Which charges for CAD circuit-board designs, design media, drawings, and photoplots were taxable?

Plain-English summary

A printed-circuit-board designer used customer drawings and CAD software to lay out components. It delivered design information by modem or on tape, disk, and vellum and separately charged for photoplots used by manufacturers.

The letter said tax did not apply to the design charge. Tangible representations of the design were also excluded unless drawings were suitable for use as camera-ready art, and modem transmission was not a transfer of tangible personal property.

Photoplots, drill tapes, and similar manufacturing aids were taxable. Photoplots remained taxable whether the designer or customer developed the underlying design and even when the customer furnished the material used to create them.

Citations and references

• California Business Taxes Law Guide Annotation 120.0020 (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/120-0105.pdf

Original ruling text

120.0105

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001) (916) 445-6450

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles

August 30, 1993

GRAY DAVIS
Controller, Sacramento

BURTON W. OLIVER
Executive Director

Mr. K--- D. C----- --- --- Street, Suite XXXX
--- ---, CA XXXXX-XXXX
Dear Mr. C---:
Re:

F--- L--- P--- C--- D---, Inc.
SR -- XX-XXXXXX

This is in reply to your July 1, 1993 letter regarding the application of sales tax to charges by your client, F--- L--- P--- C--- D---, Inc. (taxpayer). You described the following facts: "The taxpayer is a designer of printed circuit boards. It uses computers and computer aided design ("CAD") software to design the layout of electronic components on a printed circuit board ("PCB") from drawings provided by its customers. Neither the taxpayer nor any of its employees is a registered engineer. Using the drawings and other reference materials, the taxpayer enters information on the type, size and electronic characteristics of the circuit components onto the CAD software data base. The software program is used to manipulate the data to generate the optimum design for the PCB. When the design is completed, the design information is transferred to the customer (i) via a computer modem over telephone lines or in the form of computer data on a tape cartridge or floppy disk, and (ii) in the form of fabrication and assembly drawings on vellum. The taxpayer is generally required to also furnish the customer with photoplots" which are given by the customer to a PCB manufacturer for use in the production of the PCB's. Occasionally a customer will provide the taxpayer with the completed PCB design and ask the taxpayer to prepare and deliver corresponding "photoplots." "The taxpayer invoices its customers for the design service and makes a separate charge for any "photoplots." There is no separate charge for tape cartridges, floppy disks or vellum."

Mr. K--- D. C---

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August 30, 1993
120.0105

Given this information, you asked the following specific questions: "1. Is the taxpayer's sale of design services subject to sales or use tax?" The State Board of Equalization's staff has taken the position that tax does not apply to the design charged under the facts you present. (Bus. Tax. Law Guide Anno. 120.0020.) "2. Is the taxpayer's transfer of designs on tape cartridges, floppy disks or drawings subject to sales or use tax?" Tax does not apply to the taxpayer's charge for tangible representations of the design except where the drawings are suitable for use as camera-ready art. "3. Is the taxpayer's transfer of designs by computer modem subject to sales or use tax?" No, the Board's staff has taken the position that the transfer of information by modem is not a transfer of tangible personal property. "4. Is the taxpayer's sale of "photoplots" based on designs developed by the taxpayer subject to sales or use tax?" Yes, tax applies to the taxpayer's sale of manufacturing aids used in the production of the PCB such as photoplots and drill tapes used on a tape-controlled automatic drill machine. "5. Is the taxpayer's sale of "photoplots" based on designs provided by the customer subject to sales or use tax?" Yes, tax applies to the sale of the photoplots whether the taxpayer developes the design or the customer develops the design. Tax would apply even if the customer were to provide the material the taxpayer uses to create the photoplots.

Mr. K--- D. C---

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August 30, 1993
120.0105

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:plh