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Easylink’s EM Service: In NY, It’s As Taxable As Telegraphy

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In an elegant exercise in statutory interpretation, construing language that not long ago would have seemed outdated, even obsolete, the New York Supreme Court’s Appellate Division has ruled that a modern-day telco’s receipts from supplying electronic messaging services (fax, e-mail, telex, and electronic data interchange (EDI) – a recently-formulated telecommunications “product”) are susceptible to state sales tax by reason of their being functionally indistinguishable from telegraphy – technology that has been in use since 1837 and sales-taxable in New York State since 1965. (Easylink Services v. New York State Tax Appeals Tribunal, Supreme Court of New York, App. Div., 3rd Dep’t, 101 A.D.3d 1180)

The Administrative Law Judge who first heard the case concluded otherwise, however. Easylink Services International (“Easylink”), a global telecom business, offers services that include having a customer provide text or data in any form, which Easylink re-formats or converts (turning a text message into a fax, for instance) to transmit over a variety of media to a recipient anywhere in the world. The dispute before the ALJ required deciding between the taxpayer’s position – that the relevant statutes should be read narrowly, to exclude Easylink’s receipts from application of state sales tax – and the government’s urging that the law be viewed expansively, so as to encompass (that is, to tax) the services Easylink sells; at stake, $560,095.35 in taxes due for the period March 1, 2001, through May 31, 2004. The ALJ found for Easylink on principle, adhering to the long- and well-established tenet of tax litigation that questions of law be resolved against the imposing authority where any colorable argument can be made concerning a tax’s applicability. Advancing that precept, the ALJ noted for the record that Easylink’s services did not meet the “commonly understood” definitions of either telephony or telegraphy.

The case continued, however, when New York’s Department of Taxation and Finance appealed the ALJ’s ruling to the state Tax Appeals Tribunal (“TAT”). The TAT, following the lead of the ALJ, analyzed Tax Law § 1105(b)(1)(B), which stipulates that sales tax attaches to “telegraph service of whatever nature” (emphasizing the broad reach of that phrase), as well as the definition of “telegraphy” found in 20 NYCRR 527.2(d)(2): “use or operation of any apparatus for transmission of … coded or other signals” (language that is deliberately open-ended and inclusive).

Pursuing this line of reasoning, the TAT found it “reasonable to conclude” that Easylink’s telecommunications processes, which employ simple mail-transfer protocols to route data over both the Internet and its own network, thus necessarily entail use of “coded or other signals” to transmit information. The TAT additionally cited the illustrative “Examples” that accompany the published Rules and Regulations, one of which elaborates that “message switching services, transmitted to a computer over lines leased from a communication carrier,” be specifically identified as telegraph services subject to tax, and another example which explicitly recognizes “facsimile” (fax) service as taxable.

On subsequent appeal up the ladder to the Appellate Division, that next-higher level of the New York judiciary declared itself squarely in agreement with the TAT’s conclusions and verdict. However, it took issue with the caution expressed by the lower court that adopting this interpretation might be viewed, in light of the aforementioned “strict construction” doctrine, as a deliberately expansive (and thus questionable) reading of the taxation statutes. Instead, it made a point to declare that, whether construed broadly or narrowly, whether using technologies prevalent in the 1960’s (or the 1830’s) or those that now predominate in the 21st century, “telegraphy” as defined in New York State unquestionably includes the services marketed by Easylink today – thereby neatly invoking some old-fashioned nomenclature to resolve a present-day controversy.

About the Author: Marc Palmer Kram is a Senior Tax Analyst at Wolters Kluwer Tax & Accounting US, where he performs quality control and troubleshooting on the vast taxability database supporting its best-in-class CCH tax-compliance software, and then sometimes writes about what he finds. Learn more about him by visiting his author bio page. Learn more about Wolters Kluwer at and

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