Petitioner provided marketing analysis services that the Division viewed to be taxable information services. Specifically, Petitioner helped its customers measure their advertising effectiveness by (1) surveying consumers or internet users who had seen a particular advertisement and those who had not seen the ad, (2) comparing and analyzing the results, and (3) informing its clients as to how well the ad performed and what the clients could do to improve ad performance. At first blush, there seems to be significant similarity to the MarketShare Partners, LLC case we reviewed a few weeks ago. In that case, the taxpayer was a marketing analytics firm that enabled large companies to measure, predict, and improve the impact of their marketing spend. The ALJ concluded that the main service was a nontaxable marketing consulting service rather than a taxable information service. So we’d expect a similar result in this case, right? Not so fast . . .

As in MarketShare, this Petitioner argued that its primary function was to provide marketing consulting services. But the Judge concluded that this assertion was contrary to the evidence presented. According to the Judge, the primary function of the transactions was to collect information regarding the effectiveness of the customers’ advertising by conducting surveys, analyze that information, and furnish that information and analysis to its clients via reports. In other words, the information predominated, not the consulting. The Judge relied on the fact that the information collected by Petitioner was integral to its function, and without the collected data, Petitioner would have nothing to analyze and report to its clients. The Judge cited testimony from Petitioner’s witness explaining that Petitioner’s customers “want to know how well their advertising campaigns are performing.” In other words, it seems that the Judge was focused on the backward-looking nature of the service. The Judge further concluded, “Petitioner gathers information on the advertisement’s performance using its data collection techniques, including its use of tracking and survey technology, analyzes the data collected, and then furnishes its analysis of the information to its clients.”

I can’t help wondering why there wasn’t additional discussion on the post-survey analysis and consultation. As detailed in the facts of the case, the main product offerings seem to include a post survey consultation, usually via phone call, with one of Petitioner’s analysts. These facts are not mentioned in the Conclusions of Law section of the decision. If these consultations focused exclusively on the how well the previous ad performed, then I think the ALJ probably got it right and the information was the primary function of the transaction. But if the post-survey consultation focused more on prospective marketing activity (i.e., “what did we learn and how should we structure our next campaign to make it more effective”), then I think there’s an argument to be made that the primary function is not the past marketing campaign data, but, rather, future marketing campaign design and consultation – a nontaxable service. It’s difficult to know exactly what was argued in Petitioner’s post-hearing briefs, but if there was a significant discussion of forward-looking marketing consultation, then the determination contains a significant analytical hole that I hope will be addressed by  the Tribunal. If not, then, as I said, the ALJ probably got it right and the marketing campaign data was likely the primary function.

Even if the information was the primary function of the transactions, the sales might still be nontaxable if the information was “personal or individual in nature” and which was “not or may not be substantially incorporated in reports furnished to other persons.” Here, the ALJ found that the information did not qualify for this exclusion because, although the information was found to be individual and personal, Petitioner’s contracts clearly indicated that Petitioner “retains the rights to copy, distribute, resell, modify and otherwise use the data it collects from end users through the performance of its services for clients and may use the data in connection with its . . . database, so long as it does not disclose the data in a manner that identifies the client or its affiliates.” In other words, under the contracts the data may be substantially incorporated by Petitioner into reports furnished to others.

One final note: the ALJ adds a sentence in support of the conclusion that the information does not qualify for the “personal or individual” exclusion because Petitioner’s “clients may furnish the data and information collected through petitioner’s services in the client’s own reports to the public and its clients.” This seems to make the exclusion too narrow. What a customer does with the information once it has it, whether it chooses to disclose it in some manner, should not impact whether the information as between the vendor and customer qualifies as “personal or individual.” We should watch for such a limiting application of the exclusion going forward.