Did university libraries owe California sales or use tax on bibliographic and full-text online database subscriptions?

Plain-English summary

University libraries subscribed to services supplying bibliographic citations and, in some cases, full article text. Patrons could view the information on screen and could choose to download it to their own disks or print it locally.

Tax counsel concluded that the subscriptions were not taxable. The database operators sent electrical signals containing information, transferred no tangible personal property, and performed no fabrication of property supplied by the libraries. The result would change if a vendor also supplied hard copies, disks, or other tangible media.

Amounts vendors represented and collected as sales tax on these nontaxable transactions were excess tax reimbursement. The letter said those amounts had to be refunded to the customer or remitted to the state.

The official source contains an unresolved date defect: the first page says October 23, 1995, while the second-page header says January 24, 1992.

Citations and references

• California Revenue and Taxation Code sections 6006(a)-(b), 6010(a)-(b), 6051, 6201, and 6401 (as cited)
• California Sales and Use Tax Regulation 1700(b)(1) (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/120-0309.pdf

Original ruling text

120.0309

STATE OF CALIFORNIA

JOHAN KLEHS
First District, Hayward

STATE BOARD OF EQUALIZATION
LEGAL DIVISION - MIC: 82
450 N STREET, SACRAMENTO, CALIFORNIA
(P. O. BOX 942879, SACRAMENTO, CA 94279-0082)
TELEPHONE: (916) 324-2655
FAX: (916) 323-3387

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

October 23, 1995
BURTON W. OLIVER
Executive Director

Mr. G--- S. B---, U--- Counsel
The C--- S--- U--XXX --- ----- ---, CA XXXXX-XXXX
Re:

Sales Tax Liability--Library Services

Dear Mr. B---r:
This is in response to your letter dated June 30, 1995 regarding the application of sales and use tax to accessing on-line databases. You state: “C--- libraries ‘subscribe’ to several online services which provide information used by students and faculty to support instructional programs and research. One type of service is ‘bibliographic’ only; i.e., it provides only citations to articles and publications pertinent to the topic researched. In addition to bibliographic citations, another type of service provides the full text of requested articles, which are transmitted online in electronic format. Information obtained from both of these types of services may be scanned on screen by library patrons, downloaded to floppy disks, or printed out locally at the discretion of the patron. “Access to such online databases would appear to constitute on-demand services which yield only information, as opposed to tangible goods. As such, and inasmuch as they involve transfers by remote telecommunications from the seller’s place of business, it would appear that, pursuant to Regulation 1502 of the Sales and Use Tax Regulations, C--- libraries are not required to pay sales or use taxes on those services. “As some C--- vendors are nevertheless charging for these services, I would appreciate clarification of C---’s obligations under the tax code, if any.”

Mr. G--- S. B---

-2-

January 24, 1992
120.0309

California sales tax is imposed upon a retailer's retail sale of tangible personal property in California. (Rev. & Tax. Code § 6051.) Alternatively, use tax is imposed upon the use of tangible personal property purchased from a retailer for use in California. (Rev. & Tax. Code §§ 6201, 6401.) For purposes of the California Sales and Use Tax Law, "sale" and "purchase" include the transfer of title or possession of tangible personal property for a consideration. (Rev. & Tax. Code §§ 6006(a), 6010(a).) Those terms also include the fabrication of tangible personal property for a consideration for consumers who furnish either directly or indirectly the property used in the fabrication. (Rev. & Tax. Code §§ 6006(b), 6010(b).) When an amount represented by a person as constituting reimbursement for sales tax is computed upon an amount that is not taxable and is actually paid by the customer to that person, the amount so paid is excess tax reimbursement. (Sales and Use Tax Reg. 1700(b)(1).) Such amounts must be refunded to the customer or remitted to the state. Our understanding is that the database operator provides electrical signals which contain the information sought by you, and it transfers no tangible personal property and performs no fabrication of tangible personal property supplied by you. Therefore, no sale of tangible personal property occurs and no sales or use tax applies. (This conclusion would not apply if the vendors also provided you hard copies or other tangible personal property such as storage media.) Any amounts that your vendors have collected from you as “sales tax” on transactions which are not subject to tax as discussed above constitute excess tax reimbursement that should be refunded to you. We suggest you provide a copy of this letter to the vendors in question. If they have further questions regarding the application of tax to their activities, they may write us directly. Yours very truly,

Anthony I. Picciano
Staff Counsel
AIP:cl

cc:

Torrance District Administrator