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A Colorado electronic data and document repository company isn’t liable for $204,000 in New York state taxes as a result of a decision by the Division of Tax Appeals on the taxation of out-of-state companies.
Catalyst Repository Systems Inc.'s receipts are derived from the performance of “services” under state tax law and must be allocated to the location where they are performed—Colorado, in this case—not to the customer’s location, the division said in its Aug. 24 decision ( In re Catalyst Repository Systems, Inc. , N.Y.C. Tax App. Trib., DTA No. 826545, 8/24/17 ).
The decision is significant because it’s the third of its kind in which the Department of Taxation and Finance has lost its case against an out-of-state company that provides automated services, Leah Robinson, partner and State and Local Tax Group lead at Mayer Brown LLP, told Bloomberg BNA.
“For decades, and continuing through this case, the Department of Taxation and Finance has taken the position that receipts from automated activities are ‘other business receipts’ to be assigned based on market, rather than being receipts from services assigned to where performed,” she said in an Aug. 31 email.
“This decision will be appreciated by out-of-state companies whose costs of performance are outside of New York,” she said.
Catalyst successfully argued that receipts from its services, which include litigation support through a data and document repository, are “services” under state tax law. As such, the receipts must be sourced to the location where they were performed.
The tax department argued that the receipts should be classified as “other business receipts” and sourced to the location of the customer.
“In this case, the services are performed in Colorado where petitioner’s servers and computer infrastructure as well as the majority of petitioner’s employees are located,” the appeals division said.
“Nonetheless, even if the receipts in issue are properly classified as `other business receipts,’ the fees are not earned in New York simply because the client is in New York,” it continued. “As stated, the activities that generate the fees are not earned in New York, but rather in Colorado.”
To contact the reporter on this story: Gerald B. Silverman in Albany, N.Y. at GSilverman@bna.com
To contact the editor responsible for this story: Jennifer McLoughlin at email@example.com
Text of the decision is at http://src.bna.com/r84.
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