Taxes in New York (TiNY) is a blog by the Hodgson Russ LLP State and Local Tax Practice Group members Chris Doyle, Peter Calleri, and Zoe Peppas. The weekly reports are intended to go out every Tuesday after the New York State Division of Tax Appeals (DTA) publishes new ALJ Determinations and Tribunal Decisions. In addition to the weekly reports, TiNY may provide analysis of and commentary on other developments in the world of New York tax law.

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TiNY Report for May 23, 2024
NY state flag and the word TAXES made out of money

Those of us on the West Coast of New York are enjoying summerlike conditions this week. We rarely get temperatures in the 80s consistently in May because the prevailing southwesterly winds blow across 250 miles of 50-degree Lake Erie water before reaching our editorial offices. Usually that results in a chill. But this week we have been treated to several days of unseasonable warmth as we roll into the holiday weekend. It would be perfect weather to stand outside of Key Bank Center and watch the Sabres play in the Eastern Conference Finals on a portable Jumbotron. But they would need to make the playoffs first. Maybe next year?

And as I wrote the revised version of the second-to-last sentence in the above paragraph, I paused to consider whether it was most appropriate to use the plural or singular verb form when referring to the Sabres hockey team. The same goes for the Bills, Giants, Jets, etc. When one uses a team name that ends in “s” to refer to the team (and not the individuals making up the team), isn’t the team name a singular proper noun? Shouldn’t it be “The Sabres was victorious in its last game” and not “The Sabres were victorious in their last game?” I notice that every journalist I read treats team names ending in “s” as plural. In fact, it seems like team names are always treated as plural (e.g., “The Minnesota Wild are on a losing streak.”). But that doesn’t make sense to me. “Team” is a single noun, right?

And this grammar conundrum, constant readers, is an indication of the lengths one will go to avoid entering one’s time charges and editing TiNY.

To our three Canadian subscribers: The TiNY editorial staff hopes you enjoyed your Victoria Day long weekend and expressed appropriate homage to the long-reigning (63-plus years, second only to Queen Elizabeth!) and now long-departed Queen. As per Ray Davies: “Canada to India, Australia to Cornwall, Singapore to Hong Kong, From the West to the East, From the rich to the poor, Victoria loved them all.”

There are three determinations to report on this week.


Faciltysource, LLC, et ux. (ALJ Maloney, May 9, 2024); Div’s Rep. Eric Gee, Esq.; Pet’s Rep. Michael Marino, Esq.; Articles 28 and 29/SaaS and software (Chris Doyle).

This is the second SaaS-as-a-taxable-licensing-of-software case we’ve had in two weeks. Petitioner in this one sold facility management services on an outsourced basis to a chain-store (200 location minimum) client-base. Historically, the services involved “answering calls, finding contractors, scheduling appointments, following up on the service to see if the contractors showed up and performed satisfactorily and doing this when scaled up to a thousand stores, or for some customers, fifteen thousand stores.” Initially this was accomplished through call-centers and paper reports. But it evolved to include “24/7 call-in transaction center access, web-based portal access (portal), work order management, vendor management, electronic invoicing, and data analytics.” From a technology perspective, Petitioner licensed its fmPilot software to its customers to facilitate communication between the customers and Petitioner. 

The fmPilot software was first developed in 2007 to help Petitioner better manage and service its clients. Petitioner, its clients, and the service providers serving the clients all had access to fmPilot. fmPilot allowed the three parties to communicate regarding repair/maintenance needs, orders, and progress by the vendors. When work was completed, fmPilot would send the customer an invoice. But the vendors were all vetted by Petitioner, and Petitioner maintained a 24/7 call center operation to handle incoming requests for service sent on fmPilot, create service orders, and triage problems. 

Like Matter of, Inc. which was released by the Tribunal just a week before (we wrote about it here), Judge Maloney found that the primary function test did not apply when services were bundled with tangible personal property (here, the software). Instead, the Judge found that fmPilot was integral to the service provided to Petitioner’s customers inasmuch as it was used by the customers, Petitioner’s call center employees, and the trade vendors who performed the maintenance services. Based on this, Judge Maloney determined that Petitioner’s services were taxable as the sale of software.

