A recent decision of the Appellate Division of New York’s Supreme Court confirms that at least certain reports prepared for advertisers are subject to New York Sales Tax. In Re Dynamic Logic, Inc., which was decided on February 29, 2024, affirmed a NYS Tax Appeals Tribunal determination that the “AdIndex” service is an “information service” subject to NYS Sales Tax. 

The Dynamic Logic decision revolved around NYS Tax Law §1105(c)(1), under which “receipts from every sale” of “[t]he furnishing of information by printed, mimeographed or multigraphed matter or by duplicating written or printed matter in any other manner, including the services of collecting, compiling or analyzing information of any kind or nature and furnishing reports thereof to other persons,” are subject to NYS Sales Tax.  Excluded from taxation, however, is “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.”  The latter exclusion was at the heart of the Dynamic Logic decision, as the court effectively concluded that the AdIndex service consists primarily of collecting and analyzing survey information and "substantially incorporating" that information into reports delivered to all Dynamic Logic’s customers.

The court in the Dynamic Logic case described the AdIndex service as “a research tool that gauges the effectiveness of a particular advertisement by surveying consumers or Internet users who have seen the advertisement and comparing the results to responses of those who have not been exposed to it.” The service is delivered (i) in the form of a report analyzing the survey results and comparing the “client's advertising campaign results to industry-specific benchmarking data from a database called MarketNorms, which contains anonymized and aggregated results from the standardized questions contained in AdIndex studies,” and (ii) by providing “advice and recommendations for improving advertising effectiveness” to Dynamic Logic’s customers.  Dynamic Logic asserted that (i) the AdIndex service constitutes a nontaxable consulting service, as opposed to a taxable information service, largely based on the advice and/or recommendations for improving the effectiveness of each client's ad campaign, and (ii) even if AdIndex is an information service, its sale is not subject to New York Sales Tax because the information contained in the reports furnished to its customers is not incorporated in reports provided to other persons.

In reaching its conclusion, the court explained that the AdIndex reports present Dynamic Logic’s gathered data in graphs, tables and charts, with text calling the customer's attention to various significant points of data, but that, based on the court’s review of sample reports, the graphic data presentations are the “predominant feature of the reports” and “the narratives or ‘insights’ provided in the reports consist of an analysis of the data obtained.”  The court further observed that while the reports “include certain advice and/or recommendations to improve the effectiveness of the client's ad campaign … , such recommendations are, for the most part, drawn directly from the data collected.”  In the court’s view, Dynamic Logic’s training documents, promotional materials and sample contracts “show that AdIndex's key deliverable was the collection and analysis of information and that the recommendation component of the reports was ancillary thereto.”

The Dynamic Logic decision is another reminder of the fine line that often separates transactions subject to New York Sales from those that are not.  Administrative and judicial decisions in this area are often based largely on factual interpretation and can be influenced by careful planning and attention to structuring services and transactions in a manner that fully takes account of the potential tax consequences.  In the case of the AdIndex service and similar services offered by companies to advertisers, agencies and publishers that measure the effectiveness of their advertising campaigns, for example, it is worth considering whether those services and the reports delivered to customers could avoid being subject to New York Sales Tax by being presented in a more customized bespoke form that highlights each client’s particular situation, issues and needs.