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Business Taxes Law Guide—Revision 2024

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Sales and Use Tax Annotations

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515.0000 Service Enterprises Generally—Regulation 1501

515.0000 Service Enterprises Generally—Regulation 1501

See also Advertising Agencies, Commercial Artists and Designers; Automatic Data Processing Services and Equipment; Construction Contractors; Gross Receipts; Leases of Tangible Personal Property—In General; Mailing Lists and Services; Miscellaneous Service Enterprises; Producing, Fabricating and Processing Property Furnished by Consumers—General Rules; Sale; and Tangible and Intangible Property.

(a) In General—Service Distinguished from Sale

515.0001.100 Agent for Client. The client of the Taxpayer is a full-service corporate meeting and event planning company that negotiates and procures services for the client including, but not limited to, food, beverage, transportation, leisure activities, décor, entertainment, audio visual and multi- media services, premium gifts, etc. The client is billed for all products and services procured on the client's behalf itemized at cost along with a separately stated management fee.

The California Civil Code defines an agent as, "one who represents another, called the principal, in dealings with third persons." The difference between an agent and a supplier of property is discussed in the Restatement Second of Agency at section 14K which states, "one who contracts to acquire property from a third person and convey it to another is the agent of the other only if he is to act primarily for the benefit of the other and not for himself." Restatement Second of Agency section 424 requires that, " … an agent employed to buy … is subject to a duty to the principal, within the limits set by the principal's directions, to be loyal to the principal's interests and to use reasonable care to obtain terms which best satisfy the manifested purposes of the principal."

Therefore, in order to be recognized for purposes of the Sales and Use Tax Law as an agent that may obtain tangible personal property on behalf of a client, the taxpayer must do all of the following:

1. Taxpayer must have written evidence of its status as the client's agent (this may be included in its contract with its client);

2. Taxpayer must clearly disclose to all third-party vendors of tangible personal property the name of the client and that Taxpayer is acting as an agent of its client in making any purchases; and

3. Taxpayer must bill the same amount to the client as the third-party vendor bills to Taxpayer.

In order to confirm in an audit that Taxpayer is the agent of its client, Taxpayer must separately state on its invoices to the client all amounts billed to the client for tangible personal property and all amounts billed as a "management fee." Additionally, as an agent, Taxpayer may make no use for its own account of any tangible personal property it purchases for the client, and may not issue a resale certificate for any property that it purchases for the client. 3/20/07. (2008–1).

515.0001.200 Architectural Animations. A taxpayer uses a computer to generate videotapes of proposed architectural projects. The computer model shows a pedestrian or passing automobile view of the project. After finishing the computer modeling, videotapes are delivered to the client. The work is not regarded as the rendering of a service because the true object of the contract is the videotape. However, the videotape is regarded as a qualified motion picture and tax does not apply to the transfer of the original videotape. Tax does apply to copies of the videotape. 10/6/94.

515.0001.300 Astrological Maps Produced by Computers. An individual is planning to market a map of the world which is preprinted, but to which is added computer generated data which is different in each case. The forms that are entered into the computer are printed maps of the world. The computer is given the birth data of each individual client and it draws on the maps, by programmed mathematical formulae, the location of the planets at the time of birth, as they stood over certain parts of the world at that individuals birth moment. This information is presumed to have astrological value. It is not a birth chart the client receives, but a map of his or her birth chart projected mathematically upon the earth. Accompanying the maps, which are different in each case, and of which only one copy is made, is a key of symbols and interpretations, which is a printed pamphlet that describes how to use the map and what the lines on it mean. The booklet by itself would have no value, as it refers only to symbols that are on these maps and, thus, could not be sold apart from these maps.

The transactions are considered to be service transactions and not sale transactions even though certain tangible personal property is transferred to the client. 5/11/76.

515.0001.875 Automated Drafting Services. A company develops for its customer a complete symbology for piping and instrumentation diagrams for nuclear power plants. The resulting drawings are produced by a computer automated layout program. Furthermore, in the case of producing logic diagrams, the company inputs logic equations. The interrelationship of the elements and the use of its programs produce finished logic diagram drawings.

From the above description, the company is providing more than an automated drafting service. The customer is seeking actual engineering designs, computations, and specifications. The company exercises independent professional judgment in dictating the ideas and designs which are expressed in the drawings furnished to the customer. Therefore, the company is providing a nontaxable service in the case cited above and it is the consumer of the tangible personal property which it utilizes in rendering such services. To the extent that the company performs only automated drafting services, it is making sales of tangible personal property and item sales are subject to the tax. 4/16/75.

515.0001.900 Automated Payment Processing Service. A firm provides automated payment processing to its customers. That is, the firm collects payments on behalf of its customers for bank processing, transmits the amounts collected to the customer through electronic or telephonic transmission, and provides its customers with a periodic report reconciling the total deposits with amounts credited to specific patient accounts.

The true object of this transaction is to provide account collection and reconciliation services. Therefore, tax does not apply to the firm's charges for this service. However, the firm is the consumer of the materials it uses in preparing its periodic reports and tax applies to the purchase of these materials where the firm purchases or consumes these materials inside this state. 2/26/97.

515.0002 Automobile Insurance Reports. Insurance rate quotes and other information given in a report depend upon the customer's responses to specific questions that they are asked. If this is the case, each report is a custom product and the charges for the first copy of the report will be for a nontaxable service. If extra copies of a report are provided and the customer is charged for these copies, sales tax must be reported and paid on the extra copies unless they are mailed to an out-of-state address pursuant to the contract of sale. 4/15/92.

515.0002.650 Business Directories. A taxpayer accumulates information about other businesses in certain geographic regions for compilation into computer disks and/or reference books. The taxpayer thereafter leases these disks and books to its customers.

Where the directory was specifically created, collected, or completed to meet a customer's particular order, the transaction is generally regarded as a nontaxable service transaction (Regulation 1501). In this type of situation, the transfer of a single copy of the compiled information on a computer disk or paper report is considered incidental to the providing of the service and tax only applies to the sale of such materials to the seller of the service. However, where a transaction involves the delivery of tangible personal property which includes information not customized to a customer's order (including a report previously prepared by the retailer on a custom basis), the transaction is a sale or lease of tangible personal property and is subject to tax unless an exemption otherwise applies. 8/1/95.

515.0002.690 Business Strategy and Marketing Plan. A taxpayer is hired to write "the business and marketing plan" for a client. The taxpayer interviews the client, has ongoing discussions with the client concerning the work, observes and listens to internal discussions of the client, and conducts field research. There is no transfer of possession or title to tangible personal property to the client except for one written copy of the plan and one written report consisting of the compilation and summary of the research.

The true object of this contract is for the client to obtain the customized information and advice which taxpayer develops for the client, not to obtain tangible personal property in the form of the printed reports. The client receives one copy of each of the two reports and no additional copies of the reports are transferred to the client. As such, the taxpayer's charges for this service are not subject to tax. 11/18/96.

515.0002.800 Calibration Work. When a contract merely calls for the delivery of calibration information, including the pertinent calibration charts, such charges are services and not subject to sales tax. On the other hand, if the contract calls for delivery of a template or a gauge stick, the total charge is subject to tax without any deduction for the labor in making the calculation required in connection therewith. 7/31/72; 7/10/96.

515.0002.820 Calligraphy. Calligraphy is a work of art and the physical form of the calligraphy is the true object of the contract. Unless otherwise exempt (e.g., sale in interstate commerce), sales of calligraphy are subject to tax. 7/16/93.

515.0002.850 Charges Made by Judicial Council for Information Packages. Charges made by the Judicial Council, through the Department of General Services, to the Superior Courts of the individual counties for "information packages" are not subject to tax. Charges made by the individual Superior Courts to the private conservatorships for these packages are likewise nontaxable. Both transactions are regarded as government service transactions and not as sales notwithstanding the fact that transfer fees in the nature of cost reimbursements are paid in both instances.

Section 6006 defines the term "sale" as any transfer of tangible personal property for a consideration. Where property is furnished to members of the public by a governmental agency as required by law, there is no "bargained for" consideration and, therefore, there is no sale. However, sales tax does apply to the sale made by the printer to the Judicial Council for the printing of the information package. 07/8/92; 03/12/96. (Am. 2001–3).

515.0002.900 Color Analysis Consultants. Color consultants make a study of a client's most advantageous color, color combinations, etc., with respect to skin care, make-up, wardrobe, etc. At the conclusion of the analysis, a color book is presented to the client for reference when choosing clothing, make-up, etc. Although the consultant is providing a nontaxable service, there is also involved the transfer of tangible personal property of more than incidental value. The consultant is the retailer of the color book provided to the client and must make a reasonable allocation of the lump-sum price to establish a fair retail selling price as the measure of sales tax on the sale. 4/23/86.

515.0003 Color Overhead Transparencies. A firm prepares color overhead transparencies, based on hard copy outline notes, it receives from the customer. The true object of the contract is the transparencies produced and the total charge is subject to tax. 12/21/92.

515.0004 Computer Generated Artwork. A retailer of keyboarding or computer services generates computer artwork, such as company logo or illustration, which become the property of the customer.

Charges for computer generated artwork, graphics, designs or logos are subject to tax where the true object of the contract is the output and not the services rendered in providing the object. 11/2/92.

515.0004.100 Computerized Lists of Menus. The nature of a firm's business deals with providing patients with a computerized list of allergen-free diets. The firm compiles a database of various allergen-free diets. When an allergist refers a patient to the firm, the firm, for a fee, provides that patient with a computerized list of menus compatible with whatever specialized diet the physician has prescribed.

In this situation, the firm is providing a service to the patient consisting of individually prepared computerized lists of menus. Accordingly, this is a service and not the transfer of tangible personal property on which the information is printed. Thus, the fee for this service is not subject to tax. 8/17/87.

515.0004.350 Copies of Reports Furnished to Members. Utility companies nationwide pay a lump-sum yearly fee to become members of an association. As members, the utility companies are given access to conferences, telephone support, and computer code access to the association's data base, published reports, and report updates. The association contracts with various research contractors to perform scientific research pertinent to the electric power industry. At the conclusion of a research project, a written report is submitted by the contractor to the association. The association then contracts with a graphic designer and printer to produce a number of copies of the report in book form. Some of the books are delivered to the association directly and others are delivered to a distributor who is responsible for the distribution of the reports on order of the association. The distributor, under direction of the association, sends copies of the report to members. There is generally no limit on the number of reports sent to members.

At times, the distributor is requested to send additional copies to the association for internal use or distribution in a seminar. If nonmembers attend a seminar, there is a lump-sum charge.

Under these facts, the association is the consumer of copies of the reports which it furnishes at no additional charge to the members and to persons attending seminars. This is based on the fact that members receive significant services from the association which do not constitute taxable sales and a member may order any number of reports during the membership period. When the association conducts seminars and distributes copies of reports to participants for a lump-sum charge as part of the seminar, tax does not apply because the conduct of the seminar is a service transaction and the distribution of the reports is incidental to that transaction.

If the printer and the distributor are both located in California, the sales tax applies to the printer's sale of the reports to the association which the distributor will store on behalf of the association.

If the printer is located out of state and the distributor is located in state, the use tax applies on reports shipped by the printer to the distributor. If the distributor subsequently ships reports to members located outside California, the exemption from use tax provided by section 6009.1 would apply to those reports. The association would have made no use of the reports in California other than to store them for use solely outside the state. This exemption also applies to reports which the distributor ships out of state for the association's use at seminars out of state.

If both the printer and distributor are located out of state, neither sales nor use tax will apply to reports which are never delivered either to the association or its members in California. If the distributor sends a report to a member located in California, the association would be liable for the use tax on that report. 6/14/89.

515.0004.450 Creating Job Listing on World Wide Web (www). Taxpayer's customers provide him with job announcements that he uses to create job listings on the www. These announcements and subsequent www listings are not provided to anyone in tangible form. Accordingly, tax does not apply to taxpayer's charges to its customers for creating a job listing web page since it is not selling or leasing any tangible personal property. 6/25/97.

515.0005 Customer Printout of Mailing Labels. A commercial mailer has received a mailing list from a customer that requires upgrading to zip+4 addressing. Assuming the commercial mailer is only providing nontaxable mailing services to the customer the upgrading of the zip code to zip+4 is part of the service, and the charge is nontaxable. 11/2/92.

515.0005.075 Customer Survey Program. A taxpayer contracts with a client who manufactures and sells products to gather data regarding customers' satisfaction of the products the client sells. The client provides the taxpayer with a computer disk of the names and addresses of its customers. The taxpayer creates a customer letter and address label, prints a customer survey card and envelope, and imprints a pen with the client's logo to be enclosed in the survey mailing (in order to motivate responses). The printing and assembly is all done in California. The taxpayer mails the survey cards, pen, and personalized letter to the client's customers all over the country via the U.S. Mail. Upon receiving the responses to the survey, the taxpayer analyzes the data and provides a written report to the client summarizing this information.

Two invoices are sent to the client for this transaction. The first invoice is generated upon the mailing of the survey form, etc., and it includes charges for material and printing cost (plus a small mark up) and for out-going postage. The second invoice is generated when the taxpayer submits its written report to the client and includes the charges for the balance of the contract amount.

Sales tax does not apply to the gross receipts from the sale of pens and printed materials which, pursuant to the contract of sale, the taxpayer ships to persons outside this state by U.S. Mail provided neither the client nor its agent obtains possession of the property inside this state. Tax does apply, however, to the gross receipts the taxpayer receives from its sales to the client of printed material and pens that are shipped to the client's customers inside this state. Tax does not apply to the taxpayer's charges for postage for shipping the pens and printed material provided its charges for transportation are separately set forth in its contract of sale to the client and the amount deducted represents only the amount for shipment (and not "handling") of the property.

The transfer of the original unique report which is specifically collected, created, compiled, and customized for this specific client on a custom basis is incidental to the providing of a nontaxable service. The taxpayer is the consumer of any such property transferred. The taxpayer is the retailer, however, of any additional copies of the report transferred to the client. 4/10/96.

515.0005.425 Data Information Services—Internet. A company provides weather data to its customers. The customers access the information by logging onto the company's service through the Internet. The company does not transfer any tangible personal property to its customers. No sales tax applies to its charges. 7/10/96.

515.0005.470 Data Receiving Service. A taxpayer provides each of its subscribers with data receiving equipment and also provides information to the subscribers by satellite transmissions which are received by the equipment. The receiver is not a computer and has no keyboard or data storage capabilities. The taxpayer retains ownership of the receiving equipment and the equipment is returned to the taxpayer upon cancellation of the subscription.

The taxpayer's basic package requires the subscriber to pay a one time start up fee and a monthly subscription fee. The subscriber can also obtain additional services (similar to the obtaining of a premium channel) on cable television. The billing method indicates that the equipment is being leased to the subscribers. The amount of the start up fee and the amount of the monthly fees depend upon the type of equipment furnished to the subscriber.

The subscribers receive two components: the data receiving equipment and the electronic satellite transmissions. The furnishing of the satellite transmissions does not involve the transfer of tangible personal property and the service of providing the transmissions are not regarded as services related to the sale of tangible personal property. The charge attributable to these services is not subject to tax. The billing method indicates that the equipment is being leased. The application of the tax to charges attributed to the lease is the same as the application of tax to leases generally. 10/16/91.

515.0005.510 Database Transactions. Transfers of CD ROMs, diskettes, and printed matter (whether printed by mass printing techniques, computer, word processing, or otherwise) containing information extracted from a previously existing database are generally taxable without regard to the fact that a particular listing of information from the database may have been prepared to the special order of the customer.

However, there are two circumstances that are recognized as research service cases. First, in cases where the information is of personal relevance to the inquiring party and not likely to be furnished in duplicate form to other persons. Examples of the types of transactions treated as service transactions are (1) individual profiles based on a person's time, date, and location of birth and no two profiles are identical, and (2) custom computerized reports prepared by matching raw scholarship data supplied by client to scholarship information contained on a database.

Second, the inquiry is so specific and limited that the customer is not looking to acquire some duplicate part of the taxpayer's database but is simply trying to obtain a status report with respect to the subject of interest. The true object of the contract here is research, not the furnishing of an extracted portion (bulk data) of a file maintained by the taxpayer which would enable the customer to do his own research. Looking up information in the database for the customer is considered research. In this case, the information would likely be transferred in report form, for a fee based upon the cost to the taxpayer of making the specific inquiry. When the taxpayer provides the customer the reference work and the customer "looks it up" himself, it is a sale of tangible personal property.

Thus, tax applies in all cases where there is a transfer of information drawn from pre-existing database, except as noted above. Tax applies whether the information transferred from the database is transferred in book, pamphlet, or brochure form, or in CD ROM or diskette form, or as prepared by computer, word processor, or other method. However, tax does not apply if the information is transferred electronically. 10/9/96. (Am. 99–2).

515.0005.700 Debit Cards. Telephone debit cards are issued in return for prepayment of telephone toll charges. They are indicia of value and transfers to subscribers are not sales of tangible personal property. Sales of blank cards to persons who issue them are taxable. 3/9/95.

515.0005.800 Design. An individual is hired by firms for ideas in determining how their products should look, feel, and sometimes function. A large part of the operation pertains to appearance and characteristics. The ideas are usually conveyed through sketches, renderings, or drawings. Sometimes a three dimensional study model is used to accurately and fully convey the true final color, finish, texture, feel, or tactile quality of the concept.

Based upon the description of this business, the individual is a commercial artist or designer, not a design consultant providing a service. Although services are almost always necessary in the creation and manufacture of items of tangible personal property which will be sold, the described contract is for the transfer of tangible personal property for consideration rather than a contract for services. 2/13/91.

515.0005.900 Design of Case. A firm contracted to design and engineer a case to hold collectibles. It charged $500 for "concept configuration," $975 for "component engineering," and $25 for blueprints. Concept configuration involved evaluating the problem, gathering data, and solving problems imposed by constraints such as size, appearance, cost, and manufacturability. "Concept engineering" involves selecting materials, discussions with toolmakers, calculations, and the production of blueprints to allow transmittal of design.