In addition, Judge Maloney found that the services would have been taxable as information services even if they were not bundled with the tangible personal property/software. The Judge found that fmPilot was used to prepare reports and send them to customers based on customer-provided information. And since the reports included “benchmark information” gleaned by Petitioner from other customers (such other customers being a “common data base”) the “personal and individual” exclusion for certain information service did not apply.

The Judge did not, however, accept the Division’s final argument in favor of taxation: that Petitioner’s services were taxable real property maintenance services. The Judge found that “[h]ere, petitioners are not performing both the facilities management services and the ultimate repairs to the property… .” And the Judge implied that the transactions couldn’t be both taxable sales of tangible personal property and taxable sales of a service.

I was not at the hearing. If I had been at the hearing, I may have agreed entirely with the Judge’s determination. But, based on the facts found in the determination I think I would have gone in a different direction. And let me pause here to remind you that these are difficult cases turning on fine distinctions. And in a blog (really at all times), I am not beholden to precedent with which I disagree. When I wrote-up, I expressed my opinion that the principal purpose test should apply to sales that include service and tangible personal property elements. And if the TPP is incidental to the service, then the taxability of the service element should control the sales tax result. Here, the service was managing maintenance to real property. Although the fmPilot software was integral to the provision of the service, the goal of the service was to assist clients in keeping their real property in good repair.

Admittedly, I have trouble rationalizing how software can be ‘integral” and “incidental” at the same time. But my doctor has an app developed for his medical practice that I am required to download (I agreed to the license terms at the time of the download). The app allows me to email my doctor with telemedicine questions (“hey doc, it hurts when I do this!”), ask for prescription refills, get referrals to specialists, get test reports, report back my blood pressure, manage appointments, etc. My doctor’s delivery of medical services to me is facilitated by the app. The app is integral to my doctor’s delivery of medical services to his patients. And I think many larger medical practices have similar apps. Does that mean a doctor’s medical services are now subject to sales tax? I think not (but now I’m hoping I won’t rue the day I asked this question), because the app is incidental to the primary purpose of the medical services doctors provide.

All of this may not be relevant to Petitioner since, based on my appreciation of the Facts Found, the primary function of Petitioner’s services was to keep their customers’ properties maintained, and that is a taxable service.

Matter of Robinov (SALJ Gardiner, May 9, 2024); Div’s Rep. Karry Culihan, Esq.; Pet’s Rep. pro se; Articles 28 and 29/Timy (Pete Calleri).

BCMS issued a conciliation order dismissing Petitioner’s March 19, 2021, request for conciliation conference protesting three January 14, 2019, notices of determination on the grounds that Petitioner’s request was untimely. Petitioner filed a petition with DTA in protest of the conciliation order, and the Division brought a motion for summary determination.

The Judge granted the Division’s motion. The Division showed it had used a standard procedure sufficient to establish the proper mailing of the notices to Petitioner’s last known address, and the Judge held that the Division proved proper issuance of the conciliation order under Tax Law § 1147(a)(1). Additionally, by neither responding to the Division’s motion nor offering evidence to rebut the alleged facts, the facts, including those related to the proper mailing, were deemed admitted.

As such, the Judge concluded that Petitioner’s March 19, 2021, BCMS request fell well after the 90-day period of limitations for the notices mailed on January 14, 2019. Petitioner’s petition was denied and the conciliation order dismissing Petitioner’s request for a conciliation conference was sustained.

Matter of Rivas (SALJ Gardiner, May 9, 2024); Article 22/Jurisdiction of the DTA (Pete Calleri).

Petitioner failed to include with her petition a copy of the statutory notice being protested pursuant to 20 NYCRR 3000.3(b)(8), even after the Division made a written request for a copy. Therefore, her petition was dismissed with prejudice.

And with this determination, Judge Gardiner becomes the new record-holder for the shortest determination based on word count. Well done.

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