Were fees for training clients to use and reproduce materials from returnable master printing plates taxable, and how were seminar materials treated?

Plain-English summary

An unidentified senior tax accountant sent a December 3, 1993 letter for a redacted Connecticut training company. The company primarily provided sales-and-service seminars and program materials. It sometimes customized standard products for a client's needs and separately charged for development and customization.

Some transactions also charged clients to use master printing plates and licensed reproduction for a specified training population until a contractual return date. Transferring possession of returnable plates was a lease. The opinion asserts the plates were not in substantially the same form as acquired, making the arrangement a continuing sale, but provides no plate-acquisition or fabrication facts.

Use tax measured by rentals payable therefore covered both the plate-use fee and reproduction-license fee, whether separately stated or not. The company had to collect and pay it.

Seminar service charges could be nontaxable if the company provided significant educational services including classroom instruction. When such a school included instructional material without a separate student charge, it was the material's consumer and tax applied to the sale or use by the school. Separately billed material made it a retailer and the charge taxable.

The company disclosed a separate customization charge but not whether program materials were separately billed or included with seminar services. It also did not say whether it provided significant classroom education. The opinion does not separately decide the customization fee.

The request, contracts, classroom/customization evidence, material billing, plate acquisition/fabrication and tax records, invoices, returns, audit and later outcome are absent. Page 1 is dated January 27, 1994, while pages 2 and 3—including all analysis and the signature—are dated April 23, 2007. Live Annotation 330.4185 uses January 27, 1994; neither source explains the conflict, so the later source-body date controls this page.

Common questions

Were master-plate use fees taxable?

Yes.

Was the reproduction license fee also taxable?

Yes, as part of rentals payable for the plates.

Did separately stating the plate or license fee avoid tax?

No. The opinion says plate rental receipts were taxable whether separately stated or not.

Were seminar charges always taxable?

No. Significant educational services with classroom instruction could be nontaxable.

What about training materials?

Included materials made the trainer the consumer; separately charged materials were taxable sales.

Did the opinion decide the separately stated customization fee?

No. It records that fee but does not separately apply the rules to it.

Why does this page use a 2007 issue date?

The analysis and signature pages say April 23, 2007. Page 1 and the live annotation say January 27, 1994, and the official sources do not reconcile them.

Citations and references

• Revenue and Taxation Code section 6051 — California retail-sale rule
• Revenue and Taxation Code sections 6006(g), 6006.1, 6010(e) and 6010.1 — continuing plate lease/purchase
• Source-labeled “Rev. & Use Tax. Code” section 6006.3 — returnable possession as lease
• Sales and Use Tax Regulation 1660(c)(1) and Regulation 1660 generally — rentals-payable measure
• BTLG Annotation 515.0015 (Mar. 31, 1980) — school/instructional-material rule; source absent
• Live Annotation 330.4185 — January 27, 1994 date and published material/plate results
• Request, contracts, services/billing, plate evidence, invoices, returns/audit and outcome — absent

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.4185
• Original supporting opinion: 330.4185 PDF

Original ruling text

330.4185

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

LEGAL DIVISION (MIC:85)
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-2642

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles

January 27, 1994

GRAY DAVIS
Controller, Sacramento
────────
BURTON W. OLIVER
Executive Director

Mr. R--- J. P--Senior Tax Accountant
L--- I---, Inc.
XXX --- --- Road
P.O. Box XXXXX
---, CT XXXXX
Re:

Application of Sales Tax
Annotation 515.0015
Training-Schools
Use of Master Printing Plates
SC OH XXXXXXXX

Dear Mr. P---:
This is in response to your letter dated December 3, 1993, regarding the application of tax to seminar services and training program materials you provide for your clients. In your letter you state: "L--- I---, Inc. is a training company that provides seminar services and training program materials for the purpose of training a client in various applications (but primarily in the sales and service areas). In some instances we will customize our standard products and develop material and seminars to meet the specific needs of our clients. A separately stated fee is charged for this development and customization work. The transaction may also involve a fee for the use of master plates from which the client can print the material themselves and a license for the right to use these plates. The contract would state that the master copy must be returned by the date specified in the contract and that the client is granted the right to reproduce the material for training a specified population during this period."

Mr. R--- J. P--SC OH XXXXXXXX

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April 23, 2007
330.4185

A retailer's gross receipts from the retail sale of tangible personal property in California are subject to sales tax unless the sale is specifically exempt by statute. (Rev. & Tax. Code § 6051.) On the other hand, the charge for providing of a service is not subject to sales tax. Schools which provide significant educational services, including classroom instruction, are consumers of printed instructional matter furnished to students where tuition charges made to students do not separately state charges for such teaching aids. If a separate charge is made for such teaching aids, tax applies to that charge. (Business Taxes Law Guide Annotation 515.0015 (3/31/80).) When a school is a consumer, tax applies to the sale of such items to the school or to the school's use of such items. You state that L--- I--- provides seminar services and training to companies in the areas of sales and services. In some instances, your company also provides the client with training program materials and/or master plates from which the client can print the material themselves. Although you state that you separately state your charges for customizing certain seminar materials you do not indicate whether your charges for the training program materials are separately stated or are included as part of the charge for the seminar services. You further state that the transaction sometimes involves a fee for the use of the master plates from which the client can print the material themselves and a license fee for the right to use these plates. The lease of tangible personal property in California is a continuing sale and purchase when the property is not leased in substantially the same form as acquired by the lessor. A lease which is a continuing sale and purchase is subject to use tax which is measured by rentals payable and which must be collected by the lessor from the lessee at the time rentals are paid. (Rev. & Tax. Code §§ 6006(g), 6006.1, 6010(e), and 6010.1 and Sales and Use Tax Regulation 1660(c)(1).) You will be transferring possession to your customers of printing plates which are not in substantially the same form as acquired by you, and your customers will be required to return them to you. You will therefore be regarded as leasing the plates in continuing sales subject to use tax. (Rev. & Use Tax. Code § 6006.3, Reg. 1660.) Accordingly, the rental receipts from such leases are subject to use tax which you must collect and pay to this Board. Such taxable amounts include the fee for the use of the plates and the license fee for the right to use the plates. You do not indicate whether you provide significant educational services which include classroom instruction. If so, your charge for such services is not subject to tax. You also do not indicate whether you separately itemize your charges. If you do not make a separate charge for training materials you furnish the students when providing significant education services including classroom instruction, then you are regarded as the consumer of such materials. If, however, you make a separate charge for such materials, you are a retailer of such property and tax applies to such charges. Your charges for the plates (rental receipts) are subject to tax whether separately stated or not.

Mr. R--- J. P--SC OH XXXXXXXX

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If you have further questions, please write again.
Sincerely,

Gerald Morrow
Tax Counsel
GM/md
cc:

Out-of-State - District Administrator

April 23, 2007
330.4185