In Matter of LendingTree Inc., DTA No. 829714 (N.Y. Div. Tax App. ALJ Div. Dec. 9, 2021), a New York administrative law judge (“ALJ”) found that the matching of prospective borrowers with lenders was not a taxable information service.  While certain components of the matching process may constitute taxable information services, the ALJ found that the “primary function” of the matching process was not a taxable information service.    

In New York, information services are subject to the sales tax.  Information services generally include the services of collecting, compiling, or analyzing information and furnishing reports thereof.  Examples of taxable information services include credit reports, tax or stock market advisory and analysis reports, a weekly newsletter showing the range of commodity prices, a monthly bound volume of current advertising rates, and lists of prospective customers’ telephone numbers.  Explicitly excluded from taxable information services is the furnishing of information that is personal or individual in nature. 

LendingTree operates an online loan marketplace through which it matches prospective borrowers and lenders.  As part of the matching process, LendingTree verifies the information on the prospective borrower’s loan request form and, depending on the product, performs a soft credit inquiry through third parties, among other services. 

Consistent with other administrative decisions, the ALJ reviewed the “primary function” of LendingTree’s service, rather than each component, to see if constituted a taxable information service.  Under this test, the ALJ determined the primary function of LendingTree’s service is to facilitate the writing of loans by its customers, not a taxable information service.  The ALJ was moved by the emphasis LendingTree placed on closing loans, and that in some instances, LendingTree was not paid unless the loan closed.  The inclusion of information services as a means to effectuate the matching process did not control for the ALJ since the primary function of the matching process was a non-taxable service.   

This decision is an important rebuke to efforts by New York auditors to expand what constitutes taxable information services through aggressive audits.  This decision also solidifies the applicability of the primary function test in analyzing the taxability of services.  Taxpayers facing New York sales tax audits related to information services should consider the primary function of the audited service.  Other taxpayers may want to consider refund claims under the same analysis. 

Contact the author: Trevor Mauck