Were personalized response letters assembled from original text, stored paragraphs, variable information, and illustrations taxable?

Plain-English summary

The proposed business would send children response letters containing both original text and text assembled from a preexisting paragraph library. Stored paragraphs would be adjusted with variable personal details, and stored illustrations would be added.

California treated the letters as taxable multiple copies under the word-processing rule. That rule included form letters with slight variations that personalize essentially the same letter and applied to the entire charge, including setup, keyboarding, and assembly.

The exclusion for assembling a professional's final product from a paragraph library did not apply because the taxpayer was not performing or transcribing professional services. The letters also did not qualify as processing customer-furnished information: using a computer as a printing instrument for personalized letters and preparing illustrations were specifically outside that category under the cited rule.

Citations and references

• California Revenue and Taxation Code section 6006(f) (as cited)
• California Sales and Use Tax Regulation 1502.1(a) and (b)(3) (as cited)
• California Sales and Use Tax Regulation 1502(d)(5) (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/120-1800.pdf

Original ruling text

State of California

120.1800

Board of Equalization

Memorandum
To:

From:

Subject:

Mr. Wolfgang Liebelt
San Francisco (Compliance)

Date:

May 9, 1991

Victoria Lani Arena
Tax Counsel
REDACTED TEXT
(No permit number)
This is in response to your memorandum of December 31, 1990 inquiring as to the taxability of letters to mythical characters. Facts You described the following facts: The taxpayer plans to produce response letters to send to children who write to mythical characters. Each letter will be comprised of both a section of original text and a section of text which will be generated by assembling the appropriate paragraphs from a pre-existing paragraph library. Some of the pre-existing paragraphs will be modified slightly to insert variable information to personalize them. The taxpayer’s pre-existing database will also include illustrations to be incorporated into each letter. Word Processing Charges Under Revenue and Taxation Code Section 6006, “sale” is defined to mean and include: “(f) [a] transfer for a consideration of the title…[to] tangible personal property which has been … printed to the special order of the customer ….” Sales and Use Tax Regulation 1502.1(a) sets forth rules regarding the taxability of word processing charges. The second paragraph of the regulation provides: Tax applies to charges for producing multiple copies of letters, manuscripts, or other documents using word processing equipment. Multiple copies include form letters produced with a slight variation which personalize essentially the same letter. Tax applies to the entire charge without deduction for charges for setting up the machine, keyboarding, or assembling the material. Charges for providing additional copies are subject to tax regardless of whether the original was prepared using a typewriter or word processing equipment and regardless of whether the copies are produced by computers, word processors, copying machines, or other methods.

Mr. REDACTED TEXT

-2-

May 9, 1991
120.1800

Subparagraph (b)(3) of the regulation on the other hand, provides that the assembly of a final product from an attorney’s paragraph library is nontaxable. In our opinion, this exemption applies where the underlying transaction is the provision of professional services. In the present case, the taxpayer is not rendering professional services nor is she transcribing the professional services of someone else. Although not completely dispositive of this matter, further authority for taxing the response letters is found in Regulation 1502 which provides an exemption covering the “processing of customer-furnished information”. Subsection (d)(5)(A) of the regulation defines this term as follows: (A) “Processing of customer-furnished information” means the developing of original information from data furnished by the customer. Examples of automatic data processing processes which result in original information are summarizing, computing, extracting, sorting, and sequencing. Such processes also include the updating of a continuous file of information maintained by the customer with the data processing firm. Subsection (d)(5)(B) of the regulation provides: (B) “Processing of customer-furnished information” does not include: (1) an agreement providing solely for the reformatting of data or for the preparation of a proof listing or the performance of an edit routine or other pre-processing, (2) the using of a computer as a mere printing instrument, as in the preparation of personalized computer-printed letters, (3) the mere converting of data from one medium to another, (4) an agreement under which a person undertakes to prepare artwork, drawings, illustrations or other graphic material whether the graphic material is transferred on storage media or otherwise. However, graphic material furnished incidentally to the performance of a service is not subject to tax. For example, graphics furnished in connection with the performance of architectural, engineering, accounting or similar professional services are not subject to tax.
[Emphasis Added.]

Mr. REDACTED TEXT

-3-

May 9, 1991
120.1800

In our opinion, the taxpayer’s response letters are taxable as “multiple copies” under Regulation 1502.1(a). Furthermore, they do not qualify for the exemption as “processing of customer-furnished information” under Regulation 1502. If you have any other questions, please contact me. VLA:es 3806I cc:

Mr. Jim Speed – BH (Auditing)