New York appellate division holds certain data information services not subject to sales tax


Matthew DiDonato
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Art Burkard
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John O’Brien
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Jamie C. Yesnowitz
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Chuck Jones
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Lori Stolly
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Priya D. Nair
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The New York Supreme Court, Appellate Division has held that the competitive price reports purchased by a supermarket retailer were considered to be information services that qualified for a statutory exclusion from sales tax.1 The Court concluded that the information services were excluded from sales tax because the information was personal or individual in nature and was not substantially incorporated into reports of others.

BackgroundWegmans, headquartered in Rochester, New York, is a well-known supermarket chain in the Mid-Atlantic and New England regions with approximately 50 locations within New York State. As part of its business pricing strategy, Wegmans hired RetailData to assist with the monitoring of retail prices charged by competitors. RetailData collected pricing information from designated competitors and delivered information reports to Wegmans.

Wegmans dictated the frequency and specific pricing data that RetailData was required to collect. As part of its service, RetailData would physically send auditors to multiple competitors to collect the specified raw price data. Because of a confidentiality clause, RetailData was forbidden from sharing any of the collected data or analysis with third parties. After the data was collected, it was separately stored and maintained, in order to prevent the intermingling of this data with other clients’ data.

Following a sales and use tax audit, the New York State Department of Taxation and Finance concluded that the information services purchased by Wegmans were taxable and issued a notice of determination for additional tax due. The Department reasoned that the information services purchased were not personal and individual in nature since they originated from publicly available information or a “common source or data repository.” Wegmans argued that the pricing data qualified for a statutory exclusion from sales tax because it was personal and individual in nature.

An Administrative Law Judge (ALJ) agreed with the Department and found that the information services were not “personal and individual” in nature to qualify for the statutory exclusion. On appeal, the Tax Appeals Tribunal affirmed the ALJ’s determination. Wegmans appealed this decision and requested that the Tribunal’s decision be annulled.

Information Personal or Individual in Nature Excluded from TaxNew York generally imposes sales tax on “[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.”2 However, the statute excludes, in relevant part, “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.”3

In reversing the Tribunal, the Court agreed with Wegmans and held that the competitive price reports were excluded from sales tax. The Court first noted that there was no dispute that the competitive price reports constituted information services because their primary purpose was to disseminate information. Therefore, the primary issue was whether the information was personal or individual in nature and could not be substantially incorporated in the reports of others. After considering the service at issue, the Court noted that the pricing information did not “derive from a singular, widely accessible common source or database.” The collection of pricing data was completely dependent on a unique strategy prescribed by Wegmans. Wegmans chose specific competitors to audit, the types of items from which to collect prices, and the frequency of collection. Subsequently, the fact that RetailData sent auditors to physically visit and collect prices differentiated the data collection method from the “singular pre-existing common source or data repository.”

Further, the Court found it significant that RetailData kept the pricing data in a separate and distinct work component or database solely used to prepare reports for Wegmans. At all times through the process, the information furnished to Wegmans was uniquely tailored to its specifications and was related to implementing its confidential pricing strategy. Given that RetailData was bound by a confidentiality provision and along with the fact that there was no evidence that the collected pricing information was shared with other clients, the Court concluded that the exclusion applied because the information services provided by RetailData were personal or individual in nature and were not substantially incorporated into reports of others.

CommentaryThis case is significant because Wegmans received the exclusion from sales tax even though the information provided in the reports was derived from publicly available sources. Prior to this case, it was widely understood that the provision of information reports that include information derived from a singular, widely accessible common source or database available to the public would not qualify for the statutory exclusion from tax. Generally, in order to be excluded from sales tax, the information service must meet two criteria: (i) data cannot be included in reports furnished to others; and (ii) the provider of the information service must collect, compile, or analyze data that is submitted by the client, not just public information.4

In this ruling, the Court has broadened the understanding and analysis used to determine whether the statutory exclusion in the information services statute applies. The Court explained that “to expand the interpretation of [the statute] to allow for the Tribunal’s denial of the subject tax exclusion based solely on the fact that the information ultimately furnished derived from a public source would, under the circumstances presented, serve to defeat the purpose of the exclusion.” Therefore, this case demonstrates that information services may qualify for the exclusion even if the information is publicly available, but the reports must be confidential and uniquely tailored to the purchaser. Given this ruling, it may be wise to consider whether the imposition of New York sales tax is required for transactions in which a business pays a third party for a service that relies on sophisticated data techniques (like analytics) that cannot be applied to another customer of the service provider.

1 In re Wegmans Food Markets, Inc. v. Tax Appeals Tribunal, N.Y. S.Ct., App. Div., 3rd Dept., 2017 NY Slip Op No. 08225, Nov. 22, 2017.
2 N.Y. TAX LAW § 1105(c)(1).
3 Id.
4 In re ADP Automotive Claims Services Inc. v. Tax Appeals Tribunal, 594 N.Y.S.2d 96 (N.Y. App. Div. 1993), appeal denied, 622 N.E.2d 305 (N.Y. 1993); TSB-A-09(12)S, New York Commissioner of Taxation and Finance, March 12, 2009; TSB-A-09(8)S, New York Commissioner of Taxation and Finance, Feb. 2, 2009; TSB-A-06(30)S, New York Commissioner of Taxation and Finance, Dec. 8, 2006.

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