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All About Sales Tax

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Sales tax is one of the most interesting, and challenging, taxes. It’s interesting because it involves clients in every possible industry. Every active business has potential sales tax exposure, no exceptions!  And unfortunately sales tax compliance is particularly difficult for two, specific reasons.  First, the tax is perhaps the most fact-dependent – seemingly inconsequential changes in the underlying facts can transform a nontaxable sale into a taxable one.  Second, these rules are constantly changing.  It’s tough enough to keep up with these changes in just one state.  But many vendors, especially those selling over the internet, have to keep abreast of these changes in multiple states.  So it’s easy to fall behind on sales tax compliance. 

With this blog, we hope to keep you up to date on impactful changes in the sales tax compliance, especially in New York State.  We’ll review legislative and administrative changes in the sales tax; we’ll discuss new sales tax case law; and we’ll highlight the enforcement initiatives and tactics we’re seeing while defending businesses in sales tax audits.  We hope you find this content as interesting as we do.  Please contact us with any questions. 

Matter of M & Y Developers, Inc.; Division’s Rep.: Anita Luckina; Petitioner’s Reps.: Joshua Lawrence and Timothy Noonan; Articles 28 and 29

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Because this was handled by Hodgson Russ, we’ll forego editorializing and provide just the facts.

You can read the TiNY recap of the ALJ determination here. By way of summary: Petitioner paid sales tax on purchases of concrete used in foundation work for building projects. Petitioner then sought a refund for the sales tax it paid, claiming that the concrete purchases qualified as nontaxable installations of capital improvements. The ALJ determined that the transactions constituted taxable purchases of tangible personal property because it was Petitioner, and not the concrete vendor, who was responsible for the installation of the concrete.

Matters of 608 Franklin, LLC and Evergreen Gardens, LLC; Division’s Rep.: Melanie Spaulding; Petitioners’ Rep.: Herschel Friedman; Articles 28 and 29

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We lumped these two cases together because they present pretty much identical facts, legal issues, and outcomes. Indeed, the opinion sections of each decision contain virtually identical structure and language. You can read our full recaps of both ALJ Determinations here and here. The issue in these cases was whether security services provided at real property construction projects were taxable.

Matter of 44th Enterprises Corporation et. al.; Judge Russo; Division’s Rep.: Osborne Jack; Petitioners’ Reps.: Amit Shertzer and Kevin A. Fritz; Articles 28 and 29

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The sales taxation of exotic dancing and transactions conducted in adult entertainment establishments has a long history before the Division of Tax Appeals and the New York courts. This case presents the most recent chapter. 

Matter of Shawn McKee Enterprises, Inc.; Judge Gardiner; Division’s Rep.: Adam Roberts; Petitioner’s Rep.: Jennifer Koo; Articles 28 and 29

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This case examines the operation of New York’s resale exemption and the limits of the protection conferred by resale exemption certificates.

Matter of TheStreet.com, Inc.; Judge Maloney; Division’s Rep.: Elizabeth Lyons; Petitioner’s Reps.: Nicolas Montorio and Janet Bernier; Articles 28 and 29

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When it comes to sales tax, form matters. And in this case, the imprecise and somewhat contradictory evidence regarding the form of what should have been a nontaxable equity purchase caused the Judge to sustain a sizable sales tax bill.

Matter of Strata Skin Sciences, Inc.; Judge Connolly; Division’s Rep.: Anita Luckina; Petitioner’s Rep.: Margaret Wilson; Articles 28 and 29

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The issue in this case is whether the sale of laser technology used to treat dermatological ailments and related services constituted a taxable lease of tangible property or the provision of a nontaxable service. Petitioner provided to its dermatologist customers an ultraviolet light excimer laser system that generated and delivered targeted ultraviolet light to treat various skin conditions. Petitioner did not characterize the transactions as leases, nor did the customers receive the lasers for a set amount of time. Rather, Petitioner “consigned” the lasers to its customers and charged for “treatment codes,” which allowed the lasers to be used and treatments to be administered.

Matter of Dynamic Logic, Inc.; Judge Russo; Division’s Rep.: Anita K. Luckina; Petitioner’s Reps.: Amy F. Nogid and Leah Robinson; Articles 28 and 29

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Petitioner provided marketing analysis services that the Division viewed to be taxable information services. Specifically, Petitioner helped its customers measure their advertising effectiveness by (1) surveying consumers or internet users who had seen a particular advertisement and those who had not seen the ad, (2) comparing and analyzing the results, and (3) informing its clients as to how well the ad performed and what the clients could do to improve ad performance. At first blush, there seems to be significant similarity to the MarketShare Partners, LLC case we reviewed a few weeks ago. In that case, the taxpayer was a marketing analytics firm that enabled large companies to measure, predict, and improve the impact of their marketing spend. The ALJ concluded that the main service was a nontaxable marketing consulting service rather than a taxable information service. So we’d expect a similar result in this case, right? Not so fast . . .

Secureworks, Inc.; Judge DiFiore; Division’s Rep.: Stephanie Scalzo; Petitioner’s Rep.: Charles Rice; Articles 28 and 29

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A fight might be brewing over the Division’s longtime conclusion that IT monitoring services can constitute taxable protective services. Here, Petitioner offered managed and monitored security services, giving customers information to prevent, detect, respond to, and predict cyberattacks. The question in the case was whether these services constituted either taxable protective and detective services or taxable information services.

Matter of MarketShare Partners, LLC; Division’s Rep.: Stephanie Scalzo; Petitioner’s Reps.: R. Gregory Roberts, and Jeremy Gove; Articles 28 and 29

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After weeks of being absent from TiNY (in part due to Chris Doyle’s encroachment on my territory), I’m back in a big way.  The Division of Tax Appeals issued a whopper of a sales tax determination – 55 pages!  It addresses one of the most perplexing issues in all of New York sales tax – the proper characterization of a technology product – is it a nontaxable service, taxable information, or taxable software?  Let’s dive in. 

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Hodgson Russ attorneys facilitate the U.S. legal aspects of transactions around the world. We practice in every major area of law and use multidisciplinary work teams to serve the specific, often complex, needs of our clients, which include public and privately held businesses, governmental entities, nonprofit institutions, and individuals.