The New York Court of Appeals has agreed to hear the appeal of Dynamic Logic in its case against the Department of Taxation and Finance. The appeal arises from the February decision of the New York Supreme Court, Appellate Division, upholding the Tax Appeals Tribunal’s finding that Dynamic Logic sells taxable information services. On appeal, the case is Dynamic Logic, Inc. v. Tax Appeals Tribunal of the State of New York, No. APL-2024-00080.
During the period at issue, Dynamic Logic sold a professional service to measure the effectiveness of advertisements. The company surveyed consumers or internet users, compared the client’s advertising campaign results to a benchmarking database, and provided a report with advice and recommendations for improving advertising effectiveness. The benchmarking database was also maintained by Dynamic Logic. Clients could separately purchase access to the database.
The Appellate Division determined that the record supported the finding that the primary function of the service was the collection and analysis of information. Graphic data presentations were the predominant feature of the reports, and the advice and recommendations given to clients were drawn directly from the data collected. This made the service an information service under New York Tax Law Section 1105(c)(1).
The exclusion for information that is personal or individual in nature and not “substantially incorporated” into reports furnished to others did not apply. Data from client reports was anonymized and incorporated into the benchmarking database. Information from the benchmarking database was then used to generate future client reports. This made the benchmarking database “qualitatively valuable” to those future reports. Because the data was “qualitatively valuable” to future reports, it was “substantially incorporated” into those reports.
Dynamic Logic claims that the qualitative analysis used by the Tribunal and Appellate Division is novel and results in inconsistent determinations regarding the line between information services and professional services. Its first brief in the case before New York’s high court is due August 19.
“The Department of Taxation and Finance has aggressively pursued information services audits, and this is a murky area of the law that is ripe for clarification,” said Argi O’Leary, Principal in Ryan’s Controversy Resolution practice. “The precedent established in the Dynamic Logic decision risks expansion of the taxation of information services to a variety of services traditionally considered professional services.”
Companies that use data to provide professional services in New York should watch this case carefully, but a decision is not likely anytime soon. If you have questions now, Ryan’s tax experts can help you navigate this murky area and determine the correct taxability of your services. Our contact information is below.
TECHNICAL INFORMATION CONTACTS:
Tony Gulotta
Principal
Ryan
212.871.3901
tony.gulotta@ryan.com
Ray Melone
Principal
Ryan
212.871.3901
ray.melone@ryan.com
Argi O’Leary
Principal
Ryan
212.871.3901
argi.oleary@ryan.com
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