Were an accounting firm's economic and financial litigation-support services taxable as business analysis or management consulting in Connecticut?

Note -- obsolete historical guidance. DRS marks this ruling "not current" and states that it was obsoleted by Announcement (AN) 94(4). Confirm current treatment of litigation-support and consulting services.

Plain-English summary

An accounting firm provided financial and economic litigation support. Its work included reviewing case materials, conducting independent research, analyzing information, forming expert opinions, preparing exhibits and testimony, and helping attorneys with interrogatories, depositions, and trial preparation.

DRS considered two billing structures: the law firm could hire and pay the accountant, or an insurance company defending the case could engage and pay the accountant while the work product benefited the law firm. In both situations, DRS held the services were not taxable as business analysis, management, management consulting, or public-relations services under Conn. Gen. Stat. § 12-407(2)(i)(J).

What this means for you

The 1991 ruling classified specialized litigation support separately from the listed management-consulting category, and the identity of the payer did not change the answer. Because DRS later obsoleted the ruling, modern engagements require a fresh classification under current law.

Common questions

Did expert testimony make the service taxable? No under the ruling; potential testimony was part of the overall nontaxable litigation-support engagement.

Did insurer payment change the result? No. The answer was the same when the insurer engaged and paid the accountant for services benefiting defense counsel.

Can the ruling be relied on today? No. DRS marks it not current and obsoleted by AN 94(4).

Citations and references

• Conn. Gen. Stat. § 12-407(2)(i)(J) -- historical business analysis and management-consulting provision.
• Announcement (AN) 94(4) -- identified by DRS as obsoleting the ruling.

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 91-1

Original ruling text

Ruling 91-1, Litigation Support Services

This information is not current and is being provided for reference purposes only

Ruling 91-1

Litigation Support Services

This Ruling has been obsoleted by  AN 94(4)

An accounting firm (firm) has inquired as to whether consulting services rendered to law firms in the form of litigation support services are subject to sales and use tax in the following situations:

Situation #1: A firm is hired by a law firm and bills that law firm for its services. These services comprise consulting to the law firm with the provision that the accounting firm may be expected to provide expert testimony at a later date. The type of consulting services consist of (a) reviewing documents and materials to gain an understanding of the facts in the case, (b) performing independent research to obtain relevant economic financial and business data, (c) analyzing the available information and forming expert opinions, (d) presenting these opinions in exhibits at depositions or trials on the economic and financial matters related to the case, and (e) advising and assisting the attorneys on interrogatories, depositions of others, and trial preparation.

Situation #2: The accounting firm would be hired by a law firm initially but its engagement letter, for essentially all services mentioned above, would be between the accounting firm and an insurance company who is representing the defendant in a matter, i.e., the insurance company has hired the law firm and has hired the accounting firm to be consultants to that law firm and is paying the accounting firm's bill. The accounting firm would be billing the insurance company directly and would be paid by them, although all their work product and consulting functions would be for the benefit of the law firm.

RULING:

The litigation support services rendered by an accounting firm described herein are not subject to sales and use tax under Section 12-407(2)(i)(J) of the General Statutes as "business analysis, management, management consulting and public relations services."

LEGAL DIVISION

January 17, 1991