United States

New York: Competitive Pricing Reports Not Considered Taxable Information Services

Dec 04, 2017
From KPMG TaxWatch

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The New York Supreme Court, Appellate Division recently held that a taxpayer’s purchase of competitive pricing reports was not a taxable information service. In reaching this conclusion, the court overruled decisions by the Division of Tax Appeals and the Tax Appeals Tribunal holding in favor of the state. The taxpayer at issue was a supermarket chain. To ensure it was pricing goods competitively, the taxpayer monitored prices charged by its competitors by purchasing competitive price audits or price checks from another company. Specifically, this company collected raw data on how much the taxpayer’s competitors charged for certain products in specified locations and compiled the data into a report designed to the taxpayer’s specifications. Under New York law, sales tax is imposed upon receipts from the service of furnishing information, “including the services of collecting, compiling or analyzing information and furnishing reports.” However, there is a carve-out for receipts from furnishing “information which is personal or individual in nature and which is not or may not be substantially incorporated in reports furnished to other persons.”  

There was no dispute that the competitive price reports qualified as information services. However, the issue before the court on appeal was whether the reports were personal or individual in nature. The Commissioner argued (and the ALJ and the Tribunal had agreed) that because the raw data forming the basis of the reports was derived from a singular preexisting public source—the prices listed at supermarkets—the reports were not personal or individual in nature. The court disagreed with this characterization. Although the information collected was available to the public, it was not, in the court’s view, derived from a singular, widely available common source or database, as was the case in earlier disputes involving the scope of the exclusion. Rather, the taxpayer provided the data company with its specific and unique collection criteria and the data company physically sent data collectors to each individual competitor location to manually record the requested pricing information. Because this information regularly fluctuated, there was no singular preexisting public source from which the data company could obtain the information. Furthermore, once the raw data was collected, it was maintained as a separate and distinct work component or database for the company’s sole use in preparing the taxpayer’s reports. It was not maintained in a general database that was viewable by other clients, and the contract between the taxpayer and the data company specifically prohibited sharing the information with third parties. The court concluded that the services were personal and individual in nature and were excluded from tax. Please contact Judy Cheng at 212-872-3530 with questions on Matter of Wegmans Food Markets, Inc. v. Tax Appeals Tribunal

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.