In two related decisions, the Tax Appeals Tribunal has upheld the imposition of sales tax on the furnishing of retail grocery store pricing information, rejecting arguments made by the vendor and one of the vendor’s clients that the information services qualified for the sales tax exclusion for information that is “personal and individual in nature.” Matter of RetailData, LLC, DTA No. 825334 (N.Y.S. Tax App. Trib., Mar. 3, 2016); Matter of Wegmans Food Markets, Inc., DTA No. 825347 (N.Y.S. Tax App. Trib., Mar. 10, 2016). The Tribunal decisions make clear that where the source of the information being furnished is readily accessible to the general public – even if the information is not obtained from a common data base nor substantially incorporated into reports furnished to others – the “personal and individual” exclusion does not apply.
The decisions relate to the same underlying services, the taxability of which was challenged by RetailData, LLC (the service provider) and by Wegmans Food Markets, Inc. (“Wegmans”), a supermarket chain and RetailData’s largest New York client. RetailData provides price checking services for grocery and retail establishments throughout the United States, including New York State. RetailData principally conducts what are known as “competitive price audits” for its clients. This involves collecting pricing information on specified retail products – usually, comparable private label products – sold in a competitor’s stores at specified locations. The pricing data is then validated and transmitted to clients electronically or in printed form. The information is obtained from publicly available sources, i.e., the prices of goods on display on sales floors and shelves in competitors’ stores. This data is used by RetailData’s clients, such as Wegmans, for their own pricing and marketing strategies. The pricing reports furnished by RetailData to one client were never sold to another client.
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. In a separate case involving the same services, Wegmans was assessed sales tax on the amounts it paid to RetailData for those services for the overlapping period June 1, 2007 through February 28, 2010. RetailData and Wegmans brought separate challenges to the assessments.
ALJ Decision. An information service is not taxable if it (i) is personal and individual in nature to each client and (ii) is not or may not be substantially incorporated into reports furnished to other clients. Tax Law § 1105(c)(1). In two separate decisions issued by two different Administrative Law Judges (discussed in the March 2015 issue of New York Tax Insights), the ALJs held that the information services purchased by Wegmans from RetailData were not “personal and individual” in nature and therefore were subject to sales tax pursuant to Tax Law § 1105(c)(1). Neither taxpayer disputed that what was being furnished was an “information” service, so the only issue was whether the purchased information was “personal and individual in nature.” The ALJs concluded that it is the source of the information that determines whether the information qualifies for the “personal and individual” exclusion, and it did not matter that the information did not come from a common database, government database, or a published database. These appeals followed.
Tribunal Decision. RetailData and Wegmans made essentially the same arguments before the Tribunal as they did before the ALJs, the thrust of which was that each report being furnished was tailored to a client’s specific needs and was therefore never substantially incorporated into reports furnished to others, and that the information being provided in those reports was not derived from a common database, a governmental database, or a published database and was therefore “personal and individual” to each client.
The Tribunal affirmed both decisions, holding that the information being provided was not “personal and individual in nature” under Tax Law § 1105(c)(1). While noting that tax exclusions are to be strictly interpreted in the taxpayer’s favor, the Tribunal also pointed out that the burden of proof still rested with the taxpayer to establish entitlement to the exclusion, concluding that the taxpayers’ burden of proof was not met. The Tribunal held that in order to qualify for the “personal and individual” exclusion, the information must be “uniquely personal,” citing Matter of Allstate Ins. Co. v. State Tax Comm’n, 115 A.D.2d 831, 834 (3d Dep’t 1985), aff’d, 67 N.Y.2d 999 (1986). Since the information being furnished – the price of products on the shelves of supermarkets open to the public – was not “uniquely personal,” it did not qualify for the exclusion. The fact that no two reports are likely to be the same because they were customized for each client did not change this conclusion.
The Tribunal also rejected the argument that whether information qualifies for the “personal and individual” exclusion depends on whether it is obtained from a common database, a government database, or a published database, factors which had been cited in other decisions involving information services. According to the Tribunal, the information did come from a “common source” that was not confidential and was widely accessible – non-confidential pricing information obtained from the shelves of competitor supermarkets that were open to the public, citing Matter of ADP Automotive Claims v. Tax App. Trib., 188 A.D.2d 245 (3d Dep’t 1993) (upholding the imposition of sales tax on the furnishing of cost estimates for automobile repairs using information obtained from widely circulated publications). The Tribunal rejected the taxpayers’ claim that only information taken from publicly accessible electronic databases or published bulletins ran afoul of the “personal or individual” exclusion.
Unless reversed on appeal, these two Tribunal decisions establish a narrow interpretation of the “personal and individual” exclusion from taxable information services. Under the holdings in these two decisions, so long as the source of the information being furnished is publicly available, it does not matter that it was not obtained from a common database, or that it was not substantially incorporated into reports furnished to other clients. 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 extend the disqualifying publicly accessible database criteria to include any source of publicly available information. In that regard, Matter of RetailData and Matter of Wegmans are potentially important cases that may have a significant impact on the taxation of information services in New York State.
Although not discussed in the decisions, the Department should only be entitled to collect the sales tax once with respect to the information services furnished by RetailData to Wegmans.