Opinion
No. 535445
02-29-2024
In the Matter of Dynamic Logic, Inc., Petitioner, v. Tax Appeals Tribunal of the State of New York et al., Respondents.
Mayer Brown LLP, New York City (Leah Robinson of counsel), for petitioner. Letitia James, Attorney General, Albany (Frederick A. Brodie of counsel), for Acting Commissioner of Taxation and Finance, respondent.
Calendar Date: December 14, 2023
Mayer Brown LLP, New York City (Leah Robinson of counsel), for petitioner.
Letitia James, Attorney General, Albany (Frederick A. Brodie of counsel), for Acting Commissioner of Taxation and Finance, respondent.
Before: Egan Jr., J.P., Pritzker, Ceresia, Fisher and Powers, JJ.
Powers, J.
Proceeding pursuant to CPLR article 78 (initiated in this Court pursuant to Tax Law § 2016) to review a determination of respondent Tax Appeals Tribunal partially sustaining a sales and use tax assessment imposed under Tax Law articles 28 and 29.
Petitioner is a company that provides services to advertisers, agencies and publishers that measure the effectiveness of their advertising campaigns. One such service is AdIndex, 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. After the survey data is collected and the results compiled, petitioner provides its clients with a report that analyzes those results. Among other things, AdIndex reports compare a client's advertising campaign results to industry-specific benchmarking data from a database called MarketNorms, which contains anonymized and aggregated results from the standardized questions contained in AdIndex studies. As part of its AdIndex service, petitioner also provides advice and recommendations for improving advertising effectiveness.
The Department of Taxation and Finance conducted an audit of petitioner's sales and use tax liability for the period of September 2011 through August 2014. Following the audit, the Department determined, insofar as is relevant here, that petitioner's sales of the AdIndex service constituted the sale of taxable information services under Tax Law § 1105 (c) (1) and issued a notice of determination imposing additional sales tax upon petitioner for the relevant time period. Petitioner thereafter filed a petition in the Division of Tax Appeals challenging the determination and seeking a refund of its tax liability. Following a hearing, an Administrative Law Judge sustained the determination as to the AdIndex service, concluding that AdIndex was an information service and that the information provided by the AdIndex service did not fall within the applicable exclusion from the imposition of sales tax because such information was or could be substantially incorporated into reports furnished to others (see Tax Law § 1105 [c] [1]). Petitioner filed an exception and, following a hearing, respondent Tax Appeals Tribunal upheld the determination as to the taxability of the AdIndex service. Petitioner then commenced this CPLR article 78 proceeding seeking to annul that portion of the Tribunal's determination.
"[T]ax statutes should be construed to insure the collection of all designated taxes where a supportable theory can be found" (Matter of 1605 Book Ctr. v Tax Appeals Trib. of State of N.Y., 83 N.Y.2d 240, 244 [1994], cert denied 513 U.S. 811 [1994]; accord Matter of Gans v New York State Tax Appeals Trib., 194 A.D.3d 1209, 1210 [3d Dept 2021]). In reviewing a determination of the Tribunal, our function is limited to assessing whether it "has a rational basis and is supported by substantial evidence" (Matter of Carlson v Tax Appeals Trib. of the State of N.Y., 214 A.D.3d 1133, 1134 [3d Dept 2023] [internal quotation marks and citations omitted]; see Matter of BTG Pactual NY Corp. v New York State Tax Appeals Trib., 203 A.D.3d 1347, 1348-1349 [3d Dept 2022]). "[I]f there are any facts or reasonable inferences from the facts to sustain it, the court must confirm the Tribunal's determination," even if a different conclusion would not have been unreasonable (Matter of Wegmans Food Mkts., Inc. v Tax Appeals Trib. of the State of N.Y., 33 N.Y.3d 587, 594 [2019] [internal quotation marks, brackets and citation omitted]; see Matter of CLM Assoc., LLC v New York State Tax Appeals Trib., 181 A.D.3d 999, 1001 [3d Dept 2020], lv denied 36 N.Y.3d 904 [2021]). Further, "[i]nterpretation given a statute by the agency charged with its enforcement is, as a general matter, given great weight and judicial deference, so long as the interpretation is neither irrational, unreasonable nor inconsistent with the governing statute" (Matter of Walt Disney Co. & Consol. Subsidiaries v Tax Appeals Trib. of the State of N.Y., 210 A.D.3d 86, 89 [3d Dept 2022] [internal quotation marks and citations omitted]; a ccord Matter of Carlson v Tax Appeals Trib. of the State of N.Y., 214 A.D.3d at 1135).
