Sales Tax Articles
Sales Tax State Activity Update - November 2006
New Jersey Takes a New Look at Information Services Taxability
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." (See N.J.S.A. 54:32B-3(b)(12).) The tax applies to the sale of information services delivered to customers in New Jersey.
The law allows the purchaser of a taxable service which will be concurrently available for use in more than one jurisdiction to provide the seller with a Multiple Points of Use (MPU) exemption form. "Concurrently available for use in more than one jurisdiction" means accessible or ready for immediate use at the same time in more than one jurisdiction. Upon receipt of the Certificate of Exemption, a seller is relieved of the obligation to collect, remit or pay the tax and the purchaser is obligated to remit the applicable sales tax directly to the Division. A purchaser claiming the MPU exemption may use any reasonable but consistent and uniform method of apportionment that is supportable by the purchaser's business records as they exist at the time of the sale. If the purchaser does not provide the Streamlined Sales and Use Tax Agreement Certificate of Exemption, the sale is sourced to the location where the service is received by the purchaser.
Below are some examples of taxable and non-taxable information services:
Taxable
A business sells credit reports to individuals seeking their own report, as well as to businesses that will use the information for reviewing credit history, etc. This service is an information service and is subject to tax. The information is not personal or individual because it is furnished in reports sold to persons other than the individual.
A business maintains a computer database of statistical information, which is sold to customers. A customer pays a fee for a period of time during which information can be accessed online, with the option to just view it or download and/or print it. No disk or other information is sent to the customer. This service is an information service and is subject to tax. The information is not personal or individual.
A business tracks and measures sales of drugs to pharmacies, hospitals, nursing homes and other service providers. Customers stipulate the parameters of their request, for example by indicating the specific drugs, the geographic area, the time frame, etc. This service is an information service and is subject to tax as of October 1. The fact that the customer customizes their request by selecting the particular information to be searched does not make the information personal or individual.
A web-based business gathers statistics concerning the characteristics and activities of Internet users and publishes these statistics on its website. This information is available to anyone subscribing to the service. This service is an information service and is subject to tax. The information is not personal or individual.
A business sells a news clipping service whereby it searches information from a variety of sources and gathers any information which mentions the customer's name. The information collected is provided to the customer. The news clipping service is an information service, however, the information is personal or individual to the customer and therefore the service is not subject to tax.
Non-Taxable
A business sells criminal background checks of potential employees on behalf of employers. The search is conducted through the Internet. The background check service is not an information service. However, it is an "investigation and security service," which is subject to tax as of 10/1/06. If the background report is sent to a location in New Jersey, sales tax must be collected.
A business sells consulting services to advise clients on their hardware and/or software needs. These services include interviewing staff to gather information and presenting a written report on findings and recommendations. The consulting service is not an information service and is not subject to tax.
A business sells payroll processing services for its customers by receiving employee specific information and printing pay checks, pay stubs, and/or similar items. The payroll processing service is not an information service and is not subject to tax.
A web-based business allows clients to obtain up to date information about their own website, such as online behavior. The information is collected by the business by embedding code into the client's website design, which sends the info to the business's server. Clients can request reports based on their needs, such as the amount of time customer's spend viewing, length of time on the website, etc. This service is an information service, however, the information is personal or individual in nature and thus, the charge is not subject to tax.
The full text may be accessed on the State of New Jersey Website.
(Tax Notes - Information Services- New Jerse y - 10/04/06)
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