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Supermarket giant Wegmans doesn’t owe taxes on third-party audits and reports detailing competitors’ pricing information, according to a New York appellate court.
The New York Supreme Court, Appellate Division, ruled that Wegmans Food Markets Inc.'s purchase of competitive price audits (CPAs) and reports fell into a statutory exclusion from sales tax because the services purchased were “personal or individual in nature and were not substantially incorporated into reports of others.” The Nov. 22 decision annulled an underlying Tax Appeals Tribunal determination that affirmed a lower administrative law judge’s ruling, both finding that the CPAs and written reports didn’t fall within the exclusion under Tax Law Section 1105(c)(1) ( Wegmans Food Mkts., Inc. v. Tax Appeals Tribunal of N.Y. , 2017 BL 419635, N.Y. App. Div., 11/22/17 ).
Wegmans contracted with RetailData LLC since 1995 for the CPAs and written reports to inform the supermarket chain’s pricing strategies. In 2011, the New York Department of Taxation and Finance conducted an audit of Wegmans’ sales and use tax liability between June 2007 and February 2010. Finding that Wegmans purchased “taxable information services” by acquiring the CPAs and corresponding reports, the department determined the company owed an additional $227,270.
Wegmans argued that the purchase of pricing information from RetailData was personal and individual in nature, and therefore, subject to the tax exclusion under Tax Law Section 1105(c)(1). The statute carves out from sales tax “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 Appellate Division agreed, observing that the information provided to Wegmans “was uniquely tailored to petitioner’s specifications and was related exclusively to implementation of its confidential pricing strategy.”
“To expand the interpretation of Tax Law § 1105 (c)(1) to allow for the Tribunal’s denial of the subject tax exclusion based solely on the fact that the information ultimately furnished derived from a public source would, under the circumstances presented, serve to defeat the purpose of the exclusion,” the court concluded.
The Commissioner of Taxation and Finance had countered that RetailData’s CPAs and reports were based on publicly available information—prices of products on supermarket shelves—and therefore the information wasn’t personal or individual because it came from a “common source or data repository.”
However, the appellate court found that RetailData didn’t collect the data from one general source. Based on a unique and confidential pricing strategy, Wegmans furnished criteria for the audits, including specific stores, specific pricing information, and frequency of audits. RetailData routinely audited multiple supermarket chains and multiple retail locations within each chain, with data collectors visiting individual locations to manually record the requested pricing data.
“To the extent that the pricing information for each of petitioner’s competitors regularly fluctuated accordingly to their own unique pricing strategies, there was no singular preexisting common source or data repository that RetailData could access to timely obtain the specific pricing information that petitioner had requested,” according to the opinion.
The Appellate Division pointed out that RetailData maintained the raw data and pricing information as a “separate and distinct work component or database” for the purpose of preparing the written reports. Furthermore, RetailData was prohibited from providing the information to third parties under a confidentiality provision in Wegmans’ contract—and there was no evidence that other RetailData clients had accessed or obtained the information.
The court also found it significant that RetailData analyzed the information through its proprietary software according to Wegmans’ specifications, and the written reports were generated in a customized format compatible only with Wegmans’ proprietary price management system.
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The Appellate Division's opinion is at http://src.bna.com/ut8.
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