Tax Law § 1105 (c) (1) requires the payment of sales tax on "[t]he receipts from every sale" of "[t]he furnishing of information by printed, mimeographed or multigraphed matter or by duplicating written or printed matter in any other manner, including the services of collecting, compiling or analyzing information of any kind or nature and furnishing reports thereof to other persons." The statute excludes from taxation, however, "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" (Tax Law § 1105 [c] [1]). For purposes of sales tax, "it shall be presumed that all receipts for... services of any type mentioned in [Tax Law § 1105 (c)]... are subject to tax until the contrary is established, and the burden of proving that any receipt... is not taxable [t]hereunder shall be upon the person required to collect tax" (Tax Law § 1132 [c] [1]).
We find no basis to disturb the Tribunal's determination that petitioner's AdIndex service constitutes an information service. While petitioner insists that the services under consideration constitute nontaxable consulting services, the record supports the finding that the primary function of AdIndex is the collection and analysis of information. The AdIndex service begins with the development of survey questions followed by the gathering of information and data through those surveys. After the information obtained from the surveys is analyzed by petitioner's research analysts, the information and analysis is furnished to petitioner's clients via reports. Petitioner trains its research analysts, who have backgrounds in "media and/or market research," to write reports in such a way as to use the survey data to find and tell the data's "story." To accomplish this objective, the reports present the data collected through graphs, tables and charts, with text calling the customer's attention to the significance of various points of data. A review of the sample reports contained in the record confirms that the graphic data presentations are the predominant feature of the reports, and the narratives or "insights" provided in the reports consist of an analysis of the data obtained. Although AdIndex reports also include certain advice and/or recommendations to improve the effectiveness of the client's ad campaign - which, according to petitioner's witnesses, was the primary reason why its clients purchased the service - the record reflects that such recommendations are, for the most part, drawn directly from the data collected. Thus, as the Tribunal observed, without the data there would be no basis for the recommendations. Petitioner's training documents, promotional materials and sample contracts likewise show that AdIndex's key deliverable was the collection and analysis of information and that the recommendation component of the reports was ancillary thereto. Considering the foregoing evidence, we conclude that the Tribunal rationally determined that AdIndex was an information service and that such determination is supported by substantial evidence in the record (see Tax Law § 1105 [c] [1]; 20 NYCRR 527.3 [a] [2]; Matter of ADP Automotive Claims Servs. v Tax Appeals Trib., 188 A.D.2d 245, 248 [3d Dept 1993], lv denied 82 N.Y.2d 655 [1993]; Matter of Towne-Oller & Assoc. v State Tax Commn., 120 A.D.2d 873, 874 [3d Dept 1986]).
