Were microfiche filming and digital scanning taxable when customer documents were returned as film, tape, disks, or other media?

Plain-English summary

A prospective subcontractor planned to film customer documents onto microfiche, scan them onto computer media, or perform both activities in one pass. The source assumed it transferred all scanned documents on disk or tape and that customers were not buying the media for resale.

Digital scanning was taxable because it moved existing customer information from hard-copy documents to computer-readable storage media. It did not develop new or original information.

Microfiche was also taxable. The source treated it as microfilm and said the contract did not involve processing customer-furnished information within the cited exception. Both outputs were therefore sales of tangible personal property.

Citations and references

• California Revenue and Taxation Code sections 6007 and 6051 (as cited)
• California Sales and Use Tax Regulation 1502(d)(1) and (d)(4) (as cited)
• California Business Taxes Law Guide Annotation 420.0160 (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/120-0118.pdf

Original ruling text

120.0118

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-6496

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego

August 12, 1994

MATTHEW K. FONG
Fourth District, Los Angeles
GRAY DAVIS
Controller, Sacramento

Mr. H--- S--President
S--- I--XXX --- Court
---, CA XXXXX

BURTON W. OLIVER
Executive Director

Re: SR -- XX-XXXXXX
Dear Mr. S---:
This is a response to your letter dated July 7, 1994. You state that S--- I--- ("S---") is negotiating to act as a subcontractor in providing microfiche filming and digital scanning services. In performing the subcontractor agreement, you ask: "Do we have to charge sales tax for
-

the rollfilm/microfiche filming service of
customer documents

-

the digital scanning service of customer
documents

-

the service of simultaneously filming and
scanning of customer documents (in one
throughput)."

For purposes of this opinion, we assume that S--- transfers all scanned documents to a computer disk or tape and that its transfers of microfiche and scanned media to its customers are not for resale. Discussion Revenue and Taxation Code section 6051 imposes a sales tax on a retailer's gross receipts from the retail sale of tangible personal property in California unless the sale is specifically exempt from taxation by statute. A "retail sale" means a sale for any purpose other than resale in

Mr. H--- S---

-2-

August 12, 1994
120.0118

the regular course of business in the form of tangible personal property. (Rev. & Tax. Code § 6007.) Thus, if S---'s transfer of media containing "scanned" documents, microfiche or both is considered a sale of tangible personal property, it is taxable. Sales and Use Tax Regulation 1502 explains the application of sales tax to activities involving computers, programs, and data processing. (A copy of this regulation was previously provided to you by the Concord office of the State Board of Equalization.) Subdivision (d)(1) states that the conversion of customer-furnished data from one physical form of recordation to another physical form is taxable unless the contract is for the service of developing original information from customer-furnished data. The scanning of documents does not generally involve the development of new or "original information" since customer data is merely transferred from a "hard copy" to that of a computer-readable format. Rather, your scanning of documents is the transfer from one physical form (documents) to another (the storage media on which the digitized documents are transferred). Consequently, S---'s transfer of media containing scanned information constitutes the sale of tangible personal property subject to sales tax. S---'s transfer of microfiche products is also subject to sales tax. "Microfiche" is defined as "a sheet of microfilm containing rows of microimages of pages of printed matter" (Webster's Collegiate Dict. (10th ed. 1993) p. 735) and is treated as microfilm for sales tax purposes. Sales and Use Tax Regulation 1502(d)(4) provides that tax applies to charges for microfilming or photorecording except where the microfilming or photorecording is done under a contract for the processing of customer-furnished information. (See also Business Taxes Law Guide Annotation 420.0160 (7/9/53) (sales tax applies to the entire charge made for microfilming records).) As indicated in your letter, S--- does not transfer the microfiche under contract for the processing of customer-furnished information. As such, the transfer of microfiche products is a sale of tangible personal property subject to sales tax. If you have further questions, feel free to write again. Sincerely,

Warren L. Astleford
Staff Counsel

WLA:plh

cc:

Oakland District Administrator - CH