Wall Street & Technology is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.


01:10 PM
Cristina McEachern
Cristina McEachern
Connect Directly

Has Bloomberg Been Overcharging You?

Bloomberg customers, in as many as 40 states, reportedly have been overcharged on sales and use taxes for information services. Some customers have already received state refunds, could your firm be eligible?

Bloomberg Customers, in as many as 40 States, Reportedly Have Been Overcharged on Sales and Use Taxes.

Bloomberg's billing procedures could be costing your firm substantial dollars in overpaid sales and use taxes. Forty out of the 50 United States do not collect sales taxes on software services or information services, such as the Bloomberg Professional Service. This service is a financial-information network that provides data, news, analytics and multimedia reports to users on the platform. While the hardware aspect of Bloomberg Professional is usually subject to sales tax, the service or the actual delivery of information is not taxable in 40 states. However, Bloomberg reportedly has been billing and collecting sales taxes on these services nonetheless. There is no evidence to suggest that Bloomberg has kept the money. However, it does appear that Bloomberg has billed, collected and remitted to the appropriate state-tax authority sales tax that was not actually correct or legally required.

Records suggest that Bloomberg has known it has been inaccurately billing customers for at least two years. According to California State Board of Equalization documents, Bloomberg has filed four requests for sales and use tax refunds with the state in 2000 on behalf of customers. While the firms were not named on the documents, those refunds were approved in 2001 and totaled almost half a million dollars. George Jiacomini, senior tax auditor at the California State Board of Equalization, says, when a refund is granted, the money is remitted to the taxpayer (in this case Bloomberg) who has to prove the refund was passed along to its client. He also noted that the names of these clients are not of public record. Two of the requests were for refunds on taxes paid back as far as 1997. Despite the ruling granting the refunds, Bloomberg has not changed its billing policies in California, where it has continued to charge sales taxes on information services. Nor has it changed its policies in Oklahoma or Illinois, states which also do not charge sales taxes on information services. However, Bloomberg has changed its billing policies to account for these state-specific tax laws in at least one state --- Massachusetts.

When asked how long Bloomberg has known about the error and what it is doing to correct the problem, a Bloomberg spokeswoman issued this statement: "We are working with our customers in appropriate circumstances and taking measures to address the issue. Given the sensitivities of the processes that are underway, we believe it would be inappropriate to comment further on the matter at this time." The spokeswoman refused to comment further, however, she first offered to let Wall Street & Technology discuss the issue with a Bloomberg accountant who she said is addressing the issue. Later, that invitation was revoked.

Hardware is a taxable item in many states. However, the taxable nature of services for both hardware and software varies from state to state. Some of the 40 states which do not tax services include California, Connecticut, Massachusetts, New Jersey, Utah, Wisconsin and Oklahoma. New York and Texas do tax services. Bloomberg is legally required to turn over all the tax dollars it collects to the appropriate states. A source close to the situation at Bloomberg maintains that the vendor has passed along all tax dollars collected to the various states' tax agencies.

Another industry source maintains that Bloomberg told him that it has been aware of the tax problem. "This person (at Bloomberg) indicated that they've known about it for a very long time and that it is currently happening in 40 states," he says. "But this person also said they are rushing to implement changes in procedures." The source adds,"When you look at the cost of a traditional Bloomberg, it's almost $1300, but of that maybe $100 is hardware and the rest is service." How much Bloomberg has overcharged the industry is unclear, as is how long Bloomberg has maintained this inaccurate billing practice.

Fixing the Problem
Bloomberg has recently made a serious step towards correcting the problem in Massachusetts. The market-data vendor sent a letter to customers in Massachusetts stating that starting July 1, 2002 " ... our invoice will show one line for the Bloomberg Professional Service (the Service) and a separate line for the equipment (if applicable)." (See excerpt from e-mail). The memo gave no indication that there was an ability to go back and recoup unnecessary sales taxes the customer has already paid, it just points out there were changes in the billing procedures. The memo did not explain why the change was being made. Ellen Wertheim, the representative from the Bloomberg tax department who signed the e-mail to Massachusetts' customers would not comment on the tax issue and referred all questions to the Bloomberg spokeswoman.

Bloomberg has already been confronted by customers who are looking to short-pay their bills -- in other words, customers will not pay the taxes that continue to appear on their invoices --- because of the mistake. One customer, in particular, found the problem by comparing a Bloomberg bill to a Reuters bill and saw the discrepancies in the taxes the two vendors charged. This particular Midwestern customer went to Bloomberg and informed the company that it would be short-paying its tax bills going forward, and had already paid $45,000 to $50,000 in previous taxes on services, says the industry source. The source would not reveal the name of the firm.

Recently, when a Massachusetts firm complained to Bloomberg, Bloomberg informed the firm that it had already calculated the overpaid taxes for the eight-year period between 1990 and 1998, but had not yet calculated the taxes from 1999 until now. Bloomberg found that, for the time period of 1990 to 1998, the firm was overcharged $260,000, according to the source. Bloomberg also said that its lawyers were attempting to retrieve the three-year refund allowed by Massachusetts state law. It was unclear whether Bloomberg or the customer would attempt to recoup the overpaid taxes going back further than the allowable three years.