The contract is a service contract. Tax applies only to the charge for duplicate blueprints. 6/21/91.

515.0006 Design and Set Rentals for Video Productions. A company is engaged in the business of designing and building sets for video productions which are used mostly in television commercials and music videos. Detailed drawing, rendering, and overlays are prepared to illustrate the proposed appearance of the set, ideas for camera positions and lighting effects. The walls, platforms and other components of the set are usually prefabricated at the company's shop from materials purchased ex-tax under resale certificates. The set components are then loaded on to the company's vehicles for transportation to the location of the shoot, unloaded and assembled together. The company then dresses the set by positioning props, cameras, and lighting. It also controls the art production crew and directs necessary changes in the positioning of cameras and props. When the shooting is completed, the set is disassembled with all usable materials being returned to the shop and the remaining materials discarded. Generally, the invoices simply bill a lump sum for "cost of sets", "set construction" or "set construction: rental" without listing the separate components. The company did not charge or report tax on the lump sum charges for set construction because it believed that it performed artistic design services and did not sell or lease tangible personal property.

Since the customers desire the property produced by the design services (the sets) and not the design services per se, the transactions are not services. Since the company transfers possession of the sets to its customers for a consideration, their transactions are leases. A lease is defined to include "rental, hire and license," and, with certain exceptions not relevant here, leases are "sales" and "purchases". The design services are required to produce the property in the form desired by the customer and are, therefore, generally taxable as "part of the sale" of the property. In this case, the contracts show that the service of designing sets was offered to the customers together with the sets as a package. Therefore, the design services are "part of the sale" of the sets and are fully taxable, with the exception of installation labor. The remaining charges (i.e. transportation, disassembly labor, etc.), which were not separately stated, are also subject to tax. 4/23/91.

515.0006.500 Detailed Drawings. An individual, based upon architectural drawings supplied, prepares detailed drawings for use in shop fabrication.

Persons in the business of preparing blueprints and drawings are producing the end product desired. The gross receipts constitute a sale of tangible personal property subject to tax without any deduction for labor or service costs. Therefore, the entire receipts of the detailed drawing service are subject to tax. 7/11/68.

515.0007 Documents Prepared from Model Forms. A law firm has a database of model legal forms. It uses this database to create business documents, based on the specific fact situation of the transaction in question, which are ready to sign by the specific parties for whom they are designed. The law firm is providing a legal service, the charge for which is not taxable. This is true even though it provides this service to other attorneys whose clients are the parties involved in the transaction with respect to which the documents are designed. If, however, the law firm merely sold prewritten business documents, it would be making taxable sales of tangible personal property whether the purchasers were attorneys or non-attorneys. 7/25/88.

515.0008 Educational Materials—Custom Made. A taxpayer enters into contracts to develop custom-made training programs. The contracts require the taxpayer to design, develop, produce, and deliver certain educational items. The educational items consist of training manuals, overhead transparencies, workbooks, data disks, reproduction masters, booklets, and computer disks. The true object of the contracts is regarded as the tangible personal property delivered to the clients. Tax applies to the entire charge made by the taxpayer. 4/26/94.

515.0010 Electrical Transmission of Printed Material. A company which was in the business of transmitting printed material over telephone lines to reproduce an exact copy at a distant location was not subject to the sales tax on its charges to its customers. The "true object" of the transaction was to rapidly transmit printed material, which is a service rather than a sale of taxable personal property. 10/27/70.

515.0011.075 Employment Reports. A pre-employment personal screening service company provides a service consisting of creating combination reports on an individual as requested by a customer. The report may consist of a Drivers License report, a Consumer Credit Summary report, and a Worker's Compensation Claim report. The reports may also be faxed to the customer with an invoice. The service is provided only once per request.

All reports will be researched and prepared on a request by request basis and will contain information unique to a particular customer's request. In this case, the true object of the contract is for the service of researching and developing original information and the charges for such reports are not subject to tax. Charges for reports that are faxed are not taxable even if the reports are not part of a service because transfer of information by telephone lines is not considered a sale of tangible personal property. 3/26/92.

515.0011.200 Facsimiles. A company is part of a national network which sends printed information over telephone lines through signals generated by a telecopier machine to reproduce an exact copy at a distant location. The operation is accomplished by establishing public locations which perform the sending and receiving operations. A customer brings his chart, photo, contract, or any other material to the nearest station. The charge made to the customer consists of a transmission fee plus the normal telephone charges involved in the transmission. The station operator places the material into the facsimile transmission unit and then places a call to the station nearest the desired destination. The customer's materials are then automatically transmitted. The receiving station operation removes the facsimile from the facsimile receiving unit and acknowledges that the message has been received. The receiving station then calls the local recipient who can either pick up the message or have it delivered by special messenger.

The service element outweighs the sales element in these transactions such that the "true object" of the transaction is the performance of a service and not the property produced by the service. What the customer desires is a rapid mailing or communication service. The company is the consumer and not the retailer of tangible personal property. Tax does not apply to the company's receipts from the operation of its photocopy transmission service. 10/27/70.

515.0011.220 Failure Analysis Reports. An independent contractor provides failure analysis reports to various companies regarding the design and operation of electronic circuitry and components. As part of the reports, the contractor provides photomicrographs to illustrate the failure analysis. In some reports, the contractor splits the failing component (provided by the client requesting the report) for analysis and provides a cross-section of the component, encasing the split component in plastic for ease of handling. The contractor charges an hourly rate for the failure analyses consulting work, and does not charge separately for the photomicrographs or the cross-sections.

Sales tax does not apply to charges for preparing and furnishing failure analyses reports. It is immaterial that photomicrographs and cross-sections may be furnished to the customer since no separate charge is made for these items and they are not the true object of the contract. If the contractor did not provide a failure analysis report but only prepared a cross-section from a component provided by the customer, the sales tax is applicable under section 6006(b). 9/28/76.

515.0011.260 Focus Group Activities. A taxpayer organizes focus group sessions for sponsors. The participants of the focus group contract with the sponsor. Participants are served food and beverages during the session and receive a videotape of the session to take home. The sponsor of the focus group provides significant educational services including classroom instruction. Participants are charged a lump-sum price. Under these conditions, tax does not apply to the sponsor's charge to participants. The videotape, food, and beverages are regarded as incidental to the educational services. In addition to organizing the focus group sessions, the taxpayer contracts with the sponsor for (1) solicitation of participants for the sponsor and (2) providing the facility, food and beverages, and the videotapes to the sponsor.

The charges to the sponsor for the food, beverages, and videotape are subject to tax. The sponsor is engaged in creating a focus group and it is not reselling the food, beverages, and videotapes, but rather performing a service. The retail sale is by the taxpayer to the sponsor. However, based on the assumptions that the taxpayer is not responsible for service of the food (i.e., someone else is hired to do so) and there are significant educational services, the charge for the facilities is not subject to tax. Also, charges for solicitation of participants are not subject to tax if the solicitation is optional with the sponsor. 11/7/94.

515.0011.320 Hand-Held Receivers. A taxpayer sells and rents a hand-held data processing device which receives radio transmissions of stock market, sports information, and other data. Customers may buy or lease the devices from the taxpayer. A monthly charge is made for access to the data base separate from any rentals paid for the lease of the device. Tax applies to the sale of the devices. Tax applies to the lease receipts unless the devices are purchased tax-paid by the taxpayer and leased in the form in which they were acquired. Tax does not apply to the service of supplying the data transmissions. 9/19/83.

(Note.—The taxpayer has structured the transactions as a sale or lease of the device separate from the providing of the service and MCI Airsignal does not apply.)

515.0011.400 Horoscopes. A company is engaged in the business of providing horoscopes. A customer provides information concerning his date, time, and place of birth to the company who, in turn, delivers to the customer approximately twenty pages of information concerning the customer.

Persons in the business of providing horoscopes would be engaged in the performance of a service since (1) the customer's primary interest would be the contents of the horoscope and not the horoscope as a written object of property, (2) the horoscope would be prepared on an individual basis, and (3) the charge for horoscope would probably not vary with the number of pages provided the customer. If the horoscopes were sold as mere stock items, their sale might well be subject to tax. 10/28/69.

515.0011.490 Individual Profiles. A charge for preparing an individual's personality profile and forecast based on a person's time, date, and location of birth is not subject to tax. If individual profiles are prepared and furnished to the client and no two profiles are identical, the production of these individualized profiles is considered a service under Regulation 1501. If, because a client had the same time, date, and location as a previous client, the previous client's profile is selected and furnished to the new client, the charge billed to the new client would be subject to sales tax. 5/12/93.

515.0011.510 Industry Information Provider. The "provider" is a corporation which provides nationwide services to a specific industry. The provider has an office and employees in California but its headquarters are located outside of the state. The provider gathers certain industry related information, analyzes the aggregate information, and then makes the information and a statistical analysis of the information available via noncustomized publications and reports provided to its members. Generally, all members subscribing for a specific service will receive the same publications and reports. These publications also are available electronically. No member receives a publication or report containing solely its own information. The publications and reports do not qualify as subscriptions of periodicals as described in Regulation 1590(b)(3). Only companies providing a specific type of product may become members. The two-part membership fee consists of a flat fee for membership for a specific state and a variable fee based upon the member's sales of the product in the state.

The provider provides its members with a variety of benefits besides the publications and reports. These benefits include providing customized information to individual members by contract; providing third party information such as credit reports; sending newsletters about the industry; holding membership meetings; filing information on behalf of members with regulatory bodies; and occasionally, representing the industry in other situations, such as before legislative bodies.

Under these particular facts, the provider is primarily a service organization and the charges for membership fees are not related to anticipated retail transactions. Therefore, under subdivision (a)(2) of Regulation 1584, charges for the provider's membership fees are not subject to the tax.

The separately stated charges for noncustomized publications, reports, and contracts which a purchaser receives in the form of tangible personal property are subject to tax since the purchaser's primary interest is in obtaining the physical property, whether purchased by a member or a nonmember. However, if the publication, reports, or form contracts are delivered to the purchaser electronically by remote telecommunication, there is no transfer of tangible personal property and, therefore, the charges are not subject to tax. On the other hand, developing customized information for a member and providing it through a custom report to the member is a nontaxable service since the true object of the contract is the service of receiving the customized information, not the property produced by the service. 4/12/96.

515.0011.725 Licensed Acupuncturists, Licensed Nutritionists, and Massage Therapists. Unlike chiropractors, there is no statute classifying these practitioners as consumers rather than retailers of tangible personal property which they furnish in the performance of their services. As a result, they are sellers of the products such as vitamins, minerals, and dietary food supplements which they provide in connection with the service they provide to their patients. They are selling these products at retail whether or not they bill the consumer/patient separately for the products or include the products with their service and bill the patient lump sum. 3/28/91.

515.0011.775 Licensing Agent—Providing Artwork. A taxpayer is a licensing agent for owners of certain intellectual property rights such as cartoon characters (properties). Under the various license agreements with the owners of the properties, the taxpayer's art department agrees to provide artwork incorporating the properties for use by licensees. Under the agreements, all uses of the properties by third party licensees shall enure to the benefit of the owner. The taxpayer shall not have any interest or property rights in any of the properties. Under the various licensing agreements (except one), the taxpayer receives a licensing fee of 40% of the gross receipts paid by licensees. In the one exception, the taxpayer will receive a five percent increase in the royalty payments if any artwork is provided by its art department.

Under the contracts with the owner of the properties, the taxpayer is providing both a service and a sale of tangible personal property (artwork). Since the taxpayer provides a variety of services to the owner for a fee and does not separately state a charge for the artwork, the portion of the fee attributable to the sale of artwork is subject to tax on the fair retail selling price of such property. (Regulation 1540(b)(1).)

In the case where there is a five percent increase in the licensing agent fees when artwork is provided, the increased amount is consideration for the transfer of the artwork and, therefore, it is the measure subject to sales tax. 2/28/95.

515.0011.795 Lithographer's Services. An out-of-state retailer who has stores in California and other states hires a California lithographer to produce color separations. The lithographer sends hard copy proofs to the retailer out of state for approval. The retailer may make changes or not, but returns all the proofs after approval. After receipt of the approved proof, the lithographer sends the color separation to a California printer. The printer uses the color separation to print either direct mail advertising material which qualifies as printed sales messages under Regulation 1541.5, or inserts which are placed into newspapers as defined in Regulation 1590(a)(1). The inserts are shipped by the printer both to newspapers within and out of California. The "printed sales messages" are sent free of charge by a California mailing house to individuals both inside and outside the State of California. The retailer believes that the true object of the contract between the retailer and lithographer is the service provided by the lithographer.

The retailer specifically desires tangible personal property, that is, satisfactory color separations to use for printing newspaper inserts and printed sales messages. Hence, the lithographer made a taxable sale of the color separations to the retailer. The lithographer is not providing a mere service but rather is selling tangible personal property by delivering that property to printers in California on its customer's behalf. That sale is subject to tax. 11/25/96.

515.0011.825 Loan of Sterilization Equipment. A taxpayer manufactures and distributes dispensers for use in cleaning dishes, glasses, and utensils in restaurants and bars. The dispensers mix detergents and germicides with water. The taxpayer enters into agreements with customers to furnish dispensers in return for the promises of the customers to purchase all detergents and germicides from the taxpayer for the period of one year. The agreement provides that the dispensers are not for sale, but are loaned. The taxpayer retains ownership of the dispensers. The taxpayer delivers the detergents and germicides and calibrates and repairs the dispensers. Customers are usually visited at one month intervals to deliver detergents and germicides and to service the dispensers. Special trips are made when necessary. A lump-sum charge is made.

The true objects of the contracts are the dispensers, detergents, and germicides. Any services provided by the taxpayer are rendered incidental to the sale of tangible personal property. The entire charge is taxable. 11/18/93.

515.0011.910 Maintaining a Book of Remembrance. A society in California will be maintaining a Book of Remembrance at its columbarium to provide a lasting record and memorial. A memorial entry will be inscribed in the Book of Remembrance under the date of death. The book is the personal property of the society and a remembrance card with a protective PVC coach-hide wallet will be provided to persons who wish to have a copy of the inscriptions as they appear in the book.

The charges made by the society for the inscription in the book are not subject to sales tax. The fact that a folded remembrance card may be furnished to the client does not change the overall nature of the transaction from a service transaction to a sales transaction.

However, tax applies to charges made to the society for the Book of Remembrance and for the folder remembrance cards. Also, charges made to the Society for lettering and inscription work are taxable. 8/16/90.

515.0012 Market Research Reports. Market research reports sold to interested parties are sales of tangible personal property subject to tax and not nontaxable services under Regulation 1501. In order to qualify under Regulation 1501, the purchasers would have to enter into a contract with the market researcher before the research was conducted rather than merely purchase subscriptions, whether before or after the research is conducted. Even if the purchasers contracted in advance to purchase all issues of the report, this would be regarded as on-going subscriptions and not as contracts to commission specific research. Altering the subscription price based on the number of subscriptions sold or based on market share does not make sales of the report a service. 8/14/89.

515.0012.100 Matching Database. A firm receives a database of customers from its client. It matches the client's data base against its own database. A report is generated which provides additional information to the client about its customer. In some cases, the client requests a mailing list containing the names of persons who closely match the list furnished by the client. The report furnished to the client may be printed or on a floppy disk. The matching of data bases and the reports prepared constitute services. The true object of the contract under Regulation 1501 is a nontaxable service and the firm is the consumer of the disks and paper upon which the data is transmitted. 3/30/89.

515.0012.400 On Line Advertising. A firm carries advertisements on line for goods in much the same manner as classified ads in newspapers. Both buyers and sellers register with the firm. Fees are charged sellers for the advertisements. The seller sets a minimum sales price and the item is open for bid for varying periods. Prospective buyers place bids. The firm does not have authority to accept or reject bids. If the item sells, the firm receives a percentage of the sales price. It does not provide any warranties, an escrow or otherwise become involved in the transaction. The firm does not acquire possession to the property nor does it have power to pass title. The buyer and seller handle all arrangements. The firm does not deliver any tangible personal property such as diskettes, manuals or other property to potential buyer and seller.

The firm is conducting a service, and it is not a retailer. It also has no obligation to pay or collect California sales or use tax which may be imposed on the transaction between the buyer and seller. 4/8/97.

515.0012.680 Operator-Provided Sound Equipment. A taxpayer is engaged in the sale and lease of sound systems and sound equipment such as horns, speakers, microphones and stands, and amplifiers. The taxpayer entered into an agreement with a movie studio to furnish a fully energized sound engineering system, the services of a sound engineer, and the tools necessary to operate the system. The agreement required the sound engineer to maintain, supervise, and personally operate the sound system. Further, all personnel provided by the taxpayer were deemed to be the taxpayer's employees.

In a true lease, the chief characteristic is the giving up of possession to the lessee, so that the lessee and not the owner uses and controls the rented property. Under the facts of this particular arrangement, the taxpayer did not transfer control of the sound system to the customer. Rather, the taxpayer maintained control of the sound system in that at all times, the sound engineer controlling and using the sound system was an employee of the taxpayer and under the taxpayer's control. Thus, this is not a true rental agreement. The gross receipts from this agreement are not subject to the tax. Rather, the taxpayer is the consumer of the sound system it used to fulfill the agreement and tax applies to the sale of the sound system to the taxpayer or to the taxpayer's use of the property, measured by the purchase price. 2/7/96.

515.0012.820 Play-by-Mail Games. A taxpayer is a moderator of historical, science fiction, and fantasy games which are played through the mail in much the same way that chess is sometimes played through the mail. When a customer signs up for a game, the taxpayer sends the player a rule book which explains how the game is played. To play the game, the player indicates how he will move his units in the game by filling out a form the taxpayer provides or by sending the move on note paper. The taxpayer provides the services of evaluating the movements the player has made to determine the success of the moves. This back and forth process through the mail or occasionally by phone may last for several years until the game is eventually won or lost. The player pays $3.50 or more (depending on the game) for each move submitted.

