On August 18, 2020, the New York Supreme Court, Albany County, held that there was no rational basis for New York’s imposition of sales tax on storage services performed in New Jersey that occurred subsequent to the initial sale and pickup of items in New York. The taxpayer, a New Jersey corporation, operated corporate records storage facilities in New Jersey. The taxpayer offered a service through which customers could have their records picked up and transported to its New Jersey storage facilities from the customer’s business location and also have the records delivered from storage to the customer’s business location. The taxpayer billed its customers on a monthly basis for the storage services as well as any courier services. On audit, the New York Department of Taxation and Finance (“Department”) took the position that the taxpayer’s charges to New York-based customers, including monthly charges related to storage services provided exclusively in New Jersey, were subject to New York sales tax.

After settling the audit for prior periods but failing to come to an agreement with the Department regarding future years, the taxpayer sought a declaratory judgment in state court that its services were not subject to New York sales tax. The taxpayer argued that sourcing the charges for storage services to New York, when the services were performed entirely in New Jersey, resulted in double taxation in violation of the Commerce Clause. The court held that charges made with respect to the initial sale of services were subject to New York sales tax, since the purpose of the transaction was the storage of items that are picked up in New York. However, the court held in favor of the taxpayer with respect to charges subsequent to the initial sales transaction because such charges were for storage services provided out-of-state.

Vital Records, Inc. v. N.Y. State Dep’t of Taxation and Finance, No. 900088-19 (N.Y. Sup. Ct. Aug. 18, 2020).