Online Marketing Services Not Taxable in New York

Feb 11th, 2015

The New York Department of Taxation and Finance issued an advisory opinion on the taxability of internet-based marketing products.

The taxpayer provided online marketing services to wholesalers and retailers. For the taxpayer's Core Offering ("CO"), the taxpayer used software to collect customer feedback from the client's website. The taxpayer's employees screened and managed the information and then sent relevant portions back to the client. The taxpayer's design team then helped the client use the information to improve customer education and product promotion. The CO product included a "workbench" component. The workbench was remotely accessible prewritten software that the client could use to analyze data independently.

New York taxes sales of prewritten software. A sale of software is taxable whether the software is on a CD from a store or accessed remotely over the internet. New York also taxes the sale of information services. "Information services" are the collection, compilation, or analysis of information of any kind that is furnished in reports to other persons. Information services do not include advertising services. Advertising services include consultation, development of advertising campaigns, and placement of advertisements with the media without the transfer of tangible personal property.

The CO product was not taxable because it was an advertising service. The compilation and transmission of customer feedback is normally a taxable information service, but the CO product qualified for the advertising exclusion. The main benefit of the CO product was that the client could better place advertisements in the media, not just receive an informational report. Further, the taxpayer helped the client use the informational report to properly display, use, and collect customer feedback in the future. The "workbench" did not make the product taxable, even though the workbench was prewritten software. Its relatively minor role in the overall CO product did not change the taxability of the whole product.

http://www.tax.ny.gov/pdf/advisory_opinions/sales/a15_1s.pdf