If each player obtains the forms free of charge independently of purchases of rule books and independently of the charges for accepting turns submitted by the players, the taxpayer is providing a nontaxable service of moderating the play-by-mail games, and the forms the taxpayer uses are incidental to that service under Regulation 1501. This is based on the assumption that all charges for the turns are optional with the players and there is not a certain number of turns to which the player is entitled with the purchase of the rule book. Thus, no tax would apply to the charge made for the player to submit turns. However, tax does apply to the purchase of the forms by the taxpayer from the printer since the taxpayer is the consumer of the forms which are used incidentally in the service provided.

On the other hand, if the form and computer cards which the moderator provides to the players were integral parts of the game and the players submitted all their turns on either the forms or cards, depending on the game, then the services provided as moderator of the play-by-mail games are taxable as part of the sale of the forms and cards since the players could not participate without obtaining these items. In all cases, the initial furnishing of the rule book is subject to tax. 4/28/88.

515.0012.840 Postcard Advertising. An advertising firm offers advertising for its clients by placing postcards in restaurants. If a restaurant agrees, a rack is installed by the advertising firm and the restaurant gets its own postcard printed free of charge to be placed in one slot in the rack. Postcards are provided free of charge to patrons. The advertising firm furnishes the postcards, places them, and refills the rack. The clients are billed monthly for the advertising. Title to the postcards remains with the advertising firm.

The advertising firm does not sell the postcards to its clients since title to the postcards remains with the advertising firm. The advertising firm provides an advertising service to its clients and places its own postcards in the restaurants for the restaurant patrons to take free of charge. The advertising firm is a consumer of the postcards and the racks in which the postcards are placed. 1/18/95.

515.0012.880 Preparation of Seminar and Seminar Materials. A person writing and developing a seminar and the materials used in that seminar by the participants and presenters is regarded as performing services. Therefore, no sales tax applies to charges for these activities. The delivery of masters for printing participants' guides and making presentation materials is incidental to the performance of those services and, thus, also not subject to sales tax. The person is the consumer of any materials used in the development of seminar and materials.

Charges for the reproduction of binders and participant materials are subject to sales tax. 1/7/91.

515.0012.885 Price Updates. A company in the business of retailing computer hardware, software, and related supplies also sells computer software to various pharmacies. The basic software program is intended to provide a basic operating system for the computer and, at the same time, contains drug prices on the most common drugs and drug products used by pharmacists. Contained within the basic software program are several specific files including a drug price file. The drug price file contains a listing of over 7,000 individual drugs and drug products, and their corresponding prices. The price update feature, which is sold for a flat fee per month, entitles purchasers of the basic program to receive price updates on those prescription drugs and drug products on a twice monthly basis. The information is transferred on a diskette according to the customer's special requirements.

The company copies select information onto a computer diskette and delivers the diskette to the customers. The diskette is copied or produced in mass for each distribution. Since the company mass-produces the identical diskette for sale to hundreds of customers, the receipts are taxable as charges for the production, fabrication, or processing of tangible personal property and are not exempt receipts from the provision of services. 4/18/91; 3/27/92.

515.0012.900 Property Inspections. Sales tax does not apply to charges for inspection of property for real estate transactions to inform property owners of repairs needed to meet building code requirements. The inspectors do not do the needed repair work on the property. This is considered a professional technical service, not a sale of tangible personal property, even though written inspection reports may be furnished to clients. 6/7/90.

515.0013 Providing Flyers and Other Services. A service organization plans to provide service to real estate agents. They requested information regarding the following services:

1. Initially "services" provided will be the creation and mailing of flyers. Other "services" such as rubber stamps, presentation folders, and copying are available.

The flyers, that were reviewed, are circulars which advertise services. The true object of the contract is the brochure which is created and distributed. The transactions are retail sales of tangible personal property. The flyers qualify as "printed sales messages" and the exemption from sales tax applies if the requirements of Regulation 1541.5(b) are met.

2. As the operations continue to grow, additional services will be provided such as: liaison between lender, escrow and agent; meeting with appraisers, termite inspectors and others; clerical support; and statistical studies.

Tax would not apply to the additional services provided that tangible personal property was not sold to the clients as part of these services (e.g. sale of standard statistical reports). 3/17/92.

515.0013.075 Providing Workers. A company provides only workers to an independent business without furnishing the place of work, any supervision of the worker or any materials, tools, equipment or supplies used in performing the work. The payment for the work is based merely on an hourly rate for the labor. The workers furnished will be considered "special employees" of the business to whom they are furnished and the furnisher will not be considered as producing, fabricating, or processing consumer furnished tangible personal property under Regulation 1526. It is immaterial that the workers may bring with them some of the tools required to perform a specific job. 6/6/75.

515.0013.850 Sale of Educational Programming to Schools. A nonprofit corporation sells educational programming services to school districts. These services feature science and language art curriculum which are broadcast nationwide via satellite with an interactive communications network linking students and teachers. The company charges a lump-sum school site annual license fee of $2,500 per curriculum. Also included with the site license fee are curriculum support available through 800 telephone numbers, one set of student magazines (30 magazines per set), one teacher resource guide, one basic science kit and/or literature starter set, and one video tape regarding parental involvement in education.

In this situation, there appears to be substantial value in instruction provided through the language, science, and professional development broadcast video series. Therefore, tax does not apply to the portion of the company's charge attributable to the broadcast services and curriculum support available through an 800 telephone number. However, sales tax does apply to the fair retail selling price of the student magazines, the teacher resource guide, the science kit or literature starter set, and the videotape. (See Annotation 295.0140.) 3/18/96.

515.0013.965 Scholarship Report. A company provides a scholarship matching service designed to assist college bound high school students, college students, and parents of both groups in finding private-sector scholarship funding for higher education. Using a database, the service provides: (1) a cover letter describing the different types of awards; (2) suggestions on applying for awards; (3) a suggested form letter to be used when requesting information from scholarship sources; (4) a search summary; and (5) a detailed description of each of the sources available in the student's field(s) of interest.

It is assumed that each search summary and the accompanying descriptions will not be a "canned" or standardized report which is sent to other students and that the contract price with each student covers the full cost of compiling the information which goes into the search summary and accompanying description. Based on these assumptions, the transactions for the search summary and descriptions are nontaxable services. The form cover letter and suggestion documents are also considered to be tangible personal property provided incidental to the service, and the charge is not taxable. 7/2/92.

515.0014 Scholarship Search and SAT Preparation Program. A company provides students with a computer produced personalized report detailing grants, scholarships and student aid programs the student is most likely to qualify for. It also provides an outline illustrating the steps the student needs to take to apply and receive the student aid awards listed. It appears the report is generated from a database in response to a questionnaire provided by the student. The report provides information which is unique to each student, even though a portion of the report may be identical for all students. It is assumed that the unique portions of the report greatly outweigh the identical portions.

The company also provides a SAT preparation program. Students take a simulated SAT test which the company analyzes by a computer program. It then provides the students with a report designed to help them solve the questions they got wrong or didn't understand and other test taking strategies they can use to raise their scores. Based on information provided, the company is providing a nontaxable service. The company is the consumer of the property it incidentally transfers to the students and must pay tax on its purchases of such property. 10/9/92.

515.0015 Schools. Schools which provide significant educational services, including classroom instruction, are consumers of printed instructional matter and special instructional sound recordings furnished to students where tuition charges made to students do not separately state charges for such teaching aids. If a separate charge is made for such teaching aids, tax applies to that charge.

"Materials fees," which are charges for consumable supplies and materials used in the classroom, are not subject to tax. Schools are consumers of materials and supplies furnished to students for use in the classroom even though a separate "materials fee" may be charged to the student.

Schools which provide significant educational services, including classroom instruction, are retailers of test equipment, kits for building items such as television sets, and other durable goods furnished to students even though no separate charge is made to students for these items. Ordinarily the measure of sales tax will be regarded as the cost of the item to the school. If a separate charge is made, tax applies measured by such charge.

For application of the tax to charges made by correspondence schools, see BTLG Annotation 295.0140. 3/31/80. (Am. 2000–3).

515.0015.500 Seminars. A taxpayer presents educational material to the general public. The price includes course material and lunch. If the presentation includes significant classroom instruction, only the charge for the lunch is subject to tax. While the charge to the participants other than the lunch is not taxable, the sale of the course materials to the taxpayer is taxable.

If the seminar consists only of a short speech (i.e., no significant classroom instruction) at lunch and the participants are required to purchase the lunch in order to hear the speech and obtain handout materials, the transaction would be treated as a sale of lunch and the handout materials and the entire charge is subject to tax.

The taxpayer also presents seminars dealing with a software package which it sells. The charge for the seminar is billed separately from the software. If the customer is not required as a condition of buying the software to purchase the seminar, the charge for the seminar is not taxable. 4/29/92.

515.0015.800 Service Enterprises Generally. Specialized equipment located in hospitals or doctor's offices is used to transmit certain medical data over telephone lines to an independent monitoring service. The service is performed under a doctor's prescription and covers heart arrhythmia/syncope monitoring. The transmittal results in an EKG strip which is then either faxed or mailed to the doctor.

Although the result of the monitoring service is presented to the doctors or hospitals on paper in the form of an EKG strip or facsimile thereof, it is clear that the true object of the contract is obtaining the monitoring service. The tangible personal property involved is transferred incidentally to the performance of this service. Charges for the monitoring service are not subject to sales or use taxes. 10/29/90.

515.0016 Services Related to Real Property Rentals. The furnishing of an original set of keys or replacement keys and changing locks are services related to the rental of realty. The lessor is the consumer. Tax does not apply to the charge to the tenant for these services even if the lessor marks up its costs in arriving at the amount charged to the tenant. 5/24/94.

515.0016.200 Servicing Medical Equipment. A medical equipment company has a contract with a hospital to store, clean, maintain, inspect, deliver, and retrieve medical equipment owned by the hospital. There is no transfer of tangible personal property to the hospital when providing such services. The company does, however, install parts and commode buckets replacements which are provided by the hospital.

Since the medical equipment company did not provide any tangible personal property, it is providing a nontaxable service to the hospital provided none of its installation constitutes fabrication (e.g., putting together new property.) 2/5/96.

515.0016.500 Shared Use of Computer and Files. Pursuant to a Joint Powers Agreement, a group of local governments purchases and operates a computer system. A library district which is not a party to the agreement is granted access to the computer which has the district's database information which was, in the past, merged into the database of one of the members of the Joint Powers Agreement. The access allows the library district to update the database. The library district is charged a one time fee for a simultaneous user port, 50,000 item records, and 1,000 bibliographic records. It also pays a monthly maintenance fee which represents a pro-rated share of the expenses. No tangible personal property is furnished (e.g., computer hardware, software, or records in tangible form).

The contract is not for the sale or lease of tangible personal property but only computer access and space on the hard drive that is accessed by remote telecommunications. Tax does not apply to the initial charge or the monthly prorated charge. 10/10/96.

515.0016.600 Shipping Service. A firm purchases envelopes for overnight express service at a discount and sells the envelopes to others. The envelope is used by the overnight express company in essentially the same manner as the U.S. Postal Service uses postage stamps. Therefore, the supplier is making nontaxable sales of shipping services (by selling the prepaid "mailer") and the firm in turn is making nontaxable sales of shipping services rather than selling tangible personal property. However, if the firm transfers any other tangible personal property other than the envelope, the firm will be regarded as making taxable sales of such properties. For example, if the firm provides its customer with shipping materials such as "popcorn" for use by the customer to insulate the contents of the customer's shipments, the charges for such property would be subject to sales tax. 5/24/96.

515.0017 Sign Design. A taxpayer provides designs for signs and other design work for architects. The taxpayer furnishes drawings, sketches, models and mockups to his clients. The architectural firms or their subcontractors use the taxpayer's drawings. The true object of the contracts is regarded as the tangible personal property which the taxpayer delivers to his clients. The entire charge, including design labor, is subject to tax. 10/26/94.

515.0018 Support Activities. A computer aided drafting company charges for support activities and believes the true object of the contract is the services rendered in producing the output and not the output itself.

Although a great deal of the value of the tangible personal property provided is the result of labor, the true object of the contract is the output. The charges are subject to tax. 3/23/92.

515.0018.550 Taping Television Broadcasts. A taxpayer tapes television news broadcasts to the order of clients. The client identifies the particular story which was of interest. The taxpayer edits out commercials, weather, announcements, etc., and transfers the edited tapes to the clients. The taxpayer has contracted for the sale of tangible personal property and tax applies to the taxpayer's entire charge.

(Note.—This transaction differs from a clipping service. In this transaction, the client identifies the specific story to be taped. In a clipping service, the firm selects the stories to be "clipped" based on general direction of the client regarding issues of interest. In the case of the clipping service, there is a selection and identification service which is the true object of the contract. Here the item contracted for is tangible personal property, i.e., an edited tape.) 1/5/94.

515.0018.800 Technical Library, Drawings and Designs. A company agrees to sell to a firm certain assets which include a technical library, drawings and designs. The technical library is written on paper and bound in binders. It documents the techniques used by the company's personnel to produce the finished product. The drawings and designs consist of pre-drawn or scientific diagrams, blueprints, detailed drawings, and schematics of the company's products. They include tolerances, dimensions, inputs and outputs. All the drawings, designs, binders, and the like are in existence prior to the sale.

The transfer of these items is considered the transfer of tangible personal property. Thus, the total price set by the parties for the sales is subject to tax. 5/6/92.

515.0018.930 Television Decoding Devices. A television broadcaster makes a charge to subscribers for the programs which it broadcasts. The programs are broadcast in scrambled form. The subscriber receives a decoding device. A charge is made for rental of the decoder and a separate charge is made for providing the programming. Tax applies to the receipts from the rentals of the decoders unless the broadcaster purchases them tax-paid. Tax does not apply to the charge for providing programs or to security deposits on the decoder. 11/26/80.

515.0019 Television Survey Reports. In general, there is no exemption from tax for the sale of information when it is delivered in tangible form. The only issue to consider is whether the customer has contracted for the information itself or for the service of compiling the information. Sales of specialty type products such as DMA maps, DMA's by territories, working studies and annual reports are taxable when delivered on tangible media in California. In addition industry wide market data, including general reports on various industry segments and standard micro-computer programs, are not for compiling services and are also taxable when delivered on tangible media.

Sales of "local market surveys" are also sales of tangible personal property. These "surveys" previously qualified for exemption as periodicals. However, since the exemption for periodicals was repealed effective July 15, 1991, all printed "local market surveys" sold at retail in California or purchased for use in California are subject to tax.

(Note.—Operative November 1, 1992, subscription sales of periodicals delivered by mail or common carrier are not taxable.) 4/17/92.

515.0019.200 Temperature Monitoring Devices—Service vs. Lease. A contract under which a firm provides in-transit temperature monitoring devices to carriers is a contract for services even though physical possession of the device passes to the carrier. The device records the internal temperature of the cargo compartment of the vehicle without the presence of the provider's staff. The presence of the device may tend to inhibit false spoilage claims. The instruments must be read by an expert and the provider extends further cooperation without additional charge. The instrument is of no direct benefit to the carrier and the testimony of the provider's staff in arbitration or court proceedings over liability for spoilage is the most desired of the contract benefits. On balance, the true object of the contract is not the possession of the device. Thus, it is a contract for services, not a lease of tangible personal property. 2/28/80.

515.0019.300 Temperature Recorders—Vans. A taxpayer manufactures and sells temperature recording devices to common carriers that operate refrigerated vans for the shipment of perishables. The devices are primarily sold for a one time use but the taxpayer will sell the devices at a reduced price if a customer agrees to return the device after the chart is removed. At the end of a trip, the chart recording temperatures in the van is removed and examined by the carrier. The recorders do not have to come back to the petitioner for reading as is necessary for other types of recorders. There is a key distinction between these recorders and those which require reading by the vendors which the Board has recognized as temperature verification services. In this case, since the taxpayer has no further duties with respect to the device after it is sold, the taxpayer is selling tangible personal property at retail, not providing a temperature monitoring service. 4/3/95.

515.0019.700 Transfer of Real Estate Information on Disks. A taxpayer is in the business of providing commercial real estate information to its customers through a license agreement. The taxpayer maintains a database of commercial real estate information for certain geographic regions which is updated daily. The taxpayer compiles this information on computer disks and CD ROMs which it provides to customers on a temporary basis.

Where a transaction involves the delivery of tangible property which includes information generated from a pre-existing database, the transaction is a sale or a lease of tangible personal property and is subject to tax unless an exemption otherwise applies. Since the taxpayer is providing its numerous customers with noncustomized information on computer disk and CD ROM at a standardized price, the true object sought by the taxpayer's customers is regarded to be the disks and CD ROMs for the information contained in those items and not the providing of a service by the taxpayer. Therefore, the taxpayer is leasing disks and CD ROMs to its customers which are not in substantially the same form as acquired. The taxpayer must collect tax on the rentals payable for its disks and CD ROMs and remit these amounts to the Board. 10/8/96.

515.0020 "True Object of Transaction" Test. In distinguishing between the sale of a service (nontaxable) and the sale of tangible personal property (taxable) it is necessary to determine the true object of the transaction, i.e., is the real object sought by the buyer the "service" per se, or the finished articles produced by the service?

The court in Albers v. State Board of Equalization, 237 Cal.App.2d 494, in holding the tax applicable to the receipts of a draftsman, explained the distinction as follows:

"Plaintiff herein was not paid to conceive or to dictate any of the ideas, concepts, designs, or specifications in the drawings made by him. He simply applied his ability to the details supplied by the customer for the purpose of putting such details down on paper and thereby producing a drawing for use by the customer. In other words, the customer was purchasing the detailed drawing for his use, he was not purchasing the design or specifications pictured in the drawing." 7/11/66.

