New York Court of Appeals Holds Data-Supported Professional Service Taxable

On April 17, 2025, the New York Court of Appeals ruled against Dynamic Logic Inc. in the company’s challenge to a $2.3 million sales and use tax assessment. The case is Matter of Dynamic Logic Inc. v. Tax Appeals Trib. of the State of N.Y., No. 2024-00080 (April 17, 2025).

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 central issue in the case was whether Dynamic Logic qualified for an exclusion from the tax on information services because the information was 1) personal or individual in nature, and 2) was not substantially incorporated in reports furnished to other persons. Both parties agreed the information provided was personal and individual in nature. However, they disagreed as to the definition of “substantially incorporated” in the statute. Dynamic Logic argued that “substantially” in this context was quantitative, meaning “to a great extent or degree.” The Tribunal found that the definition should be qualitative, meaning information was “substantially incorporated” if the information represented a “valuable addition” to subsequent reports.

The Court of Appeals noted support for both definitions in legal jurisprudence, ranging from U.S. Supreme Court decisions to Black’s Law Dictionary. Accordingly, the Tribunal’s use of a qualitative definition of “substantially incorporated” was reasonable, and its decision was affirmed. Every report provided by Dynamic Logic contained a “meaningful amount” of data generated from prior reports, supporting the conclusion that the information provided to one customer was substantially incorporated into reports provided to others. The Court of Appeals also noted that the Tribunal could have reached the same conclusion using the quantitative definition proposed by Dynamic Logic because the company separately marketed and sold an independent product providing access to much of the data generated for each customer’s report.

The dissenting opinion took issue with the burden of proof, arguing that exclusions from taxation (as opposed to exemptions) should be strictly interpreted in the taxpayer’s favor. That rule of construction was “jettisoned” in New York in Matter of Wegmans Food Mkts., Inc. v. Tax Appeals Trib. of the State of N.Y., 33 N.Y.3d. 587 (2019). With the Court of Appeals again reaffirming its deference to the Tax Appeals Tribunal, the dissent noted that nothing has changed. “The taxpayer still loses.”

Tony Gulotta, Principal and National Tax Practice Leader at Ryan, noted that the court’s narrowing of the exclusion for personal or individual reports will increase the number of information services subject to tax. But there is a bright lining, as taxpayers will be able to apportion tax to the locations where those services are used under the state’s multiple points of use exemption.

Companies that use data to provide professional services in New York need to carefully analyze their services to determine the impact from this decision. This is especially true for companies that leverage databases that contain or learn from previous customers’ information. If you have questions, Ryan’s tax experts listed below can help you navigate this area and determine the correct taxability of your services.

TECHNICAL INFORMATION CONTACTS:

Tony Gulotta
Principal
Ryan
212.871.3901
tony.gulotta@ryan.com

Andre Sansil
Director
Ryan
212.871.3901
andre.sansil@ryan.com

The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.