Were charges to lawyers for a telephone-conferencing service taxable, and did the provider owe tax on free courtroom equipment?

Plain-English summary

Charges to lawyers for appearing in court through the provider's conference-calling service were not subject to California sales tax because the provider sold a communication service, not tangible personal property. The general conference-call charges were likewise nontaxable.

The provider could still owe California use tax on the specialized equipment it installed in Northern California courtrooms. The Board viewed the provider as the consumer of equipment used to perform its service, so equipment purchased from a retailer and used in California could be reportable as a purchase subject to use tax.

That conclusion assumed the court paid nothing for the equipment. The letter expressly left open the tax consequences if the provider charged the court.

Citations and references

• California Revenue and Taxation Code section 6006 (as cited)
• California Revenue and Taxation Code section 6201 (as cited)
• May 15, 1997 facsimile asking about conference-call charges and Northern California courtroom equipment — facsimile and attachments not reproduced in the official PDF
• State, Local & District Use Tax Return, line 2, “Purchases Subject to Use Tax” — named reporting line; form number, instructions, return, and filing records not supplied
• Redacted account and conference-service operations, courtroom placements, court arrangements, equipment purchases and use, and charges — account record, service agreements, court requirements, reservations, call logs, equipment invoices and locations, billing, and tax records not reproduced in the official PDF
• Official Annotation 295.0721's out-of-state conferencing equipment, California telephonic court appearances, free courtroom equipment, lawyer-only fees, no tangible-property sale, nontaxable lawyer charge, apparent use-tax liability, and May 16, 1997 date — annotation omits the facsimile and account provenance, three-to-200-person service, connection methods, no-extra-charge terms, $25 court-call pricing, express no-court-charge assumption and unresolved charged-court scenario, named return line, missing records, reliance status, and later outcome and supplies no additional transaction record

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/295-0721.pdf

Original ruling text

295.0721

STATE OF CALIFORNIA

JOHAN KLEHS
First District, Hayward

STATE BOARD OF EQUALIZATION
450 N STREET - SACRAMENTO, CALIFORNIA
(PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
TELEPHONE: (916) 445-3723
FAX: (916) 323-3387

DEAN F. ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
KATHLEEN CONNELL
Controller, Sacramento
_______

May 16, 1997

JOHN CHIANG
Acting Member
Fourth District, Los Angeles
_______
E. L. SORENSEN, JR.
Executive Director

Mr. A--- W--G--- C--XXXX --- Way
--- ---, UT XXXXX
Account No. SC -- XX-XXXXXX
Dear Mr. W---:
This is in response to your facsimile transmission of May 15, 1997. We understand that you provide a conference calling service to your customers. This service allows your customers to confer, via telephone, with any number from three to 200 people located throughout the world. To use this service, the participants can call in and you can then connect them, or the chairperson can give you a list of names and numbers and you will call to connect them. Either way, conferencing equipment is located in Salt Lake City and anyone can use your service by making a telephone call. No special equipment is required for the user. The users of this service are charged only for the time they are on the line. There are no connection, reservation, membership, or any other charges. You have two questions with regard to the service. First, does California sales tax apply to the telephone charges? California tax does not apply to the telephone charges. Rev. & Tax. Code § 6006. Your second question concerns the use of your service by the courts in Northern California. In an effort to speed up trials and to keep costs to a minimum, some of the bankruptcy courts in Northern California are requiring lawyers to appear telephonically. Your company goes into the courtroom and installs some special equipment that will allow the judge to better hear and communicate with all participants without holding a phone receiver. In these courts, the judge’s staff notifies the lawyers when their case will be heard. The participant then contacts your company and makes a reservation to appear telephonically. The lawyers then sit by their telephone and wait for their trial to proceed. All participants are again linked together by equipment located in Salt Lake City. There is usually a clerk of the court in the courtroom who controls the caseload. As the judge is ready for a case, the clerk contacts your company.

Mr. A--- W---

-2-

May 16, 1997
295.0721

You call the parties and connect them together. On this type of call, there is no fee for the court. Only the legal representatives are charged for these calls. You have a flat fee of $25 for the first 30 minutes, and then a flat rate for every minute thereafter. The charge to the lawyers is not taxable. There is no sale of tangible personal property. We have assumed that, when you place the specialized equipment in the courtroom, you do not make a charge to the court. If a charge is made to the court, we would be happy to consider further the California tax implications of such a charge. You may have a California use tax liability with respect to the equipment placed in the courtroom in California. For sales and use tax purposes, your company would be regarded as the consumer of the equipment used by you in the performance of your communication service. Revenue and Taxation Code section 6201 provides that California use tax must be paid with respect to the use in this state of tangible personal property purchased from a retailer for use in this state. This tax liability would be reported on line 2 “Purchases Subject to Use Tax” of your State, Local & District Use Tax Return. Very truly yours,

Gary J. Jugum
Assistant Chief Counsel

GJJ:sr