515.0026 Service or Sale. A taxpayer creates exhibits for the use of attorneys at trials. The activity may involve the taxpayer's taking video tapes, computer animation, charts, illustrations, etc. and recording them on a laser disk for access and display during the trial. Inasmuch as the true object of the contract is the acquisition of the disk rather than the services used to create the disk, the transaction is a sale of tangible personal property. The gross receipts (the entire amount paid for the disk) is subject to tax, with no deduction for any expenses such as mileage, transportation, meals, copies, etc., as provided in section 6012. 8/22/94.

515.0027 "Special Employees"—Keystroking Services. The performance of keystroking services to enter data from source documents to magnetic computer disks for a customer is taxable fabrication labor unless the services are performed by "special employees" on the customer's premises. The distinction is whether the taxpayer is engaged to produce a finished product, or to provide personnel who will work under the direction and control of the customer. In this instance, the taxpayer's people were involved in handling the overflow of work normally done by the customer's staff and the customer's office manager assigned the tasks to be done. The supervisor provided by the taxpayer was only required when there were six or more temporary employees on a shift, and the contract specified that the work would be done "… as requested and directed by … (the customer)." Under these circumstances, the keystroking services were performed by "special employees" and the charges were not subject to tax. 12/19/79.

515.0028 Satellite and Radar Images. Company A obtained satellite images from the U.S. government in a digitized format on magnetic tape. A reproduced visual images of the earth's surface from the tape. A then enhanced certain portions of the image to produce a more useful image of the area. A sold enhanced images to C.

Company B produced a radar mosaic of the same area using the results of a radar survey which it had acquired. The mosaic is an enhancement of previously obtained radar images. B sold enhanced images to C.

The image and the mosaic were utilized by a geologist employed by C to discover physical characteristics of the area covered by them.

Both A's and B's sales are retail sales of tangible personal property. The true object of each contract was the visual representation, not the engineering data produced by the vendor. Both transactions are subject to tax. 9/18/90.

515.0029 Music Lessons—Instrument Sales. A guitar studio offers a thirty week guitar course for a total price of $369 payable as follows: $69.00 at the time of enrollment and the balance of $300.00 payable at $10.00 each week over the thirty week course period. In addition to the course instruction, the contract provides that the studio will furnish "an acoustic guitar for home practice, complete with sheet music, picks, and strings necessary to course." Finally, the contract provides that the guitar remains the property of the studio if the student discontinues lessons at any time prior to completion of the course, and that, in such case, the student must return the guitar. However, students completing and paying for the entire course will own the guitar. No refunds are permitted on any portion of the contract price. In the contract, the guitar is shown as selling for $64.79 plus sales tax. This amount is equal to or more than the cost of the guitar to the studio.

Under this contract, the transfer of the guitar is clearly not incidental to the providing of the guitar lesson. Therefore, the transaction constitutes taxable sales under which possession of the guitars are transferred upon delivery to the students with the studio retaining title thereto as security for the payment of the price. Sales tax is measured by the separately stated sales price ($64.79) stated in the contract. In the event that the studio should repossess a guitar because a student has not paid the entire contract price, the studio would be entitled to a bad debt deduction only if the wholesale value of the repossessed guitar is less than the net contract balance at the date of repossession. The sheet music, picks, and strings furnished by the studio to its students are items which are incidental to the provisions of the guitar lessons. Consequently, the studio is the consumer of these items and is liable for tax measured by the purchase price of these items. 8/13/83.

515.0030 Charges for Photocopying Documents. Tax applies to charges by persons in the business of photocopying documents and serving subpoenas in connection with such photocopying services for:

(1) pick-up and delivery of original documents

(2) duplicating property such as X-ray (positives or negatives), photographs, fetal monitor strips, and slides

(3) copy documents, per page charge and basic copying charge

(4) paginate and bind copied documents

(5) making telephone arrangements to schedule copying of documents, and

(6) pick-up and delivery of copied documents

(7) advance fees for witnesses or cost to obtain records where the charges are merely costs to the photocopy company to produce the photocopies

(8) sending and receiving facsimiles and performing general clerical tasks if the costs are incidental to the sale of the photocopies; and notarizing documents if it is a service that is a part of the sale of the photocopies.

Tax does not apply to charges for:

(1) preparing court submittals such as subpoenas and certificates of no records

(2) delivering prepared court submittals to the court

(3) serving subpoenas, and

(4) skip tracing if it is for the purpose of serving the subpoena. 8/30/93.

515.0031 Computer Program Translation Services. The translation of customers' computer application program codes to make the programs useable on a different brand of equipment is custom computer programming excluded from "sale" and "purchase" tax as it meets the criteria of modification to an existing program pursuant to section 6010.9(d). However, the translation of file records or data does not qualify for exclusion from that definition as they are not programs as defined in section 6010.9. They are also not exempt services as the true object of the contract is the property produced by the translation service and not the service per se. Charges for this service are subject to sales tax. 9/25/85.

515.0032 Copies of Original Report. A consulting firm in the broad field encompassing the development and management of natural resources contracts with clients to provide a written report detailing the results of its technical findings. In many contracts, the firm is required to supply clients with additional copies of the original report. The firm has been paying sales tax reimbursement to the printer.

Consulting firms are generally engaged in a service enterprise and are the consumers of the property which they use incidentally in rendering this service. This is so even though the property is transferred to their clients in the form of a written report. However, when these firms supply additional copies of the reports, they are regarded as the retailer of these additional reports. Accordingly, the firm should take out a seller's permit and collect tax measured by the selling price of the reports that are delivered and used in California. Of course, the retailer can, in such a case, issue a resale certificate to the printer for the charge the printer makes for the additional copies. It should be noted that the resale certificate only covers the actual cost of printing the extra copies and not any charges made for setting type, etc., which is attributable to the original printed report. 3/21/73.

515.0033 Material Distributed to Students. A local unit of a national yachting organization promotes skill and safety in handling of small recreational boats through a system of formal education. All course material is prepared by the national organization and distributed for a small fee to local units for use in their classes. The local units distribute the material, collect the fees from each student and forward the fees to the national organization. Also, a small charge is made for use of test documents which are returned to national after each examination for grading.

The course materials provided to the students are considered instructional matter, not consumable supplies and materials. Since a separate charge is made to the students for the instructional items, such charges are subject to sales tax. The exemption under section 6409 (health and safety materials) is not applicable since this exemption is a use tax exemption, not a sales tax exemption.

With respect to the fees paid by the students for tests, the fees are not subject to tax. The local unit is rendering a service. The local unit, however, must pay the use tax on its cost for the test material unless the section 6409 exemption applies. To qualify for the section 6409 exemption, an organization must qualify for the "welfare exemption" under Revenue and Taxation Code section 214. 1/6/92.

515.0034 Medical Emergency Response Card. A firm sells medical emergency response cards. Customers provide their medical histories and medical data to the taxpayer. Customers may then arrange by telephone for electronic transmission of this information from the taxpayer to physicians and other authorized parties. The card also serves as a telephone debit card. The customers prepay a certain amount and deductions are made from the prepaid amount for any telephone service provided.

The firm is providing a service. Tax does not apply to charges by the firm to the customers. Tax applies to the sales of the cards to the firm. 11/4/94.

515.0035 Storage of Printed Material. A retailer of printed material enters into an agreement with a customer to print materials and "store" the materials on its premises for one year. After the first year, the customer decides that it would like to continue the storage agreement. An additional charge will be made for the subsequent storage.

Assuming the sale of the printed material has been completed and title has passed to the customer, the charges are nontaxable charges for a service. If, however, the charges are for storage prior to the sale and passage of title, such charges are part of taxable gross receipts. 1/27/92.

515.0040 "True Object of Transaction" Test. The basic distinction in determining whether a particular transaction involves a "sale" or a "service" is one of true object of contract; i.e., is the real object sought by the buyer the "service" per se, or the finished article produced by the service? If the true object of the contract is the service per se, the transactions would be nontaxable even though some tangible personal property is transferred. 5/4/65.

515.0060 "True Object of Transaction" Test. The business activities of a company offering training aids and programs were classified as sales of property or service for sales tax purposes. Charges for the first category, consisting of time surveys, evaluations of existing training programs and the issuance of recommendations, were not subject to sales tax because the charges were for exempt services and no tangible personal property was produced or transferred to the customer. The training aids and programs under the second category, which consisted of films, slides, tapes, and reproduced printed manuscripts, were taxable because the end product desired by the customer was tangible personal property. 1/21/70.

515.0061 Writing Words Only. A taxpayer is in the business of writing print ads and brochures for clients. The taxpayer submits work to clients in typed form or on a computer disc. The clients then turn the taxpayer's work over to a graphic designer who incorporates the written words into the final artwork. In summary, the taxpayer simply writes the words that are made part of the finished product by someone else.

Since the taxpayer provides words (text only) to its clients, the taxpayer is considered an author performing nontaxable services. 1/27/94.

515.0062 Water Treatment—Sale or Service. A company offers a contract for water treatment which includes extensive testing of items such as cooling towers and boilers, as well as efficiency studies, inspections, training, special studies as needed, etc. As part of the program, the company provides all chemicals necessary for the treatment of the water in the system. In addition, there is a one time charge for test kits and solution. Some contracts require the company to feed the chemicals into the system, and some contracts require that the chemicals be delivered, with the customer being responsible for feeding the system. All contracts are on a lump-sum basis, with no amount specified for the chemicals provided. Neither the chemical element or the service element of the contract is insignificant.

When the company feeds the system, it is the consumer of the chemicals provided and the retailer of the test kits and solution. When the customer feeds the system with the chemicals delivered by the company, the company is the retailer of the chemicals as well as the test kits. The gross receipts from the sale of chemicals is the list price at which they would be sold to others not under a service contract. 4/8/94.

515.0062.200 Web Site. A firm creates and maintains web sites for its client. The customer furnishes hardware and software for the design of an Internet web site. The software is modified by a third party to make designs compatible. Ultimately, the hardware and software are returned to the customer to host on its own equipment or another Internet service provider (ISP). Assuming that the customer is not provided any copies of the modified software (i.e., floppy disks, etc.,) or any other tangible personal property, such as program documentation or manuals, and all materials are returned to the customer, the firm is not making a taxable sale or fabricating property for a consumer. It is a reprogramming or reconditioning computer hardware provided to it by modifying the existing software in order to create a computer website. 10/10/96.

515.0062.500 Web Site—Advertising Property for Sale. A company has an office in California and a web-site on a California server where online sellers and buyers can buy and sell tangible personal property using an online auction format. The company charges an initial fee and a nonrefundable listing fee to online sellers who use the web-site unless there are no offers made on the listed property. The person with the highest price by the end of the time allotted for the listed property is deemed the buyer and instructed to contact the seller. Arrangements are made between the seller and the buyer for the payment of and the delivery of the items. The company does not advertise or otherwise hold itself out as an auctioneer, never holds either title or possession of the advertised items, and has neither the power to transfer title or possession of the items, nor the power to bind the seller and buyer to the sale. In this case, the company is providing a service only and is not the retailer of the items advertised on its California server's web-site. 9/9/99. (2000–2).

515.0063 Consultation, Installation and Handling Charges. A taxpayer was hired to review a customer's office situation, recommend a computer network, and provide and install that network. The taxpayer charged the customer separately for the consulting, handling and installation. If the taxpayer provided consultation only and the contract did not provide for any transfer of tangible personal property to the customer, the charge for consultation would not be taxable.

However, under the facts in this situation, the contract provides for the sale of tangible personal property to the client. As a part of this contract, the taxpayer provided preliminary consultation and recommendations regarding which computer network to acquire. This would be a contract for sale of the tangible personal property, and the consultation and handling would be a part of that sale. However, the charge for installing the property is not subject to the tax. 12/2/91.

515.0064 Facsimile Transmission. The charges for sending or receiving a facsimile transmission via phone modem are not subject to sales tax. 12/8/94.

515.0065 Seismic Data Acquisition and Processing. When the acquisition of seismic data is accomplished by a service company's field crew and includes the extensive involvement of licensed professional engineers exercising their professional judgment in making a wide variety of decisions to assure the most accurate information possible is obtained and the product of these efforts is delivered to the customer in written report form, the true object of the contract is the engineering services and the charges are not subject to tax.

The raw data may be referred by the customer to a processing company for refinement. This procedure involves many discretionary tests and decisions to remove extraneous "noises" and to make the data more accurate and usable. The true object of this contract is the development, through computer manipulation, of original data from raw data furnished by the customer. This constitutes "processing of customer-furnished information," which is nontaxable under Regulation 1502, as is any tangible personal property incidentally transferred therewith.

A single contract for acquisition and processing is also not taxable. 4/16/86.

515.0066 Cable TV Converters and Remote Controls. When a cable TV company provides a subscriber with a signal converter (decoder), the true object is to allow the viewer to make use of the service subscribed to, i.e., the encoded programs transmitted via the cable. The subscription agreement does not contain a separate charge for the decoder nor does the subscriber have to request a decoder as an "extra" to the contract. The decoder is tangible personal property incidentally provided pursuant to a service contract.

The remote control unit is separately stated in the contract with a separate amount charged for it. It is not physically attached to the cable system in any way. Remote control units are leased and the lease receipts are subject to tax if not purchased tax paid and leased in the same form as acquired. 6/5/87.

515.0067 Performing Laser Light Shows. A company which contracts to perform laser light shows for various events (e.g., conventions, fairs, grand openings, celebrations, etc.) by furnishing equipment together with personnel who retain possession of the equipment is providing a service rather than leasing the equipment. Charges for performing these shows are nontaxable. The company is the consumer of the equipment used to perform the service and tax applies to the sale of the equipment to the company. On the other hand, if the equipment is set up on a client's premises and is left without an operator, the company is considered as leasing the equipment and tax would apply as stated in Regulation 1660. 12/4/89.

515.0068 Providing Instructional Material. A firm is in the business of assisting its clients in developing instructional material to be used in the client's training program. It consults with the client and subsequently develops a participant's guide and an instructor's guide plus transparencies which have only text. One copy of each is delivered to the client. It also develops a script of dialogue to be used in a videotape to be produced by the client.

The transfer of a script for a videotape, participant's and leader's guides, and the transparencies consisting of only text, is incidental to the performance of a service. Accordingly, tax does not apply to the charge to the customer. However, the firm is the consumer of the materials used to produce the property and tax applies to the purchase price of such material. 12/8/89.

515.0069 Training Schools—Use of Master Printing Plates. A taxpayer provides seminar services and training to companies in the area of sales and services. In some instances, the taxpayer also provides the client with training program material and/or master plates from which the client can print the material themselves. There is a fee for the use of master plates and a license for the right to use these plates which must be returned by the date specified in the contract.

If the taxpayer does not make a separate charge for the training materials which it furnishes to participants when providing significant education services including classroom instructions, then the taxpayer is regarded as the consumer of such materials and tax applies to the cost of such materials to the taxpayer. If, however, the taxpayer makes a separate charge for such materials, the taxpayer is a retailer of such property and tax applies to such charges.

However, when the master plates are furnished, the taxpayer is leasing the master plates to its customers since there is a transfer of possession of the plates to the customer. Thus, the rental receipts from such leases are subject to use tax since plates are not in substantially the same form as acquired by the taxpayers. Such taxable amounts include the fee for the use of the plates and the license fee for the right to use the plates. Taxpayer's charges for the plates (rental receipts) are taxable whether separately stated or not. 1/27/94.

(b) Copying and Transcribing

515.0070 Depositions. Private court reporters perform a service when they report depositions in connection with current or proposed litigation. Pursuant to Code of Civil Procedure section 2019, upon request or upon the payment of reasonable charges therefor, a copy of the deposition must be furnished to any party to the litigation. The charges for such copies are regulated by statute.

The sales tax applies as follows:

(1) Sales to the party contracting for the service. Tax does not apply to original copies (and carbon copies made at the same time as the original) furnished to the party contracting for the performance of the service. Tax applies to transfers of all other additional copies to the party contracting for the performance of the service.

(2) Sales to other parties to the litigation. Tax does not apply to the first copy (carbon copy or photo copy) furnished to other parties to the litigation. Tax applies to additional copies beyond the first copy furnished to such persons.

(3) Sales to persons not parties to the litigation. Tax applies to all copies sold to persons not parties to the litigation. 4/26/78.

515.0075 Depositions. Persons who make audiotaped or videotaped recordings of depositions in connection with litigation perform a service. Pursuant to Code of Civil Procedure section 2025, upon request of any party to the action, a party who records or causes the recording of the deposition testimony by audiotape or videotape, must furnish a copy of such tape to the other party on receipt of payment of the reasonable cost of making the copy of the tape. The application of the sales tax to charges for the videotapes or audiotapes is:

(1) Tax does not apply to the charge for the first videotape or audiotape furnished to the party contracting for the performance of the service. Tax applies to sales of all additional copies to the party contracting for the services.

(2) Tax does not apply to the charge for the first videotape or audiotape furnished to other parties to the litigation. Tax applies to sales of all additional copies to such persons.

(3) Tax applies to all sales of videotapes or audiotapes to persons who are not parties to the litigation. 8/27/87.

515.0077 Depositions Furnished to Deponent. Tax does not apply to charges for furnishing a copy of the deposition to a deponent since Code of Civil Procedure section 2019 provides that, upon payment of reasonable charges therefore, the officer shall furnish a copy of the deposition to the deponent. 9/27/78.

515.0080 Form Letters. The process of duplicating form letters should be regarded, for sales tax purposes as similar to mimeographing or multigraphing and the tax, accordingly, is applicable to charges for the furnishing of letters thus duplicated. 1/30/51.

