and individual in nature. These included cases where the information was obtained from a confidential field investigation (Westwood Pharmaceuticals, Inc. v. Chu, 164 A.D. 2d 462 (1990)) or from a confidential character report from a licensed detective agency taken from field interviews by detectives (New York Life Insurance v. State Tax Comm’n, 80 A.D. 2d 675 (3d Dep’t 1981), aff’dMetropolitan Life Insurance Co. v. State Tax Comm’n55 N.Y.2d 758). In contrast, the source of RetailData’s information was the publicly available prices appearing on grocery store shelves, which was found to be neither uniquely personal nor individual in nature.

Wegmans decision. In a separate case involving the same information services, but decided by a different ALJ, Wegmans Food Markets, Inc. (“Wegmans”), the largest of RetailData’s New York customers, brought its own challenge to a sales tax assessment for the overlapping period June 1, 2007 through February 28, 2010. Wegmans, which made arguments that were substantially similar to RetailData’s, did not contest that it was purchasing “information,” and the only issue was whether the purchased information was “personal or individual in nature.”

The ALJ in Wegmans reached the same conclusion as the ALJ did in RetailData, holding that the information reports were taxable. Focusing on the source of the data, the ALJ described the pricing data in the reports as being “culled from one general source, competitors’ stores . . . [which pricing data] was widely accessible and not confidential.” The fact that the information was customized based on Wegmans’ specific needs “did not transform the general information to something personal or individual in nature.” As for Wegmans’ claim that the information was not taken from a “common database,” but was instead manually collected at the stores, the ALJ held that the term “database” – which does not appear in the sales tax law – is broad enough to cover “a specific pool of information from which information is extracted.” Therefore, according to the ALJ, the pricing data was taken from a publicly available database, the retail stores of Wegmans’ competitors.

Additional Insights

Interestingly, both ALJs ruled against the taxpayer despite agreeing with the taxpayer that the “personal and individual” provision in Tax Law § 1105(c)(1) is a tax “exclusion,” which must be strictly construed in favor of the taxpayer. The decisions emphasize that whether information is “personal and individual” depends on whether the source of the information is publicly available, regardless of whether the information being furnished would ever be furnished to another client. Although there is considerable case law holding that the provision of information obtained from a publicly accessible common database does not qualify as personal and individual, these two decisions, if upheld, would extend the disqualifying publicly accessible database criteria to include any source of publicly available information (in this case, the retail stores from which the prices are obtained).

Procedurally, it is notable that the Department assessed tax against both RetailData (the vendor) and Wegmans (its customer) on the same transactions, which resulted in two separately litigated cases involving different ALJs, who nonetheless reached the same conclusion. If the decisions are upheld, the Department would only be entitled to collect the sales tax from either RetailData or Wegmans, but not both of them.

RetailData has filed an appeal with the Tax Appeals Tribunal. The time for Wegmans to appeal had not yet expired as we went to press.