Competition Can Be Taxing

Consumers compare prices, so why not competitors?

It’s easier than ever to compare prices, whether you’re shopping online or in brick-and-mortar stores with smart phone in hand. It would be surprising if retailers didn’t also compare prices with those of their competitors. After all, pricing is “a core capability for retailers.” Entire websites and numerous apps are devoted to consumer comparison-shopping; similar services are available for retailers.

Information services such as pricing reports may or may not be subject to sales tax, depending on the state and the specifics of the situation. Under New York tax law, for example, some information services are taxable while others are specifically excluded from the tax. New York Tax Law §1105 (c) (1) imposes sales and use tax on:

“The furnishing of information … including the services of collecting, compiling or analyzing information of any kind or nature and furnishing reports thereof to other persons, but excluding the furnishing of information which is personal or individual in nature and which is not or may not be substantially incorporated in reports furnished to other persons….”

[Emphasis mine.]
Confusion sometimes arises, which can lead to negative audit findings. Recently, the New York Tax Appeals Tribunal ruled that a consumer owed more than $225,000 in sales tax on taxable information services that it had assumed were exempt.

Snapshot

For several years, a certain grocery store chain [petitioner] purchased pricing information reports from an information services provider. The grocer did not pay sales tax on charges for that service.

When challenged by the New York Department of Taxation and Finance on this front, the petitioner argued that the reports purchased from the information services provider  “were personal and individual in nature because it specifically requested that [the service provider] gather all of the information contained therein.” It asserted that, although the information gathered may have been general, the fact that it was gathered because of a customized request makes it personal and individual.

The Appeals Tribunal disagreed, noting that the burden of proof to prove the entitlement to the exclusion falls on the taxpayer. The opinion reads:

“The pricing information that petitioner purchases from the [information services provider] is obtained from products on the shelves of supermarkets that are open to the public. There is nothing ‘uniquely personal’ about the price of an item in a supermarket. Furthermore, such information is obviously not confidential, as it is accessible to anyone who enters a store.”

It rejected the claim that customized requests for pricing data somehow “transformed the generalized pricing information on supermarket shelves into personal or individual information.”

As a result, the service is taxable and the grocer is liable for the unpaid sales tax. Read Decision DTA No. 825347 for additional details.

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