515.0100 Law Firms. A law firm is not a retailer when the law firm reproduces documents or other printed matter for clients in connection with the conduct of litigation or the rendition of professional legal services even though a specific or separate charge may be made to the client for the copies or reproductions. 3/10/64.

515.0106 Medical Records—County Hospital. Upon request, a county-operated hospital is required by the California Public Records Act (Government Code section 6250 et. seq.) to provide the patient with a copy of his or her medical records; and by Health and Safety Code section 1795, et. seq., to provide a patient with copies of all or any portion of the records which the patient has a right to inspect. Accordingly, a charge made by a county-operated hospital for a copy of a patient's medical records is not subject to sales tax. 2/9/94.

515.0108 Microfilm Billing. A firm contracts with a doctor to microfilm the doctor's ledgers and send a copy of the relevant microfilmed portions as bills along with return envelopes to the doctor's patients. The true object of the contract is to deliver to the doctor's patients tangible personal property, the bill and the return envelope, on behalf of the doctor. Thus, the firm is selling tangible personal property to the doctor. The charges for this sale are subject to tax. 10/20/81.

515.0125 Official Documents. The basic rule regarding copies of public records is that when copies are transferred as required by the California Public Records Act (CPRA) or other law for a price charged in accordance with and under authority of law, the governmental agency has not made a "sale" of tangible personal property under section 6006, but instead has provided a governmental service. A price set by ordinance satisfies the requirement that the price is "in accordance with and under authority of law." A price set by a county board of supervisors by resolution also satisfies the pricing requirement. 2/27/96.

515.0140 Official Documents. If the furnishing of copies of documents held by a municipality is made mandatory by statute or ordinance, the transfer of such tangible personal property for a charge approximately on a cost-reimbursement basis is a governmental act and the tax does not apply, whether the amount of the charge for the copies is fixed by law or by a public official. If, however, the furnishing of such copies is merely permissive, a taxable sale takes place. The above holds true whether or not the copies are certified. 8/4/64; 10/2/64. (Am. 2000–1).

515.0185 Official Documents—Magnetic Tapes. The Department of Motor Vehicles, as well as other state agencies, is required by the California Public Records Act (Gov. Code, § 6250, et seq.) to furnish copies of information in its records, including computer data, which is to be provided in a form determined by the agency. The act permits a reasonable charge. If the furnishing of copies of documents by a governmental agency is mandatory by statute, the furnishing of the copies is a governmental service and not a taxable sale even though a charge is made in accordance with the statute. On the same principle, the furnishing by the Department of Motor Vehicles of information concerning drivers' licenses, when the information is furnished in the form of magnetic tapes, punched cards, or printouts, is not a taxable sale even though a charge is made. 1/29/75.

515.0187 On-Site Billing Service. Taxpayer operates a "mobile" billing service where it provides billing services to the medical profession. Taxpayer makes photocopies of accounts receivable ledger cards, folds, inserts the copies together with return envelopes into window envelopes, meters and mails the statements. The copy paper and envelopes are provided by the taxpayer. A lump-sum charge is made.

The photocopying is regarded as sales of photocopies which are taxable. The sale of the envelopes is taxable. The folding, inserting and mailing would be exempt only if the charge was separately stated. In this case, the metered postage could be identified even though not separately stated. Accordingly, only the charge for the postage is not subject to tax. 7/14/75.

515.0188 On-Site Photostat Copies. A taxpayer does on-site photo copy work for law firms and other companies as a subcontractor. When billing a client, separate charges are made for machine transportation and set-up fee, an hourly rate for time spent on the job, and twenty cents per copy.

In this case, the sales tax applies to the entire amount charged, including the machine transportation and set-up fees, the hourly rate, and the per copy charge since the contract is to provide copies of documents which are sales of tangible personal property. In those cases where the taxpayer performs the photocopying work as a subcontractor, the sale may qualify as a sale for resale provided the other company intends to resell the copies to another purchaser. However, such resales should be supported by a complete resale certificate, issued timely, and taken in good faith.

Additionally, items becoming a component part of the property transferred to the client, i.e. copy paper, binder clips, toner, etc., may be purchased ex-tax for resale. Items not transferred to the client are considered to be consumed and may not be purchased without tax. 11/13/92.

515.0190 Payments Made to Obtain Records. A charge by a doctor for furnishing a patient's medical records to a photocopy service is an expense incurred by the service in obtaining access to the records which should be included in the "sales price" for purposes of determining sales tax liability. The fact that the photocopying service elects to pass the expense on to the customer without a mark up does not alter the result. 6/13/77.

515.0193 Payments Made to Obtain Records. The charge for preparing and serving a subpoena duces tecum is nontaxable even when made by a copying service which also makes a taxable charge for copies of records. The charge for preparing and presenting a written authorization for an attorney, pursuant to Evidence Code section 1158, is nontaxable. 11/25/81; 1/2/85.

515.0220 Public Stenography—Mimeographing. In general, public stenography constitutes the sale of a service and the sales tax does not apply. The sale of mimeographed material, however, is subject to tax. 1/1/61.

515.0225 Reverse Engineering. Pursuant to a reverse engineering agreement, a firm is provided with an instrument by a client, for the purpose of disassembling and evaluating it. The firm then prepares and delivers drawings on velum, which are needed by the client to design and assemble printed circuit boards. The taxpayer also prepares and delivers a listing of parts and materials, plus assembly instructions for the instrument. The firm designates the charge to the client as "reverse engineering".

The client examines the reverse engineering package and decides whether to begin mass production of the instrument. If it decides to proceed, the client either has the firm or another manufacturer begin production, under a separate agreement.

The drawings are transferred for the purpose of conveying information and not for use in manufacturing the instruments. The assembly instructions appear to be based on engineering expertise and are important aspects of the reverse engineering agreement. Based on these conclusions, the firm's reverse engineering is a nontaxable service. If the firm also mass produces the instruments, the reverse engineering would still be regarded as nontaxable service provided that there was no production contract in place, between the parties, to produce the instruments before completion of the reverse engineering package. 4/25/88.

515.0228 Student Transcripts. Sections of the California Education Code provide that a student has the right to access all records relating to that student. "Access" includes a personal inspection and review of photocopy or any such record. If the copy is furnished for a fee not exceeding the cost of making the copy, a sale is not involved, as the transfer is not a result of a contractual agreement, but an act required by law. 6/4/90.

515.0230 Survey Copies. A company produces generic reports and sells duplicate copies of the reports. Custom reports are also prepared. Tax applies to copies of the generic reports but does not apply to charges for the custom reports.

When a customer contracts to purchase a generic report and also contracts to purchase a customized report, tax applies to the sale of the generic report regardless that it may be delivered with the custom report as one unit. 9/11/92.

515.0235 Third Party Furnishing Copies of Records. A hospital receives a subpoena or authorization letter to furnish copies of records. The hospital sends the subpoena or authorization letter to a copying service and makes its records available, at no charge, to the copying service. The copying service then performs the copying, delivers the copies to the requesting party, and bills the requesting party. Given such facts, tax applies to all charges by the copying service to the requesting party. Since the hospital did not make any charge to the copying service, the copying service cannot make a nontaxable statutory charge pursuant to sections 1158 or 1563 of the Evidence Code, regardless of how such charge is stated to the requesting party. 11/30/88.

515.0238 Transcription of Public Record. Generally business records of the Board are public records and sales tax does not apply to sales of copies to the public. It is not required, however, that the form of the records be changed. If for example, a member of the public requests a typed transcript of stenographic notes of a Board meeting, sales tax applies to the sale of the typed transcript because it is not mandatory that the Board prepare a transcript and transfer it to a member of the public. 3/12/86.

515.0239 Transcripts Furnished by Educational Institutions. Charges for college transcripts furnished by educational institutions in accordance with a statutory mandate are not "sale" transactions, and sales tax does not apply. When copies of documents are furnished by governmental entities in accordance with law, transactions of this type constitute the performance of governmental services notwithstanding that the entity furnishing the documents may be entitled to reimbursement for the performance of the service. 12/18/91.

515.0239.500 Translation of Documents from One Language to Another. The following covers the application of sales tax to various charges for computer translated documents.

(1) A customer provides documents in one or more foreign languages and requests translations into one or more different languages. The customer is provided with one or more different languages and with one of the following:

(a) A word processed copy on paper, or

(b) An electronic (floppy disk) copy of the translated documents, or

(c) Multiple photocopies or electronic copies of the translated documents. Tax does not apply to the translation of a foreign language. However, tax applies to the sales of multiple copies.

(2) The customer is provided with a (desktop published or typeset) copy of the translated documents, either on resin-coated paper, film or electronic copy. The customer may use the translated and typeset documents as a retail product, e.g., a book as a user's manual.

If the resin coated paper is used as a reproduction proof and the documents provided contain text only, the charge is nontaxable regardless of the method used to transfer the information to customer. However, output which embodies composed type with artwork is taxable. 12/13/91.

515.0240 Typing Service. Charges for hand typing letters, manuscripts or other documents are not taxable. The typist is the consumer of the paper and other materials used in the typing. However, the tax does apply to charges for mimeograph jobs, and it is immaterial that the customer furnishes the materials or that the mimeographer charges by the hour. 11/19/64.

515.0260 Typing Service—Reproduction Copy. Charges for typing a perfect copy for a customer are not subject to tax, although the customer will photograph it for purposes of incorporation into a book or pamphlet. 2/24/65.

(c) Original Manuscripts, Plans, Etc.

515.0300 Manuscripts. The transfer to publishers of original manuscripts by the authors thereof for the purpose of the publication is not subject to taxation. However, tax would apply to the sale of mere copies of an author's works or the sale of manuscripts written by other authors where the manuscript itself is of particular value as an item of tangible personal property and the buyer's primary interest is in the physical property. 11/21/68.

515.0320 Musical Arrangements. The original manuscript of a musical arrangement is the work product of the arranger and its sale is not subject to tax. However, the preparation of multiple copies is considered the fabrication of personal property rather than the sale of services and the multiple sales would all be taxable. 11/10/64.

515.0340 Plans. A $50 charge for original plans made according to the desires of each person interested in converting existing buses or van trucks into "house cars" would not be subject to tax. However, the planner is the consumer of the paper and other materials used to present the plan. The total charge would be subject to tax if the plan sold was merely a duplicate of a plan drawn for a preceding customer. 8/20/69.

515.0360 Resumes. Charges for the composition of resumes do not constitute taxable gross receipts. The composer of the resume is regarded as the consumer of the paper and other tangible personal property which is delivered to the client. Additional charges for multiple copies of resumes whether composed by the person or others are taxable gross receipts. 5/4/65.

515.0366 Writing Original Text. The writing of original text by a free lance technical writer is a service not subject to tax. It makes no difference whether the original text is transferred to the customer in the form of printed copy or on diskettes. (Regulation 1502.1(a).) However, tax would apply to charges for multiple copies of either the printed copy or diskettes which are transferred to the customer. 12/12/86.

(d) Engineering, Design, Research and Production

515.0375 Architectural Drafting. When a taxpayer prepares drawings for architects, engineers, and other persons based on specifications they have provided, the taxpayer does not perform architectural services. Rather, taxpayer makes sales of tangible personal property which are subject to sales tax. 1/25/94.

515.0380 Blueprints—In General. Fees paid to architects or engineers for their ability to design, conceive or dictate ideas, concepts, designs, or specifications are not subject to the tax. Any blueprint provided under the architect's contract or commission are incidental to the architect's services and are not taxable. If after the completion of the contract or commission the architect transfers additional copies of the original blueprint, tax applies to any charge for the additional copies. 12/15/65; 4/25/88.

515.0390 "Breadboards." A taxpayer enters into an agreement with a customer to furnish "breadboards." The agreement defines a "breadboard" as "an assembly of MOS devices which together will functionally duplicate a Production Set and will have the performance characteristics specified."

The agreement expressly provides that the taxpayer will develop two breadboards for which it will receive payment of time and materials specifically devoted to the two breadboards. The customer agrees to furnish engineering, consultation, and the necessary equipment to support the development. The agreement further provides that proprietary rights, patents and indemnities, and the technology used to develop the breadboards shall remain vested in the taxpayer but that the breadboards, upon acceptance, become the sole property of the customer.

The customer is contracting for items of tangible personal property to be developed from predetermined specifications and not for the ideas, data, or information relating to the manufacture of the breadboards. The customer is primarily interested in acquiring the breadboards for their intrinsic value as items and not in the purchase of the data, as such, in the course of manufacture. Therefore, the entire sales price of the breadboard models is subject to the tax as the sale of tangible personal property. 7/23/70.

515.0400 Calibration. Tax does not apply to charges for calibrating tanks and furnishing written report. 2/13/51.

515.0410 Calibration. A company is providing a nontaxable service when calibrating petroleum storage tanks by computing the quantity of liquid in the tank at various levels, if all that the company provides it customer is the information generated by its calibration, even if that information is conveyed by written report. However, if the company transfers any other tangible personal property to its customer, it is making a sale of that property to the customer. Unless that sale is for resale in the regular course of business prior to any use by the customer, the company's entire charge is taxable. For example, if the company performs the calibrations in order to provide its customer with a gauge stick or a tape to be used as a pattern or template, the company's entire charge is taxable with no deduction for any of the calibration services which were required in order to provide the tangible personal property. 2/2/51.

515.0435 Design and Drafting Plans. The taxpayer, although not a licensed architect, is permitted by California law to perform certain architectural services. If the services are in the nature of original design, concept, or dictation of ideas, design concepts, or specifications, the fees are not subject to tax. If the services consist of transferring the ideas, designs, and specifications of another person to a tangible form such as a blueprint or design, the charges are taxable. 3/27/91.

515.0438 Design for Sign. A taxpayer prepares designs of signs for existing and projected real estate projects. Unless the taxpayer is an architect and prepares the signs incidental to the providing of architectural services, the providing of the designs is not regarded as an exempt service. The true object of the contract is the tangible personal property embodying the design. 10/3/94.

515.0440 Design Layout—Production Drawings—Production.

(1) A fee paid to an engineering firm is not taxable where the fee is under a contract for the design and preparation of a general layout for a special purpose piece of machinery based on requirements furnished by the company.

(2) If after (1) above the client has a second engineering firm prepare production drawings, the second firm makes a taxable sale of tangible personal property, i.e., the drawings. But the sale may not be taxable if the second firm, in preparing the production drawings, contributes its engineering knowledge and skill as distinguished from merely converting the layout into a different form of physical property.

(3) If the general layout and the production drawing are prepared by the same firm under a single contract (or simultaneous contracts) and the sale of the production drawing is taxable (2 above) the entire amount paid is taxable. The amount attributable to the design is part of the expense of producing the production drawing and is not deductible from gross receipts. The principle is the same as in the case of "preliminary art" and "finished art."

(4) If the same firm does the design layout, production drawing, and produces the machine, the entire sum is taxable. But if the design contract is separable in the sense that there is no contract for the finished machine until after design work is completed, the charge for design work may be excluded. 2/27/64.

515.0445 Designs for Tee Shirts and Belt Buckles. A taxpayer prepares designs for tee shirts and belt buckles. The taxpayer sells the designs to persons who manufacture items carrying the designs. The true object of the taxpayer's designs is the tangible personal property which embodies the designs and which the manufacturers use as manufacturing aids to produce the tee shirts or belt buckles. Tax applies to the charge made by the taxpayer. 10/6/94.

515.0448 Developing Software Program. A and B enter into a contract whereby A will assist B in developing computerized systems and data bases generally known as an Expert System (system that uses artificial intelligence techniques). Both parties are to provide their expertise and knowledge in their particular field to the venture. All ideas, inventions, hardware, firmware, software or documentation, whether or not protectable by copyright, patents or trade secrets, developed in the performance of the services will be jointly owned.

Under this scenario, the agreement is one for services only and not for services which are a part of the sale or lease of tangible personal property. Of course, if any tangible personal property is transferred by A to B in connection with the performance of this contract, tax would apply to those charges. For example, the contract calls for third party products to be transferred without mark up.

Under a provision of the contract, A will transfer to B a copy of any knowledge base developed. This transfer would take the form of tangible personal property, such as tape, disk, or other magnetic storage media. Such a transfer of storage media would be merely incidental to the performance by A of the service of developing the knowledge base and not a sale of tangible personal property.

It is also possible that an "Expert System" developed by A and transferred to B might be considered a computer program as that term is defined in section 6010.9(c). If it is a computer program, rather than data or information, it would nevertheless be a nontaxable custom computer program under section 6010.9, since it would be prepared by A to the special order of B pursuant to the agreement. Thus, A would be considered to be providing the service of developing the custom program, rather than selling the program. 7/21/88.

515.0450 Developmental Software. Before a software company, who is in the business of selling software for resale, actually mass produces a product, the company does extensive developing by sending early versions of the software to approximately 2,000 persons at no charge to the recipient. The recipients use the free software and point out any "bugs" to the software company.

Tax applies to the sale of the disks, the disk duplicating services and the supporting manuals to the software company. 5/3/93.

515.0455 Engineering Charges. The transfer of tangible personal property such as prototypes, models, etc., produced in connection with a contract for research and development or a contract for product design may or may not be a sale. The decision depends on whether the original data represented by the property could have been conveyed to the client in verbal or written form. If so, the transfer of the property is a sale as it is more than incidental conveyance for the purpose of presenting the data resulting from the contract work. (Also see Business Taxes Law Guide Annotations 515.0020 and 515.0660.) 8/6/90. (Am. M99–1).

515.0456 Engineering, Design, etc. Company A contracts with Company B for Company B to provide certain engineering, design, procurement, and to furnish necessary drawings, specifications, maintenance manuals, and technical support for proper construction, operation, and maintenance for modification of certain equipment. Company B will also provide technical and pricing information for preparation of cost estimates for construction of NOx reduction/control facility. Company B also will be procuring property for Company A.

Drawings, specifications, and other written materials are created and provided by Company B based on engineering and technical expertise. Company B does not supply extra copies of these manuals. The furnishing of the technical drawings is incidentally transferred as part of engineering services and is not a retail sale of tangible personal property.

