Sales Taxation of Services

Article excerpt

A Look at New York New Jersey, and Fbrida

Revenue-hungry taxing jurisdictions that can no longer afford to rely upon sales tax on tangible personal property are looking to the Internet for new sources of revenue. This search has led many tax jurisdictions to attempt to tax information, investigation, and security services, as well as many other services often delivered over the Internet. But defining those services is often just as difficult as taxing them.

Information Services

New York, the media capital of the world, imposes a tax on information services. Such services are defined as information furnished by printed matter, including the services of collecting, compiling, or analyzing information and furnishing reports to other persons; however, the tax does not apply to "information that is personal or individual in nature and which is not or may not be substantially incorporated in reports furnished to other persons" (New York Tax Law section 1105[c][l]). This tax has traditionally been imposed on reports generated for items such as college-selection services, consumer product reports, credit-monitoring services, genealogical research services, online dating services, people and parts locator services, and fantasy sports reports (Technical Memorandum TSB-M- 10[7]S, "Sales and Compensating Use Tax Treatment of Certain Information Services," July 19, 2010).

The interpretation of the tax has been evolving in New York in recent years. In 2010, certain nontaxable services were reclassified as taxable information services, causing land title abstracts, risk management analysis reports, and sales of public documents (if sold by private entities) to be subject to sales tax as well. Yet, a lack of clarity still exists in defining exactly when a service should be classified as a taxable information service. The initial defining quality appears to be whether the information is available in a database for use by more than one party.

It is not easy to understand when an information service is personal or individual in nature, because even the most basic information request is usually built upon the work of others. It is conceivable that New York could adopt a rationale similar to its position on software, wherein the initial development and sale was considered individualized custom software but, in any subsequent sale, became subject to tax as standardized software (Technical Memorandum TSB-M-93[3]S, "State and Local Sales and Compensating Use Taxes Imposed on Certain Sales of Computer Software," March 1, 1993).

New Jersey, in a similar fashion to New York, also taxes information services. …