Was a charge to recreate paper blueprints or electrical schematics as accurate CAD files taxable?

Plain-English summary

The proposed business would carefully reproduce architectural blueprints or electrical schematics as digital CAD files, preserving every dimension, text item, and drawing convention. It would return the original drawing and ordinarily provide the electronic file on a floppy disk.

California concluded that the charge was subject to sales tax. Under the cited true-object rule, computer-generated output is taxable when the customer is buying the output rather than the services used to create it; the regulation specifically listed artwork, graphics, and designs as examples. The letter treated the accurate CAD recreation as that kind of taxable output.

Citations and references

• California Sales and Use Tax Regulation 1502(c)(4) (as cited)
• Albers v. State Board of Equalization, 237 Cal.App.2d 494 (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/120-0042.pdf

Original ruling text

120.0042

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001) (916) 445-6450

December 13, 1991

Mr. B--- A--XXXX Xth -----, CA XXXX
Dear Mr. A---:
This is reply to your October 9, 1991 letter regarding the application of sales tax to your charges under the following facts you described: “I am in the process of starting a business which will offer Computer Aided Drafting (CAD) support services, and in particular, redrawing of paper drafting documents such as architectural blueprints or electrical schematics to become digital computer files of information….” “During the course of my activity I will carefully recreate the drawing so as to duplicate its every dimension and text or data unit. No artistic license will be taken since the quality of the recreated drawing will be judged on accuracy and adherence to the original’s drawing conventions. In order to do this, certain processes are automatically performed while other activities are done manually by the operator. The original drawing document and the electronic file are then returned to the customer, normally with the electronic file stored on a floppy disk.” Sales and Use Tax Regulation 1502, Computers, Programs, and Data Processing, provides at subdivision (c)(4): “Charges for the transfer of computer-generated output are subject to tax where the true object of the contract is the output and not the services rendered in producing the output. Examples include artwork, graphics, and designs.”

Mr. B--- A---

-2-

December 13, 1991
120.0042

See also Albers v. State Board of Equalization, 237 Cal.App2d 494. We believe that your charges for redrawing paper architectural blueprints on electrical schematics is subject to sales tax. We hope this answers your questions; however, if you need further information, feel free to write again. Very truly yours,

Ronald L. Dick
Senior Tax Counsel
RLD:sr
Enc.