With respect to the procurement of property, in order to qualify as an agent for Company A in purchasing property and not as a seller of the property to Company A, Company B should have written evidence of agency status, must clearly disclose to the supplier that it acts as an agent for Company A when making the purchases, and the price billed to Company A must be the same amount paid to the supplier.

The contract provides that Company A will pay the actual costs of such property procured by Company B and that the other charges paid by Company A attributable to such procurement would be agency fees. Assuming that Company B discloses to the suppliers that it is acting as an agent for Company A when purchasing the property, Company B is purchasing the property as agent for Company A.

If Company B provides fabrication of tangible personal property, that fabrication would be regarded as a sale and the gross receipts attributable to that sale would be subject to sales tax. 9/19/90.

515.0457 Engineering Drawings. Engineering drawings required by a contract for the manufacturing and installation of a custom built pipe organ are considered to be services which are part of the sale of tangible personal property. Accordingly, the receipts from the drawings are includable in taxable gross receipts whether or not they are billed to the church before the organ is produced.

Whether an organ is considered "machinery and equipment" or "fixtures" under Regulation 1521, installation charges are not included in gross receipts. However, any onsite fabrication is subject to tax. 11/16/64.

515.0458 Engineering and Reassembly Charges. An out-of-state manufacturer of ovens used for drying and smoking food products sold and installed an oven for a customer in California. Included in the contract price were separately stated charges for "engineering," which was for the labor of designing the oven to the customer's specifications, and for "oven labor", which was for reassembly labor and installation.

The oven is considered to be a fixture. The manufacturer was the retailer of the oven and also a construction contractor. Since there was no local participation in the transaction by any office, salesperson or representative of the manufacturer, the applicable tax due is the use tax, which the manufacturer is required to collect from the purchaser. The charge for engineering (design labor) is a "service that is part of the sale" and is includable in the measure of tax. The oven labor (reassembly labor) is not subject to tax if title passed prior to the reassembly and the customer was not required to hire the seller to do the reassembly. In this case, while title may have passed prior to reassembly, there was no evidence to show that the customer could have hired another person to do the reassembly. Accordingly, the charge for reassembly is includable in the measure of tax. 9/27/91.

515.0460 Exhibits for Expositions and Fairs. A designer's charges for designing exhibits for expositions and fairs are not subject to tax where the designs are made to display ideas, the designer retains title thereto, and he subsequently contracts under separate agreements to construct and lease exhibits depicted therein. 4/16/70.

515.0470 Garment Design. A person creates garment designs by preparing sketches for approval by the customer. Upon approval, patterns and sample garments are produced. The sample garments are used by the customer in preparing production patterns. The production of models or samples which can be used to produce production patterns goes beyond the expression of an idea. The charges are taxable as the sale of a usable product. 1/7/71.

515.0480 Invention. The charges for design and engineering services in connection with the development and improvement of an invention are not subject to tax if no tangible end product is required to be delivered under the contract. Tax applies only to the sale of property to be used in rendering the services. However, when the contract requires the delivery of an end product, the charges for the development and engineering services are taxable. 11/4/64.

515.0494 Land Surveying. A land surveyor visits the site, measures it with civil engineering tools, and prepares a drawing based on the field work. The client is provided with a copy of the drawing. The land surveyor is providing a service, and the transfer of the copy of the drawing is incidental to the rendition of the service. 11/23/92.

515.0500 Models. The building and sale of architectural models pursuant to contracts with architects and designers, which models are used rather than resold, constitutes a taxable sale. 12/30/54.

515.0520 Models. Under a subcontract to design and fabricate a model for a pump and also conduct test and furnish test reports, the furnishing of the tangible personal property (the pump models) constitutes a sale within the meaning of the Sales and Use Tax Law. The amount separately charged for the tests and test reports is not taxable as representing payments for professional engineering services, not part of the production cost of the tangible property transferred. 1/22/65.

515.0540 Molds. The full amount of a sale must be included in the taxable gross receipts where the contract of sale involved the sale of boat molds capable of producing a sailboat together with an assignment of the vendor's rights in the design which are subject to royalty payments to the designer. The value of the design rights is presumed to be equivalent to the royalty payments and hence there is no sale of intangible property involved. Also, the various functions performed in developing the boat molds, including design, are costs or services which are part of the sale and hence are taxable. 6/4/64.

515.0560 Molds. If a vendor contracts to sell a mold and in order to perform that contract must incur costs for engineering and design, such costs must be included in taxable gross receipts even though separately stated.

If, on the other hand, the vendor merely contracts to do certain engineering and design, without being obligated to deliver a finished product, the charges for such engineering and design are not taxable. 7/19/54.

515.0580 Package Designing. The charges for the designing of packages are exempt only when they do not involve the transfer of tangible personal property except as a means of expressing an idea. Whereas the production of a plan or blueprint is necessary for the expression of ideas for package designing, the manufacture of a model which is complete in all respects and capable of use as a pattern in the making of a die goes beyond the exempt expression of ideas, and constitutes a taxable sale of a usable product. 2/9/62.

515.0585 Packaging Design Transfer. A taxpayer designed packaging for various types of products. By agreement with its clients, the taxpayer developed and presented to its clients a selection of preliminary package design concepts which were done at the taxpayer's expense and at no cost to the clients. Upon acceptance of the design by the client, the client obtained the exclusive right, title and ownership interest to the design concepts prepared by the taxpayer. At all times it was contemplated the taxpayer would transfer title to the design concepts to the client. The client's true object was the obtaining of the preliminary design package. The transactions were therefore retail sales of tangible personal property. Even if the design package is viewed as preliminary art, tax applies because title to the design packages was passed to the clients. 2/15/95.

515.0592 Pattern Sizing. A taxpayer entered into an oral agreement with a dress manufacturer to perform pattern sizing work at his home and was paid on the basis of hours of work expended on each particular job. The work (pattern sizing) involved the grading or transferring of an existing pattern into separate paper patterns of larger or smaller sizes. The patterns thus created are utilized by the customer as a guide in the process of manufacturing dresses of the size of the particular pattern.

In this case, it is quite apparent that the customer sought the tangible item, the pattern of various sizes, for use in its dress making business. Therefore, the contracts was for the production and delivery of tangible personal property and, thus, the charges for such are subject to sales tax.

Also, taxpayer would not be considered an employee since the essential elements of an employment relationship were not present, i.e., right to control and direct the details of the employee's work performance. The taxpayer performed the work in his home utilizing a sample pattern provided by the customer. This amounted to no more than general direction as to result desired and is not sufficient to establish that an employment relationship existed. 10/28/75. (Am. 2000–1).

515.0620 Prototype. A company which agrees to design, develop and qualify a basic prototype unit of equipment for processing onions qualifies as a seller of tangible personal property when it has agreed by contract to sell the prototype whether or not it proves acceptable. However, it is not liable for tax on progress payments or other amounts received under the contract until it becomes a retailer. 6/28/65.

515.0640 Quality Control. An engineering service charge for quality control operations by a seller of fluids for oil drilling operations is properly subject to a sales tax as a charge for services that are part of the sales under the gross receipts definition in section 6012, and is not a charge for installation or application of the fluids. The type of services involved here are so intimately entwined with the sale of the fluids that they must be regarded as part of the sale. 5/21/69; 1/3/91.

515.0660 Research Contracts. A research and development contract must be distinguished from a contract for the manufacture of a "custom made" item. In the latter, the research, design, etc., although necessary to the manufacture of the item, is incidental to the primary purpose of the contract. Generally, "custom made" items are for consumption or resale. The buyer wants the item for its intrinsic value as an item, and is not interested in the data developed in the course of its manufacture. In such contracts, the entire contract price is subject to tax if the tax applies. A person contracting for research and development is primarily contracting for information which is intangible. Generally, the person contracting for information is going to use it to manufacture and sell some item of tangible personal property.

The development of the information in a research and development contract is not a sale of tangible personal property. It is a service. Since the information such as plans, design, parts lists, etc., cannot ordinarily be conveyed orally, the information is conveyed on paper. The transfer of the information on paper is not a sale of tangible personal property, and the transfer is incidental to the service of developing the information. In a few rare instances, the information cannot be conveyed without the transfer of a prototype. In these cases the transfer of the prototype is incidental to the transfer of the information and is not a sale of the prototype. In most instances the information cannot be developed without the production of a prototype, but the information can be conveyed without it. In these instances, if the prototype is also transferred, it is a sale of the prototype along with a sale of intangible information.

In a true research and development contract, where a prototype is manufactured, the researcher (taxpayer) owes use tax on the materials used to construct the prototype since it was used to compile the data, design, drawings, etc. The measure of the tax is the cost of the materials going into the manufacture of the prototype as well as all other materials consumed. Thus, if the true research and development contract calls for the researcher to furnish a prototype along with the engineering data, parts lists, design blueprints, operating instructions, etc., the transfer of the prototype (previously used to develop the data called for in the nontaxable service portion of the contract) is a sale of it without any credit for the use tax paid on the materials. The measure is not the full contract price since the primary purpose of the contract was one for the service of developing information. 3/11/66.

515.0680 Research Contracts. Contracts for research work which require only the development of ideas, plans, engineering data, etc., do not constitute sales of tangible personal property although models and drawings are furnished to convey such ideas, etc. 8/8/50.

515.0689 Research and Development-Photocomposition. A firm has a contract which provides for the processing of magnetic tape copy furnished by its customer and for the photocomposition production materials used in printing. During the early stages of the contract, the firm is involved in research and development of the photocomposition method of reproduction. No use is made of the materials produced during this stage. Later the printed matter is produced using the photocomposition method.

The contract calls for the production of photocomposition of pages to be used in the printing which is billed to the customer at the firm's cost. Tax applies to the full contract price without deduction for the developmental stages during the early part of the contract. 3/7/74.

515.0700 Scientific Drawings. A contract to purchase scientific drawings and sketches is not a contract for research and development, but a contract to purchase a specific physical item of tangible personal property and is taxable as such. Since the information has already been developed and put on paper, the purchase of the drawings differs from research and development contracts. A research and development contract is primarily for the service of developing the information. The ultimate recording of the information on paper under such contracts is incidental to the purchase of the service to develop the information. 3/9/66.

515.0710 Seismic Calculations. Sales tax applies to charges made to a California customer for seismic calculations made as a condition of sale of industrial valves, since the activity is a service provided as part of the sale of tangible personal property. 7/22/77.

515.0720 Separate Purchase Orders. When a contract to manufacture certain equipment is followed by two purchase orders, one for the equipment and the other for designs and drawings necessary to manufacture the equipment the full contract price must be included in gross receipts. The test is whether at the time of performing the engineering and design the person doing the work is under any obligation to deliver an end product. If he is, then the cost of engineering and design is not deductible from gross receipts. If he has no contract for an end product but is simply performing an engineering service not involving the production of any tangible personal property which is desired by the customer, then such charges can be regarded as service charges and not subject to tax. 1/22/58.

515.0725 Software Prototypes. A computer consulting business also creates custom software. It is contemplating a contract to develop and install a system in a foreign country for a foreign entity. A prototype will be fabricated and assembled in this state to serve as a model or a "test-bed" for the larger system which will be assembled and developed in the foreign country. The prototype will be used to perform such tasks as hardware and software integration and system problem correction. On completion of the contract, the prototype will be shipped to the customer. Title to the prototype will transfer to the customer upon delivery to the common carrier for shipment.

The prototype is clearly "tangible personal property" as defined in section 6016. The use of the prototype in this state to integrate hardware and software and to correct system problems is other than for demonstration and display for the purpose of resale. The sale to the computer consulting business of the materials and labor to fabricate or assemble the prototype is a taxable retail sale. The sale to the customer is a second retail sale, but that sale will be exempt from tax if meeting the requirements of subdivision (a)(3) of Regulation 1620. 5/3/93.

515.0740 Structural Steel Detailers. When construction plans prepared by an architect or engineer are incomplete as to structural details, the steel contractor engages a person in the business of steel detailing to furnish the missing details in the form of detailed plans. The details usually pertain to the type of connections to be used in assembling the steel structure, i.e., whether particular steel members will be welded, bolted or riveted together. The steel detailer does not merely produce a drawing from information and data furnished to him but rather he exercises his own independent judgment in conceiving and dictating his own ideas and designs. Accordingly, steel detailers are consumers of tangible personal property which they utilize in rendering such service and not retailers. 12/20/67.

515.0755 Technology Transfer. A firm enters into a contract to purchase certain tangible personal property together with the right to reproduce the property and incorporate the reproduction into integrated circuits which it will sell. The contract also provides for 80 hours of consultation and a requirement that each product produced by the firm contain a copyright notice. The contract calls for payment of a lump sum plus royalties based on the number of units produced.

The contract is for a "technology transfer." The measure of tax is limited to the value of the tangible personal property separate from the license to manufacture and sell. The sales price of the tangible personal property is the cost of material, fabrication labor and suitable mark up. 12/15/92.

515.0760 Temporary Tooling. A vendor who contracts to design and construct a piece of temporary tooling to be analyzed by the customer before he places an order for a permanent model is performing engineering and design services and is the consumer of materials used in constructing the tooling. 11/10/65.

(e) Miscellaneous Activities

515.0775 Biographical Information Resumés. A taxpayer operates an international "matchmaking" service. The taxpayer provides information on single Russian, Ukrainian and other Commonwealth of Independent State (CIS) women, who desire to immigrate to the U.S.A. and marry single American men who also wish to marry. The taxpayer does not charge the female clients in the CIS to sign up with the taxpayer's service. They complete an application and provide at least one photograph of themselves. The taxpayer transfers (after translation) their biographical information onto a standard resumé form.

The taxpayer prepares single information sets which include one resumé (with picture) and corresponding addresses of the single women. Other portfolios will contain 10 or 20 resumés rather than one resumé. The selling price increases with the number of resumés in the portfolios.

Under this scenario, if the taxpayer's operations consist merely of the selling of resumés and pictures with no significant match making services, sales tax applies to the entire gross receipts from the sale of such material. However, if the taxpayer is selling a service where it provides its customers with input, advice, or assistance in the selection of potential mates from the CIS as opposed to simply selling pictures and resumés of CIS women who are selected solely by customers after they browse through resume books, the taxpayer is providing a nontaxable service. The taxpayer is regarded as the consumer of the tangible personal property delivered to the customer and sales or use tax applies to the purchase price of the property to the taxpayer. 6/15/95.

515.0780 Business Advisory, Record Keeping, Payroll and Tax Service. A firm which performs business advisory, record keeping, payroll and tax services for small businesses and furnishes form, binders, and other property to franchised consultants for distribution to subscribers as an incident to the rendition of its services is the consumer of such tangible personal property used in the rendition of its services. Accordingly, it is subject to tax measured by its cost of such property. 7/29/65.

515.0790 Carbon Dioxide. When a taxpayer employs its equipment at customers' sites to apply carbon dioxide to fresh fruits and vegetables to preserve them during transportation to market, it is providing a service rather than leasing the equipment to the customer. The charges made by the taxpayer are based on the amount of produce shipped using its process and not by the equipment or property used. 3/14/95.

515.0800 Cards or Letters. Cards or letters furnished to club members giving personality information for a lump sum amount not related to the number of cards or letters furnished, is regarded as a service enterprise. 4/1/50.

515.0820 Cataloging Services. Charges for the production of printed catalogs for libraries are taxable except supplements regularly issued every three months or more often which are within the periodical exemption. Where a lump-sum charge is made for catalogs and supplements, an allocation should be made as between taxable volumes not issued with the necessary frequency and the supplements which are so issued. Charges for services of cataloging books for libraries, if not a condition to the production of the printed catalogs are not receipts from sales of tangible personal property, but for services and are not taxable. (Effective July 15, 1991, the sale of newspapers and periodicals, including sales by third party retailers, is subject to tax unless otherwise exempt. However, effective November 1, 1992, tax does not apply to the sales or use of a periodical, including a newspaper, which appears at least four, but not more than 60 times each year, which is sold by subscription, and which is delivered by mail or common carrier. 1/19/65.

515.0830 Charges for Client Bills and Management Reports. Charges for generating client bills from customer furnished time sheets and for providing management reports are charges for nontaxable services under Regulation 1502 (c)(5). 2/28/89.

515.0842 Closed Captions for Hearing Impaired. The application of tax to closed captions created for television programs for the benefit of the hearing impaired viewers nationwide is as follows:

(1) Captioning

Captioning activity is considered a service transaction even though the results of the service activity may be recorded in a machine-readable form and transferred to the client or encoding house on a captioning disk or an encoding disk. The caption editor is required to use language skills to address the needs of the hearing impaired while considering the nature of the program. What is paid for is not putting the symbols on the disk, but the service creating the words and symbols.

(2) Reformatting

Reformatting is editing or altering material previously captioned to match a new version of the program. It is a service activity not subject to tax.

(3) Encoding—Outside

Encoding is the process of integrating captions with the program owner's master tape. This is usually done by someone other than the firm that created the caption. Charges for encoding are nontaxable when such services are in connection with the production of a qualified motion picture. 12/19/88.

515.0880 Codification and Publication of Ordinances. The codification and publication of municipal ordinances for subsequent sale, constitutes the sale of tangible personal property, the gross receipts therefrom being subject to tax. 12/2/55.

515.0900 Codification and Publication of Ordinances. The total charge for codifying city and county ordinances, which includes the editorial work and publishing of 50 copies and loose leaf binders, is taxable. 7/3/68.

515.0920 Color Consulting. The mere giving of advice or instruction with regard to color schemes where no drawings or pictures are furnished is not subject to sales tax. 8/12/60.

515.0940 Community Antenna. A one-time fee charged to subscribers for installing an antenna, title remaining in the installer, and a monthly fee charged for providing signals, are nontaxable. 8/23/66.

