Were usage-based subscriptions to dial-up statistical databases taxable when customers received everything electronically?

Plain-English summary

A company offered two usage-based statistical database subscriptions. Customers connected by personal computer and modem, searched and manipulated data, viewed reports on screen, and downloaded reports to use with their own software or printers.

The letter said the subscription charges were not taxable if all reports were delivered through telephone lines and the provider sent no printed reports or other tangible personal property.

The result relied on the rule excluding remote telecommunications access to a computer on a time-sharing basis and on the view that electronic transmission of information did not transfer tangible personal property.

Citations and references

• California Revenue and Taxation Code section 6051 (as cited)
• California Sales and Use Tax Regulation 1502(c)(7) (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/120-0106.pdf

Original ruling text

120.0106

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

WILLIAM M. BENNETT
First District, Kentfield

1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-8208

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

July 17, 1992

BURTON W. OLIVER
Executive Director

Ms. G--- C---, Controller
E--- S--- Corporation
XXXX --- Avenue
---, California XXXXX

Re:

Dial-up Access to Computer Databases
SR – XX-XXXXXX

Dear Ms. C---:

This is in response to your letter dated June 12, 1992, in which you state: "E--- S--- Corporation (ESC) is offering two dial-up computer database services. According to Sales and Use Tax Regulation 1502, these services are nontaxable. Under 'Basic Applications of Tax,' number (7) states that, 'Charges made for the use of a computer, on a time-sharing basis, where access to the computer is by means of remote telecommunication are not subject to tax.' "These services are: C--- T---, for dial-up to the California Database; and U--T---, for dial-up to the Utility Query, Analysis and Reporting System. "A subscriber to each service can: 1) Gain access to ESC's computer database through the telephone lines with a personal computer and modem;

Ms. G--- C---

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July 14, 1992
120.0106

2) View on-screen the statistical information contained in the database; 3) Issue commands to retrieve and manipulate data and generate tabular reports; 4) Download reports to his/her own PC and produce printed copies if desired. "Charges for both services are dependent on level of usage. Descriptions of the dial-up services are enclosed for your information. We would appreciate your official acceptance of these services as nontaxable so we do not have to charge our clients sales tax." You enclosed brochures for C--- T--- and U--- T---. The C--- brochure indicates that subscribers have PC dial-up access to thousands of monthly, quarterly, and annual economic and demographic statistics. This brochure also indicates that subscribers can quickly generate preformatted presentation quality reports using C---'s simple selection screen and help screens and produce custom reports requiring complex computations and special formats with only a few keystrokes. Subscribers can also view reports on-screen or automatically download reports to their PC for use with their favorite spreadsheet, graphics program, or other software. The U--- brochure indicates that subscribers have PC dial-up access to ESC's extensive Utility Query, Analysis and Reporting System, a source of data for utility industry analysis and benchmark studies. Subscribers can select the data and presentation formats they require from selection and help screens, view data reports on-screen, and automatically download the reports to their PC's. We are assuming from your letter that all of the reports received by subscribers are sent through telephone lines and that any hard copies of such reports are generated by a subscriber by downloading the information to his or her PC and printing the report on the subscriber's printer. In other words, we assume that ESC is not sending or otherwise delivering any printed reports or other tangible personal property to the subscribers. Revenue and Taxation Code section 6051 imposes a sales tax on all retailers measured by their gross receipts from retail sales of tangible personal property. Only retail sales of tangible personal property are taxable. Several years ago the Board's staff concluded that the electronic transmission of information does not involve the transfer of tangible personal property and therefore charges for such transmissions are not taxable. Regulation 1502(c)(7) specifically provides: "Charges made for the use of a computer, on a time-sharing basis, where access to the computer is by means of remote telecommunication, are not subject to tax."

Ms. G--- C---

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July 14, 1992
120.0106

If our assumptions which we stated above are correct, ESC's charges for subscriptions to C--T--- and U--- T--- are not taxable. If you have further questions regarding sales and use tax law, please do not hesitate to write again. Sincerely,

Elizabeth Abreu
Tax Counsel

EA:cl

bc:

--- District Administrator