Petitioner also urges that, even if AdIndex is an information service, such service is excluded from sales tax because the information provided to its customers is not incorporated in reports furnished to other persons. "[W]hen the matter at issue is subject to the taxing statute, but the question is whether taxation is negated by a statutory exclusion..., the presumption is in favor of the taxing power" and the exclusion "will be construed against the taxpayer" (Matter of Wegmans Food Mkts., Inc. v Tax Appeals Trib. of the State of N.Y., 33 N.Y.3d at 592, 593 [internal quotation marks and citations omitted]; see Matter of SLIC Network Solutions, Inc. v New York State Dept. of Taxation & Fin., ___ A.D.3d ___, ___, 2024 NY Slip Op 00342, *1-2 [3d Dept 2024]). The burden thus rests upon the taxpayer "to overcome a tax assessment and establish its unambiguous entitlement to an exclusion by demonstrating that a particular item falls within the language of the identified statutory exclusion" (Matter of XO Communications Servs., LLC v Tax Appeals Trib. of the State of N.Y., 182 A.D.3d 717, 718 [3d Dept 2020], lv denied 36 N.Y.3d 903 [2020]; see Matter of Wegmans Food Mkts., Inc. v Tax Appeals Trib. of the State of N.Y., 33 N.Y.3d at 593). To that end, "the taxpayer's interpretation of the statute must not simply be plausible, it must be the only reasonable construction" (Matter of Charter Dev. Co., L.L.C. v City of Buffalo, 6 N.Y.3d 578, 582 [2006] [internal quotation marks and citations omitted]; accord Matter of Centurylink Communications, LLC v Schmidt, 199 A.D.3d 1084, 1087 [3d Dept 2021]).
Every AdIndex survey contains standardized questions related to demographic information and brand metrics and the information collected from such questions, after being aggregated and anonymized, is incorporated into petitioner's MarketNorms database. MarketNorms, in turn, uses that data to calculate a normative score that is used as a benchmark for comparative purposes. By subscription, petitioner's clients could purchase access to the MarketNorms database and the raw data contained therein. Significantly, MarketNorms data is also used by petitioner to prepare AdIndex reports for its customers and portions of the data generally appeared on one or more slides of such a report. In that regard, as previously discussed, AdIndex reports compare a client's advertising campaign results to the benchmarking data contained in the MarketNorms database so as to gauge the effectiveness of a client's advertisement against industry peers. The Tribunal thus concluded that, because the information incorporated into the MarketNorms database for use in other AdIndex reports was qualitatively valuable to the analysis provided by AdIndex, information from an AdIndex report can fairly be regarded as "substantially incorporated" into the reports furnished to others (Tax Law § 1105 [c] [1]). We find nothing irrational about the Tribunal's determination in this regard, nor has petitioner demonstrated that its contrary interpretation of the exclusion is the only reasonable one (see Matter of Centurylink Communications, LLC v Schmidt, 199 A.D.3d at 1087; Matter of Dex Media, Inc. v Tax Appeals Trib. of the Dept. of Taxation & Fin. of the State of N.Y., 180 A.D.3d 1281, 1284 [3d Dept 2020], lv denied 35 N.Y.3d 913 [2020]). Petitioner has therefore "failed to sustain its burden of unequivocal entitlement to the [exclusion] it seeks" (Matter of Charter Dev. Co., L.L.C. v City of Buffalo, 6 N.Y.3d at 583; see Matter of Grace v New York State Tax Commn., 37 N.Y.2d 193, 197-198 [1975]; Matter of Rich Prods. Corp. v Chu, 132 A.D.2d 175, 179 [3d Dept 1987], lv denied 72 N.Y.2d 802 [1988]).
Petitioner's standard contract with clients allowed it to copy, distribute, resell, modify and use the data it obtains in the MarketNorms database.
Petitioner's remaining contentions, to the extent not specifically addressed herein, are either unpreserved for our review due to its failure to raise them at the administrative level (see Matter of 21 Club, Inc. v Tax Appeals Trib. of State of N.Y., 69 A.D.3d 996, 998 [3d Dept 2010]; Matter of XO N.Y., Inc. v Commissioner of Taxation & Fin., 51 A.D.3d 1154, 1155 [3d Dept 2008]) or have been reviewed and found to be lacking in merit.
Egan Jr., J.P., Pritzker, Ceresia and Fisher, JJ., concur.
ADJUDGED that the determination is confirmed, without costs, and petition dismissed.