May 28, 2025

Executive Summary

The New York (“NY”) Court of Appeals recently issued an important decision in In the Matter of Dynamic Logic Inc. v. Tax Appeals Trib. of the State of NY, which involved the Department of Taxation and Finance’s (the “Department”) assessment of sales & use tax (“S&U Tax”) on digital advertising services which include elements of data, analysis, and strategic recommendations for client advertising. The Court of Appeals ultimately upheld the decision of the NY Appellate Division in approving of S&U Tax being imposed in this context. The resulting ramifications for certain digital advertising services, in addition to any other technology or consulting service provider which relies on data analytics and aggregation, include new or additional S&U Tax compliance and remittance responsibilities in NY and potentially other jurisdictions.

Impacted Clients

This decision directly impacts companies that provide customized advertising or marketing reports, digital analytics services, benchmarking tools, or any consulting services that incorporate client data into aggregate databases or comparative studies sold or provided to other clients. Even services that include strategic advice may be treated as taxable if the underlying data collection and analysis are deemed the service's primary function.

When Does This Advice Apply?

Businesses need to evaluate their New York sales tax exposure whenever they provide services that involve collecting client-specific data and later aggregating or reusing that information — even in anonymized form — across multiple customers. This is particularly urgent for companies currently treating their services as non-taxable consulting or digital content without separately analyzing whether the services fit New York’s expansive definition of taxable information services.

Facts of the Case

Dynamic Logic concerns the taxability of certain advertising data and consulting services provided by the Petitioner. These services are aimed at measuring the effectiveness of advertising campaigns on behalf of ad agencies and publishers. Specifically, the services at issue utilize a research tool called AdIndex, which surveys consumers or internet users who have seen the advertisement and compares the results to responses of those who have not seen the advertising content. Once the survey data is collected and the results compiled, the Petitioner provides its clients with a report that analyzes those results. Those reports compare a 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. The Petitioner then provides a detailed report with strategic advice and recommendations for improving advertising effectiveness. Clients are also able to separately purchase access to the

The Department issued an assessment of S&U Tax on Petitioner for its services and the Petitioner subsequently appealed to the NY Tax Appeals Tribunal (“Tax Tribunal”), which found in favor of the Department. The case was then subsequently appealed to the NY Appellate Division, which determined that despite the services at issue involving recommendations, analysis and consulting, the primary function of the services was the data that was compiled, aggregated and shared with clients as part of the AdIndex analysis and benchmarking tool. Accordingly, the service was correctly classified as a taxable information service by NY.

Furthermore, since each report incorporated MarketNorms data, the Appellate Division determined that the petitioner could not successfully advocate that the information at issue is excluded from tax on account of the data/information not being incorporated into reports made available to others. The Petitioner ultimately appealed to the NY Court of Appeals, the State’s highest court.

NY Court of Appeals Holding

The Court of Appeals held that the service’s primary function was collecting and analyzing advertising data and therefore, the product constitutes a taxable information service absent an applicable exclusion under NY S&U Tax law. The Court also held that the “personal and individual” exclusion from information services did not apply because each clients’ information was “substantially incorporated” into reports for others in an anonymized benchmarking analysis.

While the Petitioner and Department disagreed as to the definition of “substantially incorporated” for purposes of the above-referenced exclusion, the Court of Appeals noted support for either side’s view on the pertinent definition. Accordingly, the Court of Appeals agreed with the Department’s assessment of S&U Tax on Petitioner’s digital advertising consulting services.

Case Commentary

The NY Appellate Division and Court of Appeals’ holding in Dynamic Logic, including the associated logic and rationale behind the rulings, is not limited to digital advertising. Many other technological, business or financial consulting companies will likely be subject to NY S&U Tax collection, reporting and remittance obligations. Due to the changing technology involved with various digital information and data services and recent NY case law, this is an area that will likely be easy to miss for many of these businesses.

In addition, the conclusion reached in Dynamic Logic is difficult to reconcile with the holding in In the Matter of IT Works Marketing, Inc., DTA No. 829134 (Dec. 2021), where the NY Tax Tribunal considered another similar digital advertising tool which measured and analyzed sales and customer data, but there was only a relatively small overlap and incorporating of non-client-specific/personal data. In IT Works Marketing Inc., the NY Tax Tribunal concluded that the service at issue was not a taxable information service. Therefore, it is becoming increasingly difficult for businesses to understand where to draw that line of taxable or nontaxable information services.

Finally, there was a strong dissenting opinion in Dynamic Logic which argues that the services at issue should be eligible for the personal and individual exclusion under the law because the raw data at issue is not "substantially incorporated" into Petitioner’s reports and consulting services made available to other clients. Alternatively, instead of being reproduced and made available to other clients, the only data or information service made available to other clients was anonymized and aggregated benchmarking information. The majority opinion of the Court of Appeals did not particularly address this fine distinction.

Conclusion

The Department continues to aggressively impose S&U Tax in a variety of ways when it comes to technological and digital solutions sold or licensed to retail and business customers. NY S&U Tax may be imposed based on a variety of different grounds including, whether the product or service involves electronically delivered software or software-as-a-service (“SaaS”), whether the service can be categorized as an information service using the rationale discussed in this article, or even cybersecurity services categorized as taxable protective services. Due to the magnitude and complexity of these issues, we recommend reviewing with your tax advisor for planning and compliance purposes. Please reach out to Jaime Reichardt or another member of Citrin Cooperman’s State and Local Tax team if you have any questions on the contents of this article.