Were database-access charges taxable when the provider installed software but retained title, possession, and control during installation?

Plain-English summary

A company sold access to a financial-information database through a prewritten program installed on each customer's computer. The stated arrangement kept title and possession of the software with the provider and required deletion if the service ended.

Tax counsel emphasized that the customer never physically possessed the program's storage media and did not control its computer while the provider installed the program. Because the provider transferred neither title nor possession of the program or any other tangible personal property, its database-access charges were not taxable on those facts.

The conclusion is closely tied to those control and possession facts, not simply to labeling the transaction database access.

Citations and references

• California Revenue and Taxation Code sections 6006(a), 6016, and 6051 (as cited)

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/120-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/120-0004.pdf

Original ruling text

120.0004

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
Telephone: (916) 324-2614
FAX: (916) 323-3387

DEAN ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles
KATHLEEN CONNELL
Controller, Sacramento

December 31, 1996

E. L. Sorensen, Jr.
Executive Director

Mr. G--- F--Controller
D--- I--XXX --- Street, XXth Floor
--- ---, -- XXXXX
Re: D--- I--Dear Mr. F---:
Your letter dated November 6, 1996, to Mr. Gary J. Jugum, Assistant Chief Counsel, has been referred to me for response. You state: “The facts leading to this request are as follows: 1. D--- ‘sells’ to its customers an access to a financial information database.

2. Access is obtained through a pre-written software program that is installed
   on the clients’ computer.
   3.
   Title AND possession of the software remain with D---.
3. If the client should cancel the service, the program will be deleted from their
   computer.”
   DISCUSSION
   Retail sales of tangible personal property in California are subject to sales tax, measured by the gross receipts, unless the sale is specifically exempt from taxation by statute. (Rev. & Tax. Code § 6051.) Revenue and Taxation Code section 6006(a) defines “sale” as a transfer of title or possession of tangible personal property for a consideration. Section 6016 defines “tangible personal property” as personal property which can be seen, weighed, measured, felt, or touched, or which is in any manner perceptible to the senses.

Our understanding is that in selling access to the financial information database, D--- I--does not transfer title or possession of the prewritten computer program or any other tangible

Mr. G--- F---

-2-

December 31, 1996
120.0004

personal property to its customers. Instead, D--- I--- provides access to the financial information database by installing a prewritten computer program on its customers’ computer, and title and possession of the prewritten computer program remains with D--- I--- at all times. In other words, D--- I---l’s customers do not have physical possession of the storage media containing the prewritten computer program at any time and the customers do not have control of their own computers while the prewritten computer program is being installed on the customers’ computer. Under these circumstances, tax does not apply to the amounts charged by D--- I--- to its customers for the right to access the financial information database. If you have any further questions, please write again. Sincerely,

Sophia H. Chung
Tax Counsel
SHC:rz
cc: --- District Administrator (--)