Customer Recourse
Ultimately, the money is not in Bloomberg's hands, but in each of the 40 states. "The money is going to the state and it's going to be difficult to collect that money back," says the industry source. But customers are placing the blame and the responsibility for getting the money back with Bloomberg. While there is recourse, and some customers have already received refunds from at least one state, the process of getting the money back may be difficult.

Furthermore, each state has different rules regarding the number of years for which it will grant refunds. Both California and Massachusetts allow refunds for up to three years, for example (see chart above). Customers should check with their state's taxing authority for specific information on how far back they may be entitled to seek a refund. Alternatively, they can ask their company lawyer or accountant.

Otherwise, the industry source suggests customers compare their Bloomberg bill to that of another market-data provider and check to see whether the sales tax charged is consistent. If not, the customer should go to their internal tax department to find out which bill is correct and if they are being over-charged by Bloomberg. "There's always a possibility the other bill could be incorrect," the source says. "Once you go to the tax department and they say, 'Yes, we're not supposed to be taxed on service,' the tax department typically knows how far back you can go."

The next step would be to go directly to the customers' account representative, raise the tax problem and commence short paying their bills to account for the taxes. "Bloomberg has set up a structure for people who are short paying their bills because of the tax issue," says the source. "So the account rep will put a special note on the account so the system doesn't continue to send messages to the customer saying that they haven't paid their bill in full."

Samuel Bruskin, a partner at Boston-based law firm Choate, Hall and Stewart, who specializes in Massachusetts-taxation laws, explains that customers themselves are not legally entitled to seek a refund or abatement, instead, the customer must go to the vendor, who then has to go back to the state and file for a refund. But in some instances, Massachusetts' customers can get Power of Attorney from the vendor in order to seek a refund or abatement from the state themselves. Even in these cases, "The customer would have to go to the vendor, say the wrong amount was collected, or shouldn't have been collected at all, and ask the vendor to get the money back," says Bruskin. After the vendor files, it must wait to hear if its refund will be approved.

Why has Bloomberg allegedly been charging for sales and use taxes in states where there is no tax? A California tax lawyer suggests that these types of mistakes can happen. He points out that there is confusion that lies in the state-specific tax laws. In California, there has never been a sales tax on services -- such as market data -- or intangible property, only on tangible-personal property. But the distinction sometimes can become difficult for vendors selling products and services combined. "There can be a lot of gray areas when companies start mixing tangible property with services and intangibles all together," he says. "So sometimes companies can make errors when they start bundling and combining things, sometimes it's difficult to tell what the true character of a transaction is." <<<


Are you eligible for a refund?
To find out if you've been overcharged for sales tax on information services, one source suggests comparing bills from different market-data providers to see if the sales tax is consistent. If the taxes are not consistent, check with your internal tax department to learn the tax laws for your particular state (see box for partial listing of states that do or do not charge the sales tax). If the tax department concurs that your state does not charge the sales tax that you've been charged for, talk to your Bloomberg account representative to work out a solution. Some firms have discontinued paying the taxes on future bills, one source notes.


In the chart above, the states in blue do not charge sales tax on information services, while the states in grey do. Sales and use tax laws vary by state, as do the statute of limitations on refunds for overpaid sales taxes. Below is a sampling of state laws* regarding the number of years back that companies can seek refunds.

3 Years: California, Idaho, Illinois, Kansas, Maine, Massachusetts, Nevada, Oklahoma, Pennsylvania, Virginia

4 Years: Arizona, Wisconsin

5 Years: Montana

* List compiled according to information provided by state tax authorities

SOURCE: Jeremiah Lynch, National Dir. of Sales & Use Tax Services, Ernst & Young


Bloomberg has changed its billing policy in at least one state, Massachusetts. Below is an email to Bloomberg's Massachusetts' clients alerting them to the change.

-----Original Message-----
From: [email protected]
mailto:[email protected]
Sent: Wednesday, June 26, 2002 10:13 AM
Subject: Invoice Change Notification
Importance: High

Dear Customer:

According to Massachusetts sales tax law and regulations, information services are not subject to state and local sales tax.

Starting July 1, 2002, for your company's Massachusetts locations, our invoice will show one line for the Bloomberg Professional Service (The Service) and a separate line for the equipment (if applicable). This will be effective for all invoices dated July 1 or later. The total cost of the Bloomberg product has not changed. Tax will be calculated on the equipment but not The Service. At this time, there will be no changes to the other items you might see on your invoice. This also does not affect anyone's tax-exempt status.

If you have any questions, please contact Bloomberg Customer Support at (212) 893-3960.

Ellen Wertheim
Bloomberg Tax Department

Register for Wall Street & Technology Newsletters
Exclusive: Inside the GETCO Execution Services Trading Floor
Exclusive: Inside the GETCO Execution Services Trading Floor
Advanced Trading takes you on an exclusive tour of the New York trading floor of GETCO Execution Services, the solutions arm of GETCO.