TRIBUNAL AFFIRMS DECISION SOURCING “OTHER BUSINESS RECEIPTS” TO WHERE THE WORK WAS PERFORMED -

After three non-precedential Administrative Law Judge decisions—and well after the statute in question has been replaced by new apportionment rules—the New York State Tax Appeals Tribunal has issued a precedential decision holding that revenue earned by an online business is properly sourced to the location where the revenue-generating activity was performed, in this case entirely outside New York. Matter of Catalyst Repository Systems, Inc., DTA No. 826545 (N.Y.S. Tax App. Trib., July 24, 2019). While it did not agree with the Administrative Law Judge’s determination that the receipts were from services, finding that they were instead “other business receipts,” the Tribunal nonetheless rejected the Department of Taxation and Finance’s argument that, under the facts in this case, “other business receipts” should be sourced to the location of customers for years prior to New York’s adoption of market sourcing for all businesses.

Facts. Catalyst Repository Systems, Inc. (“Catalyst”) is a Colorado-based electronic data and document management company that provides litigation support services, including the use of proprietary software and technical personnel to acquire, store, sort, filter, and organize documents, generally used by clients needing to respond to discovery requests in litigation or regulatory proceedings. Catalyst licenses the use of its system to clients, for a designated case, on a month-to-month basis. The clients provide data to be hosted by Catalyst and then use the Internet to access Catalyst’s system to search, review, and retrieve their own data. Catalyst organizes the data at its Colorado headquarters, where it maintains computer servers and storage facilities and where its employees develop, monitor, and maintain the necessary technology. Catalyst employs a large staff to keep the system operating and secure, assist clients in using the system, and build and maintain routers, servers, and other equipment. It charges its clients various forms of hosting fees, including monthly access fees, variable license fees, and base license fees.