[BY CHRIS LEE]
Effective October 1, 2006, information services are subject to New Jersey sales and use tax. Information services are defined in the law as “the furnishing of information of any kind, which has been collected, compiled, or analyzed by the seller, and provided through any means or method, other than personal or individual information which is not incorporated into reports furnished to other people.”
The tax only applies to the sale of information services delivered to customers in New Jersey. The tax applies to information services providers both inside and outside of New Jersey – where services are provided to clients in New Jersey.
Based on discussions with CMOR and MRA's tax advisor, Michael P. Sweeny, a CPA with over 20 years of accounting experience, this has been interpreted to mean the following: If the nature of the service provided or the data collected and compiled is of a unique nature such that it is intended for use by the customer or client to whom it is provided and it is not made available to anyone else, the service is exempt from taxation.
- A data collection company that provides data to a person in New Jersey is not subject to the information services tax.
- A survey research firm that writes a customized, uniquely tailored report and delivers that report to a person in New Jersey is not subject to the information services tax.
- A qualitative research firm that collects, analyzes, interprets data and generates a unique report for a person in New Jersey is not subject to the information services tax.
- A quantitative research firm that collects, analyzes, interprets data and generates a unique report for a person in New Jersey is not subject to the information services tax.
- A research company that collects data that is generic and usable by more than one person, without any significant modifications is apparently subject to the information services tax.
Person: New Jersey broadly defines a “person” to include the following entities: individual, trust, partnership, limited partnership, limited liability company, society, association, joint stock company, corporation, public corporation or public authority, estate, receiver, trustee, assignee, referee, fiduciary and any other legal entity. In other words, New Jersey considers persons and companies to be like entities for tax purposes.
Customized v. Non-Customized Services: The New Jersey information services tax code indicates that customized, unique transactions are not subject to the information services tax. In the alternative, non-customized data that can be sold to multiple parties with little modification is subject to the information services tax.
Report Writing & Consulting Services: New Jersey considers report writing to be consulting services. Consulting services are not considered information services. By inference, written survey research reports are considered consulting services and therefore not subject to the New Jersey information services sales and use tax.
Benefit Derived Theory: Providers of taxable information services should be aware of the “Benefit Derived Theory.” The theory asks “who derives the benefit provided” for services rendered. In this situation, if a client has offices in New Jersey and other states, and the information service provider sends data to the client’s location outside New Jersey, and the New Jersey office benefits from the information, the service may be considered taxable. In other words, it is inadvisable to send taxable information services to a company’s location outside of New Jersey for the purpose of avoiding the sales and use tax.
The interpretations provided by Mr. Sweeney appear to exempt a large portion of the survey research profession from the information services sales and use tax. However, CMOR and MRA still advise you to consult with a tax professional who is well-versed in New Jersey state and local taxation issues to determine whether and when this tax applies to your business.
CMOR & MRA will continue to monitor developments regarding the New Jersey information services sales and use tax, and provide updates to members as necessary.
The New Jersey Division of Taxation Tax Notes on Information Services is available at: http://www.state.nj.us/treasury/taxation/index.html?infoservices.htm
- Chris Lee was Director of Government Affairs for CMOR.
This information is not intended and should not be construed as or substituted for legal advice. It is provided for informational purposes only. It is advisable to consult with private counsel on the precise scope and interpretation of any laws/regulation/legislation and their impact on your particular business.