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SALT TALK: Who Let the Dog Out? – Legislation by Administration Leads to Confusion

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Jan 17, 2017 11:00:00 AM
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I’ve never been without a pet and have always considered them to be family members, not tangible personal property.  Apparently, the New York State Department of Taxation and Finance agreed with me when they held “[d]og walking is not among these enumerated services subject to sales tax[1].”  Yet, less than two years later, the Department growled out another Advisory finding that “pet sitting, which includes dog walking, refreshing cat litter boxes, or providing food to the pets is subject to State and local sales and use tax[2].”

The Department reasoned that “. . . maintaining, servicing or repairing tangible personal property . . .” is an enumerated service and the Regulations clearly define animals to be tangible personal property.  Why the sudden shift in opinion?  I would like to think it was the Department’s desire to administratively broaden the tax base and not due to any bias against cats[3].

I’ve blogged several times about the Department’s fiasco regarding protective and detective services [June 27, 2016, March 7, 2016].  It took the Tax Appeals Tribunal to reign in the Department and remind them that receptionists are not trained security guards and their services are not subject to sales tax.  Yet, the Department can’t keep its paws off this issue, despite the lack of any law change. 

The Department has even legislated via the use of the “Important Notice.”  In 1990, when protective and detective services first became subject to tax, the Department issued Important Notice N-90-20.  Without offering an explanation, the Notice states:

When detective and investigative services are performed and an investigative report is rendered as a result, the tax consequence of that service is determined by the point of delivery of the report rather than the location of the subject of the report.

The “Important Notice” is completely devoid of any analysis and ignores judicial decisions that go back at least as far as 1937[4]“One does not think of a telephone company as a seller of books to its subscribers. It renders a service[5].”  While clearly detective services are a service, is the point really the report, if one is issued at all? 

Why stampede all over the Department[6] on this issue, you ask?  It’s hard enough for taxpayers to know the actual rules, let alone practitioners.  Oftentimes, we are well aware that the Department’s positions in some of these areas, especially regarding novel products and services no one could dream of just a few years ago, are on shaky ground.  But, it is just too costly to challenge the Department head on.  As advisors, we need to know the laws, rules, and the realities and advise our clients based on all three.

New products and services appear frequently and state tax departments struggle to keep up with rulings and proclamations that are not always clear. So, if you are uncertain about the taxability of a product or service, contact me at WBerkowitz@BerdonLLP.com or your Berdon advisor.

Wayne Berkowitz, a tax partner and head of the State and Local Tax Group at Berdon LLP, advises on the unique requirements of governments and municipalities across the nation.

[1] Petition of Two Dogs & A Goat, Inc. TSB-A-98(81)S (December 2, 1998).

[2] Petition of Pet Pals Pet Sitting, Inc.  TSB-A-00(35)S (September 7, 2000).

[3] Planning note for dog walkers:  One could argue that dog walking services in and of themselves, aren’t taxable and it was the litter box cleaning that made the entire service subject to tax.  And to those dog people who don’t like cats, I recommend you try it.  Dogs love them too.

[4] Dun & Bradstreet, Inc. v. New York, 276 N.Y. 198 (N.Y. 1937)

[5] Id.

[6] I don’t mean to single out the NYS Department of Taxation and Finance, as they are often as fair as they are not.

Topics: SALT TALK

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