Electronic messaging services provider Easylink Services International is subject to state sales taxes on the fax, email and telex services it provides to customers, an upstate appellate court ruled last week. A 5-0 Appellate Division, Third Department, panel determined in Matter of Easylink Services International v. New York State Tax Appeals Tribunal, 512864, that it was within the purview of the state Department of Taxation and Finance to broadly interpret Tax Law §1105(b)(1)(B) as encompassing the electronic information services sold by Easylink.
The statute imposes a sales tax on “telephony and telegraphy and telephone and telegraph service of whatever nature.” The appeals court upheld the state’s use of the definition of “telegraphy” as the transmission of “coded or other signals” to computers over lines leased from communications carriers, fax services and teletypewriter services (20 NYCRR 527.2 [d]). Justice Leslie Stein (See Profile) wrote for the panel, which included Justices Thomas Mercure (See Profile), Bernard Malone Jr. (See Profile), E. Michael Kavanagh (See Profile) and Elizabeth Garry (See Profile).
Easylink contended that its fax and telex services were not subject to the law and stopped remitting sales tax to the state for those services in 2001. The company was subsequently hit with a tax bill of $560,095, later reduced to $297,358, for the period between March 1, 2001, and May, 31, 2004. An administrative law judge ruled that Easylink was not subject to the sales tax because its service did not fall under the “commonly understood” meaning of “telegraphy.” But the Tax Appeals Tribunal reversed, and the Third Department upheld its ruling.