Laws, Regulations and Annotations


Business Taxes Law Guide—Revision 2024

Sales and Use Tax Annotations

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120.0000 Automatic Data Processing Services and Equipment—Regulation 1502

Annotation 120.0050

(a) In General

120.0050 Computer Services. A person operates an on-line service for the buying and selling of consulting services, software and information. The "service" links information sellers with the information buyers through the seller's and buyer's personal computers and a host computer system maintained in California. The "service's" contact with this state consists primarily of mailings, advertisements in magazines and telephone connections. Periodic appearances may be made at conventions, trade shows and user's group meetings where free access and demonstration software may be given away.

Both buyers and sellers access the system using their own computers and a modem. Information is delivered electronically over the telephone line without the transfer of tangible personal property. The "service" provides a forum for the buyer and seller to meet. The "service" derives its revenue by charging transaction fees, connection charges, one-time new account sign-up fees, monthly service fees and storage fees. The "service" also is involved in collecting from the buyer and paying the seller.

The activities of the "service" qualify the "service" as a retailer, by maintaining the host computer in California, the "service" occupies a "place of business in this state," section 6203.

The "seller's" charges for (1) consulting services sent electronically through the computer, (2) prewritten text sold electronically through the computer, and (3) other information, such as computer software graphics, sound and template, are not subject to tax provided that no tangible personal property is sent to the buyer. In addition, tax does not apply to the transfer of information by electronic telecommunications from a remote location, if there is no tangible personal property sent to the buyer. If the person described as the "seller" sends a hard copy of information to the buyer, the entire charge would be subject to sales or use tax.

Depending on the facts of the transaction, the person operating the service may well be the retailer responsible for payment of any sales tax or collection of any use tax on the transaction. 12/9/92.