Here are the sales tax cases from the TiNY Blog for the week of May 23, 2024.

Determinations:

Faciltysource, LLC, et ux. (ALJ Maloney, May 9, 2024); Div’s Rep. Eric Gee, Esq.; Pet’s Rep. Michael Marino, Esq.; Articles 28 and 29/SaaS and software (Chris Doyle).

This is the second SaaS-as-a-taxable-licensing-of-software case we’ve had in two weeks. Petitioner in this one sold facility management services on an outsourced basis to a chain-store (200 location minimum) client-base. Historically, the services involved “answering calls, finding contractors, scheduling appointments, following up on the service to see if the contractors showed up and performed satisfactorily and doing this when scaled up to a thousand stores, or for some customers, fifteen thousand stores.” Initially this was accomplished through call-centers and paper reports. But it evolved to include “24/7 call-in transaction center access, web-based portal access (portal), work order management, vendor management, electronic invoicing, and data analytics.” From a technology perspective, Petitioner licensed its fmPilot software to its customers to facilitate communication between the customers and Petitioner. 

The fmPilot software was first developed in 2007 to help Petitioner better manage and service its clients. Petitioner, its clients, and the service providers serving the clients all had access to fmPilot. fmPilot allowed the three parties to communicate regarding repair/maintenance needs, orders, and progress by the vendors. When work was completed, fmPilot would send the customer an invoice. But the vendors were all vetted by Petitioner, and Petitioner maintained a 24/7 call center operation to handle incoming requests for service sent on fmPilot, create service orders, and triage problems. 

Like Matter of Beeline.com, Inc. which was released by the Tribunal just a week before (we wrote about it here), Judge Maloney found that the primary function test did not apply when services were bundled with tangible personal property (here, the software). Instead, the Judge found that fmPilot was integral to the service provided to Petitioner’s customers inasmuch as it was used by the customers, Petitioner’s call center employees, and the trade vendors who performed the maintenance services. Based on this, Judge Maloney determined that Petitioner’s services were taxable as the sale of software.

In addition, Judge Maloney found that the services would have been taxable as information services even if they were not bundled with the tangible personal property/software. The Judge found that fmPilot was used to prepare reports and send them to customers based on customer-provided information. And since the reports included “benchmark information” gleaned by Petitioner from other customers (such other customers being a “common data base”) the “personal and individual” exclusion for certain information service did not apply.

The Judge did not, however, accept the Division’s final argument in favor of taxation: that Petitioner’s services were taxable real property maintenance services. The Judge found that “[h]ere, petitioners are not performing both the facilities management services and the ultimate repairs to the property… .” And the Judge implied that the transactions couldn’t be both taxable sales of tangible personal property and taxable sales of a service.

I was not at the hearing. If I had been at the hearing, I may have agreed entirely with the Judge’s determination. But, based on the facts found in the determination I think I would have gone in a different direction. And let me pause here to remind you that these are difficult cases turning on fine distinctions. And in a blog (really at all times), I am not beholden to precedent with which I disagree. When I wrote-up Beeline.com, I expressed my opinion that the principal purpose test should apply to sales that include service and tangible personal property elements. And if the TPP is incidental to the service, then the taxability of the service element should control the sales tax result. Here, the service was managing maintenance to real property. Although the fmPilot software was integral to the provision of the service, the goal of the service was to assist clients in keeping their real property in good repair.

Admittedly, I have trouble rationalizing how software can be ‘integral” and “incidental” at the same time. But my doctor has an app developed for his medical practice that I am required to download (I agreed to the license terms at the time of the download). The app allows me to email my doctor with telemedicine questions (“hey doc, it hurts when I do this!”), ask for prescription refills, get referrals to specialists, get test reports, report back my blood pressure, manage appointments, etc. My doctor’s delivery of medical services to me is facilitated by the app. The app is integral to my doctor’s delivery of medical services to his patients. And I think many larger medical practices have similar apps. Does that mean a doctor’s medical services are now subject to sales tax? I think not (but now I’m hoping I won’t rue the day I asked this question), because the app is incidental to the primary purpose of the medical services doctors provide.

All of this may not be relevant to Petitioner since, based on my appreciation of the Facts Found, the primary function of Petitioner’s services was to keep their customers’ properties maintained, and that is a taxable service.

Matter of Robinov (SALJ Gardiner, May 9, 2024); Div’s Rep. Karry Culihan, Esq.; Pet’s Rep. pro se; Articles 28 and 29/Timy (Pete Calleri).

BCMS issued a conciliation order dismissing Petitioner’s March 19, 2021, request for conciliation conference protesting three January 14, 2019, notices of determination on the grounds that Petitioner’s request was untimely. Petitioner filed a petition with DTA in protest of the conciliation order, and the Division brought a motion for summary determination.

The Judge granted the Division’s motion. The Division showed it had used a standard procedure sufficient to establish the proper mailing of the notices to Petitioner’s last known address, and the Judge held that the Division proved proper issuance of the conciliation order under Tax Law § 1147(a)(1). Additionally, by neither responding to the Division’s motion nor offering evidence to rebut the alleged facts, the facts, including those related to the proper mailing, were deemed admitted.

As such, the Judge concluded that Petitioner’s March 19, 2021, BCMS request fell well after the 90-day period of limitations for the notices mailed on January 14, 2019. Petitioner’s petition was denied and the conciliation order dismissing Petitioner’s request for a conciliation conference was sustained.