515.0950 Computer Data Bases. A client contacts the taxpayer with the medical name of the client's ailment. The client commonly questions a diagnosis their doctor has given. The taxpayer researches the most current medical information on the ailment in a computer data base and sends the client a computer printout discussing the ailment. The charge for such research and computer printout is for a nontaxable service. The true object of the transaction is medical diagnosis. The computer printout is the means to transmit the product of the service and is only incidental to providing the service of medical research and diagnosis. The charges for such a service are not subject to tax. 7/26/88.

515.0952 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.

515.0953 Court Reporting Services—Depositions and Litigation. In general a contract to report and transcribe an oral proceeding is a contract to perform a service and the tax does not apply. However, tax applies to sales of printed matter and thus tax applies where a single copy of a transcript is furnished and no services are performed (unless the transcript is furnished pursuant to Code of Civil Procedure, section 2019) or where multiple copies of transcripts are furnished to the customer pursuant to a contract for recording and transcribing an oral proceeding. Tax also applies to additional copies furnished beyond the first copy to the parties involved in the litigation. 4/11/79.

515.0954 Credit Rating Reports. The tax treatment of credit rating reports depends on the contract between the parties, how the report is marketed, and other factors. It must be determined on a transaction by transaction basis. If a customer makes a request for a report on a specific person or entity, the transaction most likely will be treated as a library search and, therefore, is a nontaxable service. However, if the credit rating business sells standardized reports to more than one customer or markets such reports to the public or to a specific segment of the public, even if there is only one purchaser, the credit rating business is making taxable sales of tangible personal property. 7/1/92.

515.0955 Crop-dusting. Crop-dusting does not qualify as a common carrier flight. Although the aircraft carries the dusting material from the loading point to the location of the fields, such a flight is not regarded as a flight for the purpose of transporting property for compensation. Rather the flight is regarded as an agricultural service of crop-dusting. 5/14/91.

515.0965 Custom Computerized Reports. A nontaxable research service charge is made by a person who receives raw scholarship data from a customer, enters that information into a computer database which already contains scholarship data, and then prepares a customized computer generated report containing such combined data which is delivered to the customer for consideration. 8/20/93.

515.0970 Custom Market Studies. Custom market studies contracted for in advance with a particular radio or television station, or others such as advertisers, are nontaxable. This is the performance of a service. The contract price includes the charge for compiling the data. 3/20/92.

515.0973 Diet Analysis Reports. Taxpayer prepares individualized diet analysis reports from information submitted by persons in response to a questionnaire requested from the taxpayer. A computer analysis of the dietary information is prepared and bound and returned to the customer, along with a specified number of pamphlets on nutrition. Additional pamphlets are available for a fee. A $2.00 charge is made for postage and handling on the shipment of the analysis report and pamphlets.

The analysis of the dietary information is an exempt service resulting in a report based on customer furnished information even though some tangible personal property is incidentally transferred. The pamphlets furnished with the report are sold and are subject to tax unless exempted for some other reason such as sales in interstate commerce. The measure of tax for these pamphlets is the same for additional pamphlets ordered separately. The postage and handling charge is exempt to the extent of the actual cost of postage, separately stated on the sales document, and the portion of the handling charge pertaining to the report, provided the records support the portion claimed as exempt. 4/3/91.

515.0975 Diet Counseling Service. The franchiser of a diet counseling clinic, charges its franchisees a "gross daily license fee" per customer. For this fee, the franchisee receives a daily packet of eight supplement capsules which is provided to each customer as part of the diet counseling services. The franchisee also resells the daily packets to other sub-franchisees for their customers. In addition, the franchisee also purchases manuals, video instructional programs and business cards for resale to counselors and other diet center operators.

The franchisee is the consumer of the daily packets provided as part of their diet counseling services, which is provided for a lump sum. The daily packets are only incidentally provided as part of the diet counseling services and is not an item sought as a "true object" of the contract. As the franchiser does not make a separate charge for the daily packets, a portion of the gross daily license fee is allocable as the cost of the daily packets, and is subject to tax.

Tax is also due on the retail selling price of the manuals, video instructional programs, business cards and the daily packets that are sold to other counselors, other diet center operators or sub-franchisees. 3/22/90.

515.0976 Dog Shows. Persons who serve as superintendents of America Kennel Club sanctioned dog shows are engaged in a service enterprise pursuant to Regulation 1501. They are consumers of all materials (including catalogs) furnished incidentally to the organizing and conducting of the shows. 11/16/83.

515.0978 Event Producer. A company produces events for its clients such as employee meetings held to introduce new products or corporate messages, or to reward employees for performance. The meetings (or shows) range in audience size from twenty-five to one-thousand attendees. The company's internal staff of producers create and produce these shows using freelance artists and other vendors. The company's involvement is total from initial concept to final execution. A typical show is set up in a hotel ballroom or other suitable location, and uses rented equipment for which the company contracts and pays for. Setups are temporary and labor contracted for by the company is used. When the show is over, the rented equipment is returned and sets are either destroyed or returned to the rental facilities. No part of the show remains or is given to the client after the performance. The company does not transfer possession of the tangible personal property to its clients either before, during, or after the event.

Since the client does not take possession of the property, the company is performing a service and is the consumer of all tangible personal property it uses to produce the events. Thus, sales or use tax applies to the sale or rental of the property to the company. 7/3/95.

515.0985 Face Painting. Painting faces for kids at fairs and parties does not constitute a sale of tangible personal property, but rather a performance of a personal service. Painting faces is like painting fingernails. Sales tax does not apply to such services. The face painter is the consumer of paints and other supplies. 2/18/94.

515.0990 Fireworks Displays. A charge for furnishing a fireworks display is not subject to sales tax when the fireworks company retains title to and possession of the fireworks and employees of the company explode the fireworks. In such case, the fireworks company performs a service and is the consumer of the fireworks so furnished. 10/7/81.

515.1000 Floats. A decorating company contracts to build a float and enter, display, and operate that float in a parade. The contract does not pass title to the float to the customer, nor does the company transfer possession of the float to the customer. The company is the consumer of the material which becomes part of the float. If the company thereafter contracts to sell the float (whether to its original customer or to another person), tax applies to the gross receipts from that sale. 10/21/54.

515.1010 Foreclosure Listing Service. A taxpayer accumulates Notice of Default, Notices of Trustees Sales, Notices of Trustees Deed, and federal and state tax liens from the County Recorder's offices. Taxpayer also links information obtained from the County Assessor's offices to the information obtained from the County Recorder's office. The information obtained from the County Assessor's offices includes the date that property was sold, selling price, assessed value and square footage.

The taxpayer's subscribers receive a foreclosure listing in a standardized format, i.e., Notices of Default in one county for $49.95 per month or a subscriber may choose to receive the same information for several counties for $519.95 per month. In addition, a subscriber may specifically request "custom specialty listings" for particular information other than the standardized reports. For example, a subscriber may request all foreclosures in a particular city during a particular period of time on single family residence with square footage between 2,000 and 2,500 square feet. Each subscriber has the option to receive any of the foreclosure listing through electronic transmission on a daily basis or through the United States mail on daily or weekly basis.

Where the taxpayers subscribers receive foreclosure listing through electronic transmission and do not obtain possession of any tangible personal property, such transactions are not subject to sales tax. With respect to foreclosure listing delivered through the mail which are custom specialty listing based on the subscribers special request for particular information, the taxpayer is performing information research which is a nontaxable service.

However, tax applies to the subscription fees charged for standardized reports delivered through the mail. The taxpayer in this instance is selling information in the form of tangible personal property. The real object sought by the subscriber is the report (foreclosure listings) itself which have intrinsic value due to the information contained. Subscribers are not purchasing the taxpayer's services per se; instead, they are purchasing the reports produces by the service. 7/17/96.

515.1020 Fuel (Nuclear) Service Contract. Taxpayer is consumer of tangible personal property used in performing fuel service contract where fuel (uranium dioxide) is owned by AEC and is leased to taxpayer's customer by AEC and taxpayer converts fuel from the form received from AEC into uranium dioxide, and thence through various manufacturing steps to permitthe fuel to be used in customer's reactor, and also furnishes the technical, financial and management services, together with the handling of the fuel at the customer's plant. 3/4/70; 3/24/70.

515.1060 High-Energy Irradiation. A radiation facility produces high-energy pulses of radiation to which the facility's clients subject their property for purposes of testing and experimentation. The facility furnishes operators, technical advice and equipment for observing and recording radiation effects. The operation of the facility is a nontaxable service, and the irradiating of the clients' products does not constitute taxable processing. 10/17/66.

515.1150 Indexing Written Manuscript. A person was hired to create a book index. The contract required the person to review the written manuscript and index each occurrence of the relevant terms and phrases found within the manuscript by noting the page numbers. The completed index was returned to the publisher on a computer disk. Indexing is generally regarded as a service even though the completed index is transferred to the purchaser on a tangible medium. Accordingly all charges in connection with indexing, such as management fees and messenger services are not subject to tax. 1/22/93.

515.1160 Intelligence Testing. An organization whose business is providing aptitude tests carried out by providing schools with test booklets and answer sheets which are returned to the organization, marked, and the answer sheets only returned to the schools, renders a service and the booklets and answers sheets are tangible personal property consumed in performing this service, and the organization is subject to the use tax measured by the cost of these materials. 6/3/60.

515.1167 International Driving Permits. A California automobile insurance firm acquired blank international driving permits from the out-of-state office of an automobile association. The out-of-state automobile association, pursuant to the agreement with the United States Department of State and in accordance with international conventions, furnished the California automobile insurance firm blank serially numbered driver's permits. The California firm paid $2.00 for each permit. The out-of-state automobile association is required to keep records of the serial numbers of the permits issued. When the United Sates or foreign governments request information about an individual to whom a permit was issued, the association complies with the request by linking the serial numbers to a specific application. The Department of State is empowered to issue the permits or delegate the function to another party. The function has been delegated to the automobile association and is the only source of the permit form. Under this scenario, the California automobile insurance firm is performing a nontaxable service when it issues a permit to an individual motorist for the authorized $5.00 fee. As to its acquisition of the blank permits from the out-of-state automobile association, the relationship between the two is also predominately a service agreement and not a sales agreement. Therefore, the California firm's acquisition of the serially numbered blank permits for $2.00 each is also not subject to tax. 6/23/88.

515.1177 "Legend" Drugs. "Legend" drugs (drugs having obvious potential for human harm) can legally be dispensed only by licensed veterinarians and only after examination of animals. They are therefore regarded as consumed by veterinarians rather than sold by veterinarians. 8/3/94.

515.1178 Letter from Santa. A taxpayer anticipates offering a "letter from Santa" which will be a personalized letter sent to individual children. The taxpayer will write a form letter and use word processing equipment or a typewriter to set up the basic form. When the purchaser orders a letter, he or she will provide the taxpayer with facts which are unique to each child. The taxpayer will insert the new information, such as the child's name, into the appropriate spaces in the letter. Through this process the taxpayer will modify the form letter and create each child's personalized letter from Santa.

Under Regulation 1502.1(a), tax applies to charges for producing multiple copies of letters using word processing equipment. Multiple copies include form letters produced with a slight variation which personalizes essentially the same letter. Thus, sales tax would apply to the taxpayer's entire gross receipts from the sale of each letter. 12/7/95.

515.1180 Library Services. The application of classification labels, card pockets and a college name stamped in the book, are not tax exempt professional library services. They are mechanical processing included within the definition of sale in section 6006(b) of the Sales and Use Tax Law and are subject to tax as part of the gross receipts. However, the following are tax exempt professional library services:

a. Bibliographical description of the book for classification purposes.

b. Assignment of, or verification of, the Library of Congress classification number to each book.

c. Inspection and verification of book card, pocket label and Library of Congress catalogue cards.

Records of receipts from taxable and nontaxable portions of contracts must be segregated in order to claim a deduction from gross receipts for nontaxable portions. 12/4/64.

515.1181 License to Manufacture and Sell. A domestic corporation and a foreign corporation each have developed proprietary products. Both corporations desire to have an alternate source supplier for their products. The two corporations entered into an agreement whereby they license each other to manufacture and sell each other's products in exchange for seven percent and four percent royalties. In connection with this agreement, technical information in human readable form is transmitted electronically between the parties.

There is no transfer of tangible personal property in this transaction and neither sales nor use tax applies. 7/11/85.

515.1181.300 Medical Monitoring Service. A taxpayer provides an emergency response system to the customer. The service consists of an easy to use electronic device designed to signal a friend, relative, or emergency service whenever help is needed.

The taxpayer buys or leases these units from the company who does the monitoring from a center located out of state. The taxpayer bills customers separately stated amounts for rental and monitoring of the equipment. The taxpayer, in turn, pays the monitoring company for the purchase or lease of the equipment and the monitoring of all units in service.

The taxpayer acknowledges that the monthly fee charged to its customers for the equipment rental is subject to tax. The only question is whether the monthly fee for monitoring the equipment is subject to tax. The operation of the monitoring service is explained as follows. When a customer presses the button on the portable transmitter installed in the customer's home, it sends a radio signal to the receiver, which then dials the central monitoring system located out of state. The center then notifies one of the three emergency contacts designated by the customer at the time of installation of the unit. There is no charge for the number of times the system is used by the customer. Based on this unique situation presented by specific facts provided, the monthly fee for monitoring the unit is regarded as a nontaxable charge for services. Thus, the contract between the taxpayer and its customer is for both the lease (sale) of tangible personal property and the provision of services. In other words, the monthly fee for monitoring the equipment is not subject to tax. 7/15/96.

515.1182 Membership Fees. A taxpayer, for an annual membership fee of $500 plus a one-time administrative fee of $150, provides member access to a wide range of nontaxable services and the member is entitled to "specially priced products" from business consultants who are unrelated to the taxpayer (i.e., the taxpayer does not receive commission or other compensation with respect to sales made by the business consultants). The taxpayer also provides its members canned software which has a retail value of $179, but cost the taxpayer $49.

The software is not provided to each member because it is only beneficial to some of the members. No adjustment in fees is made if the software is not provided. Members also receive the following items which are tangible personal property: 1) a Business Health Index Survey, 2) a Solution Report, 3) a Business Expense Audit, and 4) a quarterly Newsletter.

The value of the tangible personal property provided the members, including the canned software, appears to be minimal in relation to the services provided. It also appears that members join for access to professional services. Based on the facts, the membership fees are not considered taxable and the taxpayer is the consumer of all of the tangible personal property provided to the members. Accordingly, the firm is the consumer of property which it furnishes. 1/27/94.

515.1183 Monitoring Contracts. Company A contracts, usually with state or federal courts, to monitor offenders. Although tangible personal property is required to accomplish the purpose of the contract, the service component of the contract is significant. Although it is not clear what is provided, it is assumed that Company A provides the contracting agencies with reports, including telephone and written reports. If these reports are the only tangible personal property transferred, they would be regarded as transferred incidental to the providing of service. Company A uses certain equipment to accomplish these contracts which is a use of that property by Company A. The charge by company A to the contracting agencies is not subject to sales or use tax.

Company A also contracts with Company B to provide certain products and services. Company B provides a radio frequency transmitter which is, in effect, an ankle bracelet that attaches to the offender and a field monitoring device that is installed at the offender's home and is plugged into a telephone jack and power line. Company B also provides a host computer system located at Company B's office. Company B also provides sufficient field equipment supplies for up to four installations per year per unit. Supplies in excess of this amount are provided for an additional, separate charge. Field equipment units in Company A's inventory which are in excess of those needed for five working days, which excess units are pursuant to Company A's request (requested spares), are considered billable units. The primary portion of this contract is a service contract with an incidental transfer of tangible personal property.

Company B also provides to Company A sufficient field equipment supplies, such as batteries, latches, and straps for Company A to perform up to four installations per year per unit. These supplies are also transferred incidental to the monitoring service. Company B is the consumer of this property. With respect to the requested spares, Company A chooses to lease tangible personal property from Company B in order to conduct its business in the way it chooses. Assuming Company B has not paid sales tax reimbursement or use tax on the requested spares, Company A owes use tax measured by the rentals payable for these leases. With respect to any additional field supplies or any other tangible personal property provided by Company B, which is not leased, it owes use tax measured by the purchase price. 6/30/92.

515.1184 Multiclient Research Reports. A taxpayer undertakes a research project after it determines the marketability of the reports. When there appears to be sufficient interest, the taxpayer will complete the research and produce a report of its findings. A customer can purchase the final report (five copies) and also the same number of copies of any "follow-up" reports when they are issued.

Under this scenario, the real object sought by each buyer is the report itself, which has an intrinsic value due to the information it contains. The taxpayer is not performing multiclient studies in which client's agree to fund the project's cost. Instead, the taxpayer sells reports, based on unfunded or speculative research, to all interested persons. In addition, both the primary reports and follow-up reports are more like books, complete in themselves, rather than separate issues of a related publication. Therefore, the taxpayer is a seller of printed matter and tax applies to the total amount charged for the reports. 3/29/84.

515.1185 Multiple Listing Service Books. The real estate multiple listing services maintain listings on a computer data base which may be accessed via modem by the participants. The listings are also printed in book form. Many of the multiple listing services contract with outside vendors who both maintain the computer data base of listings and print the data base in a book format. These vendors charge input or insertion fees for each listing entered into the data base as fees for the multiple listing service books they print.

If the vendor's charge for an insert or for input into the data base is optional—that is, the vendor does not require the purchase of the service as part of the sale of the books—the charge for the data insert or input is not subject to sales tax. 4/13/92.

515.1200 Oil Well Testing. A firm engaged in the business of testing and processing oil wells, which purchases nitrogen gas and injects it into oil wells for use as a medium for building up pressure in the well, the gas being dispelled as it is used, is the consumer of the gas, although the oil well operator is billed on the basis of the number of cubic feet of gas used. 8/4/64.

