Sales Tax State Activity Update - January 2004

Lease Of Travel Reservation System Taxable in New York

In a recent ruling, the Tax Appeals Administrative Law Judge ruled that payments made by various travel agencies to the Taxpayer for using their Computer Travel Reservation System are subject to sales tax.

The Taxpayer (Galileo International Partnership and Apollo Galileo USA Partnership) entered into contracts with various travel agencies providing Travel Reservation systems that included the usage of the taxpayers computer hardware, software and access to the main reservation system. Whereby, the travel agencies in addition to booking airline tickets could also book hotels and cars for their clients.

The Taxpayer was audited and disagreed with the audit assesment and appealed. The issues before the judge were two fold:

(a) Whether the Taxpayers leased tangible personal property to various travel agencies under their contracts, or whether the "true object" of those contracts was access to the travel reservations database.
(b) if the Taxpayers did lease tangible personal property under their contracts to the various travel agencies, did the Division of Taxation properly determined the taxable receipts for the leased tangible personal property?

The ALJ on the first issue found theTaxpayer liable for sales tax as the lessors of the equipment as Galileo & Apollo retained title and control of the equipment during the contract period. In addition, the travel agencies were required to return the equipment back to the lessors at the end of the contract period indicating that the contract was a lease. On the second issue the ALJ found that sales tax is due on the gross amount of the fixed monthly payments received by lessor before any deductions for discounts.

The case is available at: http://www.nysdta.org/Determinations/818671.det.htm

(New York Division of tax Appeals, Galileo International Partnership, DTA Nos. 818671 & 818672, October 23, 2003) 01/04

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