About This Blog
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.
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Matter of Strata Skin Sciences, Inc.; Judge Connolly; Division’s Rep.: Anita Luckina; Petitioner’s Rep.: Margaret Wilson; Articles 28 and 29
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.
Comment
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
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
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
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.
Updated Guidance Issued on Responsible Person Relief Under the Sales Tax Law
The New York State Tax Department released new guidance last week in TSB-M-20(2)S addressing potential avenues for relief for those assessed as responsible persons for sales tax. This new TSB-M largely mirrors amendments to Tax Law § 1133(a) that were enacted as part of the budget legislation for fiscal 2018-2019 which we covered here and here. That legislation established statutory relief for certain limited partners and LLC members who were assessed and held jointly and severally liable for sales tax assessments solely by virtue of their interest in a partnership or LLC. To qualify for relief, eligible limited partners and LLC members must principally show that: (i) they were not under a duty to act for the LLC or partnership in complying with the requirements of the sales tax; and (ii) their ownership interest and the percentage of their distributive share of the profits and losses of the LLC or partnership are each less than 50%.
Contractors, Leasehold Improvements and Tax Exempt Entities
The NYS Department of Taxation and Finance issued a new advisory opinion today concluding that a contractor installing a new floor for a tenant at JFK Airport can purchase glue tax free because the glue becomes an “integral component part” of real property owned by an exempt entity. JFK Airport is owned by the Port Authority of New York and New Jersey.
The Master Has (Re)appeared!
In a blog post published earlier this year, we noted the fact that the number of sales tax advisory opinions published by the New York State Tax Department had diminished precipitously over the past few years, to the point that, in 2019, the Department published only one advisory opinion. Just four years earlier, it had published 53. Because sales tax is such a fact-specific tax (a subtle change in underlying facts can cause a transaction to go from being nontaxable to taxable[1]), and because the stakes are so high (possible personal liability for those running the business), we pleaded with the Department to return to its previous level of activity and to start churning out advisory opinions. We indicated that the “[t]the students are here. We’re waiting for the master to (re)appear.”
A Sales Tax Boost for the Energy Storage Industry?
The energy-storage industry has seem a surge in the past few years—driven in part by the growth in renewable energy sources and production from those sources. But while sales tax incentives in New York have boosted other sectors of the energy industry, the energy-storage industry is still on the outside looking in. That could change, however, based on New York State legislation introduced in April that would provide a broad sales tax exemption for both commercial and residential energy-storage systems.
Sales Tax Cases from the TiNY Blog for the Week of March 19, 2020
Here are the sales tax cases from the TiNY blog for the week of March 19, 2020.
Sales Tax Cases from the TiNY Blog for the Week of March 12, 2020
Here are the sales tax cases from the TiNY blog for the week of March 12, 2020.
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