515.1210 Optional Inspection Fees. A charge for an optional inspection conducted after the sale of the item inspected, is not a service that is part of the sale within the meaning of section 6012(b)(1). Thus, such charges should be excluded from the measure of gross receipts which are subject to tax. 5/9/91.

515.1220 Patent Draftsmen. The work of patent draftsmen represents essentially the performance of services rather than the selling of tangible personal property, and hence, is exempt from tax. 5/26/55.

515.1240 Preparation of Income Tax Returns. Sales tax does not apply to charges for the computerized preparation of tax returns when the computer operation includes the evaluation and development of certain factual information, supplied by the customer, into completed federal and state income tax returns. A company which prepares such computerized returns is the consumer of the three copies of the completed returns which are furnished the customer. 1/17/67.

515.1252 Pre-Screen Credit Service. A firm evaluates persons for credit for clients by using data in an existing data base. The following steps are involved:

(1) Selection of a demographically based list of possible credit candidates.

(2) The firm and the client develop a set of appropriate credit criteria.

(3) A list of potential candidates is sent to the firm by the client.

(4) The firm prepares an individualized computer program and evaluates the names based upon the credit criteria developed in (2) above.

(5) A list of those who meet the criteria is developed.

(6) The list is sent to the client or its designee for use in solicitation. In developing a list, two magnetic tapes are prepared: one with those persons who meet the credit criteria and one which contains the names of the persons who did not meet the credit criteria.

The transfer of the magnetic tape to the client is incidental to the service performed by the firm. Tax applies to the sale of the tape to the firm and the charge to the client is a nontaxable service. This is because the firm extracted information from an existing data base to the special order of its client and did not merely repeatedly sell data base information. 4/20/88; 7/26/94.

515.1260 Press Clipping Bureau. The contract between a Public Clipping Bureau and their subscribers constitutes a contract for a service, not a sale of the clippings, even though charges are based on the number of clippings provided. 7/27/51.

515.1280 Processing of Human Tissue. The processing and mounting of a specimen of human tissue on a diagnostic slide does not result in the creation of tangible personal property where performed as an integral step in the process of diagnosis of human illness. However, the production of a completed microscopic slide to be used for educational purposes is a sale of tangible personal property even though a specimen of human tissue is made a part of the slide. 8/30/71.

515.1295 Oil Well Drilling Reports. A taxpayer is in the business of gathering data on oil well drilling from clients, public records, and other sources. It has contracts with various clients to provide various reports which are different in the service and data provided. Each type of report is under a separate contract. Generally, clients subscribing to a specific report pay an underwriting fee (initial fee) plus monthly or annual fees to support the data base from which the reports or data are furnished to clients. The taxpayer will not establish a contract unless a specific number of participants (clients) are involved. All clients to a contract receive the same report or information.

A participant is not paying the taxpayer to process the participant's data. Rather, a participant is paying the taxpayer for standardized, common reports which are issued to all participants of a contract at stated intervals. It is reasonable to assume that the price paid under a single contract for a particular set of reports does not cover all of the taxpayer's costs. It is only by marketing and selling the reports to several persons that these costs can be recovered. Thus, the taxpayer is selling data in the form of tangible personal property and, therefore, its initiation fees and monthly/annual charges are taxable.

This contract is distinguished from a service contract in which all of the following factors are present:

(1) There is only one contract for a particular report, document, or other written material, though one or more persons who want the report, etc., may be parties to a single contract.

(2) The parties enter into the contract before the report, document, or other written material is produced. (3) Either the customer specifies which information is to be gathered and included in the report document, or other written material, or the information included in the report, etc., is based upon specific information from, or needs of, that customer

(4) The report etc., transferred is unique and is not marketed to other persons. "Unique" means that no one else who contracts separately with the provider of the report receives an identical or almost identical report, document, or other written material. Transfers of standardized or "canned" reports which are available to more than one person under separate contracts are sales of tangible personal property.

(5) The contract price covers the full cost of performing the service, i.e., the costs of gathering and compiling the data, plus a reasonable share of the overhead of the person providing the report, document, or other written material.

In cases of this type, the Board has considered the contract as a contract for services with an incidental transfer of tangible personal property. 2/2/93.

515.1300 Processing of Fruits and Vegetables for Shipment. A company provides gaseous atmosphere to shippers for the preservation of fruits and vegetables during transportation to market. The process called "Tectrol" consists of replacing the air from freight cars and highway trailers with certain gases and sealing the fruits and vegetables within vinyl plastic envelopes. The company is engaged in a service enterprise and is, therefore, the consumer of the gases and plastic envelope materials, the costs of which are subject to sales or use tax. 6/1/67.

515.1303 Satellite Television Services. The providing of satellite television services is not subject to sales or use tax. Tax may apply to the sale or use of the equipment used in furnishing such services. 11/15/94.

515.1307 Snow Manufacture. The manufacture of artificial snow at the customer's site is a sale of tangible personal property subject to sales tax. The true object desired by the customer is the snow rather than the service of making the snow. Items incorporated into the snow and sold in the form of snow may be purchased for resale. 9/15/92.

515.1310 Specialty Type Products and Industrywide Market Data. Specialty type products and industrywide market data, including general reports on various industry segments, standard micro-computer programs, and data are all taxable when delivered as tangible media. When any of these products are delivered electronically, they are exempt, because there has been no transfer of tangible personal property. 3/20/92.

515.1314 Sportag, Tag-Along, and Identag System. "Sportag" is a lightweight durable plastic tag worn on a person's shoelace and contains a phone number and identification number. By making a collect call to Sportag, immediate identification and a list of allergies and special medical conditions will be given to the rescuing party. The initial fee is $10.00, renewable annually for $7.00. Tag-Along is an identification tag for children and Identag is an identification system for items such as car keys, briefcases, etc. The identification system for Tag-Along and Identag work along the same lines as Sportag. The price for one tag is 49 cents and one tag is included with each sale.

Under this scenario, the Sportag, Tag-Along, and Identag systems are services with incidental transfer of tangible personal property. Thus, the taxpayer is the consumer of the tags. As the consumer of the tags, sales or use tax applies to the purchase price of the tags to the taxpayer. 10/19/84.

515.1320 Swimming Pool Service. A swimming pool service is the consumer of water treatment chemicals used in the performance of the service for a monthly charge. 7/18/57.

515.1330 Tariff Bureau Operations. A tariff bureau is in the business of providing specialized services for certain carriers whose operations are regulated by the Interstate Commerce Commission or the Public Utilities Commission. The clients appoint the bureau as their true and lawful attorney and agent to gain approval, publish, and file freight tariffs and supplements with the regulatory agencies. The services fall under two general categories.

The first occurs prior to the time a new tariff or a change to an existing tariff is proposed. The bureau may perform research to determine if the proposed tariffs interfere with the existing tariff of any carrier, consult with the client to determine rates and their impact on the industry, and consult with the client as to the competitive impact of the rates.

The second occurs after approval of the tariffs by the agencies when the bureau will compile the text of the tariff and rules for printing, footnote tariff authorities, and print the tariffs.

The work performed prior to approval of the freight rates comprise of acts performed as an agent of the carrier and such services are not subject to tax. However, an appropriate breakdown of such charges should be made to the customer. The work performed after approval is in the nature of services in connection with the production and printing of the tariffs and is taxable. 12/30/71; 7/10/96.

515.1338 Telephone Debit Cards. Telephone debit cards are sold in increments of $10.00, $20.00, or $50.00 and entitle the purchaser to make long distance telephone calls at a flat rate per minute until the card is fully used or expires.

The true object of the transfer of the card is the future telephone service. The card is incidental to the telephone services. Accordingly, the sale of the telephone debit cards is a service and not subject to sales tax when transferred to the purchaser. However, providers of a service are the consumers of material and supplies used in connection with the service. When debit cards, or the material from which they are made, are purchased by the seller of the cards, applicable sales or use tax will be incurred. 6/16/93.

515.1339 Telephone Debit Cards—Resale. A person who transfers a debit card with telephone services does not make a "sale" of tangible personal property for the purposes of the Sales and Use Tax Law. A debit card, as used here, is a symbol or "token" of the telephone service provided. A person who transfers a debit card associated with the telephone time makes a nontaxable transfer because the "true object of the transfer of the card is the future telephone service." (See Annotation 515.1338 (6/16/93).) The application of tax is the same whether the person to whom the transfer is made will use the telephone service or will, in time, transfer the card to another person.

However, when debit cards, or material from which they are made, are purchased in a sales transaction that does not also include the telephone time associated with the debit cards, the "true object of transaction" is the purchase of tangible personal property for use by the purchaser, i.e., the purchase or manufacture and subsequent transfer of the debit card as part of a nontaxable transfer of telephone time. This purchaser is the consumer of the debit cards (or the raw materials from which they are made). Therefore, a service provider in this state may not issue a resale certificate to purchase materials which the service provider will use to make debit cards that it will transfer as a representation of telephone service purchased. Further, if the service provider purchases the material from an out-of-state vendor to make the cards, the service provider is responsible for payment of the use tax on that use. 7/28/95.

515.1340 Telephone Service. Service charges for ordinary telephone service and for "leased lines" for telephone or teletype service are not charges for leasing of tangible personal property. 12/31/65.

515.1360 Television Audience Reports. The sale of information gathered by statistical means in the form of printed pamphlets concerning a television station's own viewing audience is not the sale of tangible personal property but rather the sale of a service. The sale of audience ratings reports for various other areas which are of interest to stations generally is a sale of tangible personal property. The latter reports may qualify as exempt periodicals if they meet the requirements of Regulation 1590. 5/10/66.

515.1364 Television Commercial Encoding and Monitoring Services. A company enables television advertisers to more accurately and efficiently determine whether the television commercials they have purchased have been broadcast at the time and in the form and market agreed to under a contract. The company has obtained from the FCC an exclusive right to use one line of the 525 that appear on a television screen. It has developed a device that encodes on this line a signature which is unique to each commercial. An independent party has been contracted to do the actual encoding on the master copy of the commercial using this company's equipment. The company has also developed a device that can monitor all television broadcasts in a given market and record exactly what commercials have been broadcast, the time they were broadcast, and the audio and visual quality of the commercial.

The described encoding procedures constitute fabrication labor but are excluded from the definition of a "sale" and "purchase" as qualified production services. As for the monitoring service, the company will issue reports to the customers in the form of a computer printout or in the form of a data file transmitted over a communication line between computers. Under these facts, the true object of the contract with the customers is the rendering of a service. The company's charge for the monitoring service is not subject to tax even though some tangible personal property is transferred to the customers. 9/1/89.

515.1370 Time Value Reminder Service. A person who provides a client (a construction contractor) with a weekly printed job status report, based on client furnished information, is providing a service rather than selling tangible personal property. The incidental inclusion of information in the report, which is not specifically requested by the client, such as a safety topic, would not result in a taxable sales transaction. 5/14/84.

515.1380 Title Insurance Companies. Where a title insurance company in addition to furnishing a policy of title insurance, which service is nontaxable, also furnishes copies of documents for which a separate charge is made, the latter charge is subject to sales or use tax. 6/3/54.

515.1400 Traffic Consultants. A traffic consultant's charges to a trucking company for per hour consultation for compiling data on freight tariff rates are not subject to tax because the consultant is performing a service. 4/15/68.

515.1402 Transfer of Data Base on Hard Disk or Tape. The transfer of a data base by way of a hard disk or tape to a successor of a business to be used to publish directories is a sale of tangible personal property rather than a sale of intangible assets. Accordingly, the transfer is subject to tax. 11/19/91.

515.1404 Translating Documents. As the form and contents of a document are not changed in any way during the translation, for a fee, from one language to another, the transaction is considered to be a service transaction even though some tangible personal property is furnished to the customer. Consequently, the charges for this service are not subject to sales or use tax. 8/30/83.

515.1405 Translation Services. Agreements to translate specific documents, data, or other information from English into a foreign language, pursuant to the request of a single customer, is a service agreement. As such, the service is not taxable even though the translation is transferred on a form of tangible medium such as a diskette. However, if the customer is provided with additional copies of the translation, the charge for the additional copies is subject to tax.

In addition, the translator is the consumer of the property, i.e., diskette, which it uses incidentally to provide the service. Therefore, tax applies to sale of such property to the translator. 12/8/92.

515.1412 Use of Property on a Development Program. A taxpayer purchased property ex-tax under resale certificates for use on a program to develop a new printing system. The customer was to pay a stated amount for the system if the development was successful. The customer found the system to be unacceptable and returned it to the taxpayer. The customer was not obligated to pay for the system and did not. The taxpayer ultimately scrapped the system and wrote off the development costs.

The taxpayer is liable for use tax on the cost of the material used in the development program. The property was not utilized solely for incorporation into property which was resold in the regular course of business. The property was used experimentally to determine the feasibility of the system. 1/17/75.

515.1417 Vehicle Tracking Services. A corporation provides vehicle tracking services to its subscribers using a system of satellites, terrestrial radio towers and receiving and transmitting units. All of the equipment is owned by the corporation. The receiving and transmitting units are installed in the subscriber's vehicles and business office. Information received by subscriber is displayed on a computer terminal that includes both mapping and text format. The location of the subscriber's vehicles are shown on a detailed map of the area. The accompanying text includes information regarding the vehicle speed, heading, location and distance from the subscriber's home base. The corporation retains title to the equipment provided to its subscriber under the service contract and is responsible for all maintenance and repairs with respect to such equipment. Subscribers pay a flat monthly fee for use of the vehicle tracking system and the two-way radio communications systems. The equipment furnished subscribers is furnished without any specific lease agreement and is returned to the corporation at the end of the contract term.

Under the above conditions, the providing of the equipment to the subscriber is incidental to its tracking and communications services; and therefore, the corporation is the consumer of property furnished to its subscribers. 12/27/94.

515.1420 Viewers Furnished Patrons. Disposable or permanent type viewers furnished free of charge to patrons are taxable to the theatre management as the consumer.

Where a separate charge is made for the use of disposable type viewers, the management is the retailer and charge is subject to sales tax.

Where a permanent type of viewer is furnished for a separate charge, the management is regarded as the consumer of the viewer and subject to tax since permanent type viewers are returned by the user. 10/28/53.

515.1430 Washrooms and Restrooms. Persons engaged in the business of servicing washrooms, restrooms, and similar facilities are the consumers of toilet tissue, soap, seat covers, and the dispensing equipment furnished and installed, provided there is no separate charge for the tangible personal property. If, however, the person provides these items without installing them, the person is making a taxable sale. 2/2/79.

515.1435 Word Processing Activities. Charges for keyboarding a manuscript, printing a draft, and emitting or printing a final copy are not taxable. If carbon copies are prepared at the time that the original is prepared, charges for the copies are not taxable. If photocopies are prepared, the charges for the photocopies are taxable. If the diskette upon which the manuscript is stored is transferred, tax applies to the charge for the diskette.

After the preparation of the manuscript, it is stored on a diskette. At a later time, codes for typesetting are inserted and the diskette is transferred to a publisher for use in setting up the printing process. The diskette is then returned to the preparer. The charges to the publisher for coding the diskette are taxable.

A writer's work is keyboarded and coded for typesetting at the same time. A printout that can be scanned by a typesetting computer is furnished to the writer. The printout resembles an ordinary manuscript printout and is printed on normal letter size paper. The charge is not subject to tax. However, tax applies if the diskette is transferred. 10/6/82.

515.1450 Conversion of Filing System. A firm was hired to convert an existing filing system to a new system. The conversion involved: (1) selling of file folders, back-up file folders, extra alphabetic letters and labels, (2) attaching alpha letters, name labels and classification labels on new folders, (3) converting and shelving old files in new file folders and integrating a separate filing system into the new system.

The charges for (1) and (2) are taxable as sales of tangible personal property. The charges for (3) are nontaxable if the customer can obtain the filing system without the services and the charges are separately stated. However, if the customer must purchase these services in order to obtain the filing system, such charges are services which are part of the sale and subject to tax. 6/8/94.

515.1460 Credit Reporting Service. A firm that sells credit reports to a company's customers for the company's use in determining a customer's credit worthiness is regarded as providing a nontaxable service. The providing of an actual report (i.e., the credit report on paper) by the firm is incidental to the credit reporting service provided to the company. Sales of additional copies of the report would be regarded as taxable sales of tangible personal property. (Regulation 1502(d)(5)(f).) 7/25/95.

515.1800 Loaned Employee—Art Work. A person who is furnished by a contract staffing agency to perform the [fabrication] art work may qualify as a "loaned employee" when the customer provides the premises where the work is done, tools used, and the raw materials, and if the charge is at an hourly rate. However, the charges made by the contract staffing agency with respect to fabrication labor for a consumer will be treated as taxable gross receipts unless: (1) the customer has other persons who are clearly employees performing similar work, or (2) the customer employs persons who are capable of giving meaningful direction to the "loaned employee" beyond describing only the result desired. 11/30/87.

515.1970 Make-Up Artist. Make-up artists perform a service when applying make-up and expendable prosthetic appliances to actors, actresses and other performers. Accordingly, tax applies to the sale to make-up artists of the materials the make up artists consume in applying the expendable prosthetic appliances. 8/25/87.

515.2000 Methaline Blue Test. A customer sends the taxpayer a sample piece of film which the customer has already processed. The taxpayer will run a test on the film called Methaline Blue Test. This is to check for any residue that might be left on the film. This test determines the longevity of the film.

If all the taxpayer transfers to its customer is a written report consisting of text only (no photographs, drawings, or diagrams) analyzing the results of the Methaline Blue Test, the taxpayer is regarded as providing a nontaxable service. The transfer of the written report to the customer is incidental to the service provided by the taxpayer. Tax applies to the sale of the property (i.e., paper) to the taxpayer or to its use of that property. On the other hand, if the taxpayer transfers any other tangible personal property to its customers, such transfer would be regarded as retail sale of tangible personal property subject to sales tax. 10/30/95.