Were charges for scanning customer engineering drawings taxable when the output was returned on disk, tape, or only by modem?

Plain-English summary

A business scanned customer engineering drawings and asked about returning the result electronically or on storage media.

The letter said scanning did not develop original information. It merely converted customer data from hard-copy drawings into another physical recordation form. Returning the result on diskette, tape, or other storage media was therefore a taxable sale of tangible personal property.

When the business transferred only electronic signals by remote modem-to-modem transmission and supplied no tangible property, no taxable sale occurred.

Citations and references

• California Revenue and Taxation Code section 6051 (as cited)
• California Sales and Use Tax Regulation 1502(d)(1), 1502(d)(5)(A)-(C), and 1502(f)(1)(D) (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/120-0522.pdf

Original ruling text

120.0522
STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-2641

MEMBER
First District
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

February 18, 1994
BURTON W. OLIVER
Executive Director

Mr. W. A. P--R--- I--XXXX --- Drive
---, CA XXXX
Re:

R--- I--SR – XX-XXXXXX

Dear Mr. P---:
This is in response to your letter dated December 10, 1993, in which you ask how the sales tax applies to your sale of scanned documents. Retail sales of tangible personal property in California are subject to sales tax unless the sale is specifically exempt by statute. (Rev. & Tax. Code §6051.) Under Revenue and Taxation Code section 60l6, tangible personal property means property which can be "seen, weighed, measured, felt or touched, or which is in any other manner perceptible to the senses." When there is a transfer of computer signals by means of remote telecommunication, that is, modem to modem, we do not regard the transaction as involving the transfer of tangible personal property. (See, e.g., Reg. 1502(f)(1)(D).) Thus, when you transfer no tangible personal property whatsoever, and transmit only electronically by remote modem to modem, there is no sale of tangible personal property and no tax applies. When you do, however, transfer your work in the form of tangible personal property, such as on disk or other storage media, the question is whether you have provided a service or sold tangible personal property. Under Regulation 1502(d)(1), attached, the transfer of tangible personal property which is a conversion from one physical form of customer data to another physical form of recordation is a sale of tangible personal property and is, therefore, subject to

Mr. W. A. P---

-2-

February 18, 1994
120.0522

sales tax.
On the other hand, when a person enters into a contract for the processing of customer furnished-information, the transfer of the original information to the customer is considered to be the rendition of a service. (Reg. 1502(d)(5)(C).) "Processing of customer-furnished information" means the developing of original information from customer-furnished data. (Reg. 1502(d)(5)(A).) However, "processing of customer furnished information" does not include reformatting of data or other pre-processing, or the mere conversion of data from one medium to another. (Reg. l502 (d)(5)(B).) Since original information is not developed in the scanning process, we consider scanning as the conversion of customer furnished data from one physical form of recordation to another. The transaction is, therefore, a sale subject to sales tax. Accordingly, when you have scanned the customer's engineering drawings and you return those drawings on diskette or tape, you are making a sale of tangible personal property subject to sales tax. If you have further questions, feel free to write again. Sincerely,

Pat Hildebrand
Staff Counsel
PH:cl
Enclosure