Online Loan Company Saves Over $2.1 Million in Sales Tax After Winning Appeal
The New York Division of Tax Appeals granted an appeal from LendingTree, a Delaware-based company that connects potential borrowers and lenders through their online loan marketplace. LendingTree offers a service to lenders that verifies a borrower’s information before a loan can be agreed upon. In December 2021, Administrative Judge Kevin R. Law determined that this particular service is not subject to New York sales tax because it is not the “primary function” of the company. The finding saved LendingTree over $2.1 million in sales tax, plus approximately $1.7 million in interest and penalties.
“To neglect the primary function of petitioner’s business in order to dissect the service…into taxable events stretches the application of Article 28 far beyond that contemplated by Legislature.”
LendingTree Services Found Not Taxable
To determine whether LendingTree should be granted their appeal, the court was tasked with deciding if the company’s sales on its online loan marketplace were considered taxable services pursuant to New York Tax Law § 1105. The Tax Law imposes sales tax on every retail sale of tangible personal property, with few exceptions. One of the services subject to tax under the law includes the services of collecting, compiling, or analyzing information of any kind. The question at hand was whether LendingTree’s service falls under this taxable section of collecting, compiling, and analyzing information.
Through their investigation into LendingTree, the court found that any lenders wanting to use the online loan marketplace must undergo a screening process involving legal and compliance review. A sales operation team from LendingTree runs a background check on the lender which includes an examination of any judgements or liens, bankruptcies, foreclosures, or criminal records. This service is included in the fee lenders pay to use the loan marketplace and is seen as a major selling point.
Although LendingTree does collect, compile, and analyze information from borrowers, Tax Law § 1105 explicitly excludes the furnishing of information that is personal or individual in nature and which is or may not be incorporated into reports furnished to other persons. The court provides examples of taxable services, such as a list of potential customers’ phone numbers, and nontaxable services similar to a report from a private detective to a client.
Instead of breaking down their services into individual components, the court looked at LendingTree’s services in their entirety to determine the “primary function” of the company. Based on this information and the investigation into LendingTree’s operations, it was found that the screening service provided to lenders was not the primary function of the company. Thus, the service is considered not taxable and LendingTree’s appeal was granted. The finding saved LendingTree millions in New York sales tax and associated interest and penalties.