Were monthly computerized law-firm billing fees, initial conversion charges, and separately sold statement paper taxable in California?

Plain-English summary

A company planned to process law firms' time, expense, cash-receipt, and client records on its own computer system. For a monthly per-attorney fee, it would create client statements plus receivables, activity, profitability, time, collection, and management reports.

Tax counsel concluded that no part of the normal monthly charge was taxable under the cited service-enterprise regulation. The initial conversion charge—based on the historical information loaded into the system and including documentation, forms, employee training, and custom binders—was also nontaxable in full.

Customized continuous-form statement paper was different because the company charged for it separately. The company was the retailer of that paper, had to collect sales tax on the client charge, and had to hold a seller's permit; it could buy the paper for resale with a resale certificate.

Citations and references

• California Sales and Use Tax Regulation 1501 (as cited)
• California Revenue and Taxation Code section 6066 (as cited)
• Requester's July 23, 1976 letter concerning computerized law-firm billing and management services planned for August — facts and question supplied; letter, attachments, contracts, service specifications, and client identities not reproduced in the official PDF
• Attorney time records, expense and cash-receipt records, client statements, receivables and management reports, $75 per-attorney monthly charge, separately charged custom statement paper, six-month printing quantities, historical-data conversion, documentation, forms, training, and binders — facts supplied; source records, reports, invoices, paper orders, supplier contract, conversion records, training materials, and binders not reproduced in the official PDF
• Resale certificate and enclosed Regulation 1501 — identified; certificate, regulation copy, and enclosure not reproduced in the official PDF
• Official Annotation 295.0040's monthly computerized-service fee, initial conversion, statement-paper sale, and seller's-permit summary, dated July 30, 1976 — annotation omits the prices, detailed inputs and outputs, resale-certificate treatment, request provenance, and missing enclosure and supplies no additional transaction record
• Possible later service launch, conversion, paper purchase or sale, seller's-permit issuance, resale-certificate use, return filing, audit, assessment, payment, refund claim, appeal, or other agency action — not supplied in the official PDF

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/295-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/295-0040.pdf

Original ruling text

295.0040

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-5550

July 30, 1976

Mr. C--- W--President
W--- A--- M--Services, Inc.
XXXX --- Boulevard, Number -----, California XXXX
Dear Mr. W---:
This is in response to your letter of July 23, 1976.
You have requested an opinion from our office as to the proper method of reporting sales tax for services that your company will be providing beginning this August. Briefly, W--- A--- M--- Services, Inc., (WAMS) specializes in providing computerized billing and management services to law firms. WAMS will be receiving from the law firm time records kept by attorneys detailing the client’s name, the matter and the amount of time spent completing work for that client. WAMS will also be receiving records of telephone expenses, duplications, costs advanced and cash receipts for the law firms’ clientele. From this information and utilizing your own computer system, WAMS will be creating statements that the law firm will send to its clients each month. Along with the statements, the law firm will also be receiving from WAMS an accounts receivable aging, a summary of activity and up to twelve (12) other reports which analyze profitability, the attorneys’ time, collections, and various other aspects of the management of the law firm. The monthly charge to the law firm will be $75.00 per billing attorney per month; thus, if there are ten (1) attorneys the charge would be $750.00 per month. Periodically the law firm will also be charged separately for their statement paper, which will be customized with the law firm’s letterhead printed on the continuous form paper. WAMS will contract with M--- Business Forms or a similar company to print the blank statement paper in six (6) month quantities.

Mr. C--- M. W---

-2-

July 30, 1976
295.0040

In addition, when a law firm is first converted to the WAMS billing service, there will be a charge made that is approximately equal to one month’s billing. The actual charge will be determined by the quantity of historical information that is initially converted to the system. This charge will also include documentation, forms, training of the personnel and custom made binders which the attorney will use to keep his time sheets in.

First, tax would not apply to any portion of the normal monthly charge. Regulation 1501 “Service Enterprises Generally,” copy enclosed for your reference.

See our

Second, since you are making a separate charge for the statement paper, we are of the opinion that you would be the retailer of this item and sales tax would apply to your charge to your client. You would be required to hold a California seller’s permit, under Revenue and Taxation Code Section 6066. You would be permitted to purchase the paper from your supplier without payment of tax upon your issuance of a resale certificate. Third, tax would not apply to any portion of the initial conversion charge. Very truly yours,

Gary J. Jugum
Tax Counsel

Enclosure