Could separately stating black-and-white microfilm processing make the processing charge nontaxable?

Plain-English summary

A seller asked in February 23 and May 5, 1971 letters whether only the film portion or the entire lump-sum selling price was taxable when black-and-white microfilm was sold with processing, and whether separately stating processing would change the result. Legal Counsel apologized for a delayed answer and the inconvenience caused while the seller revised its billing procedure.

Retail sales of black-and-white microfilm without processing were taxable unless sold for resale. Adding processing did not create a nontaxable service.

When microfilm and processing were sold together, the full selling price was taxable whether the seller used one combined price or separately stated film and processing charges. The same raw microfilm supplied for recording was returned as the finished product, so processing it for a consumer was taxable fabrication under section 6006(b).

Historical Ruling 23 excluded separately stated charges for developing customer-furnished negatives. The letter said that exclusion applied only when development used a separate positive and negative. It did not reach microfilm or reverse processing, for which the whole charge was taxable however billed.

The letter also reported that Ruling 23 was being revised. A proposed Regulation 1528 distributed to interested parties on May 7, 1971 would supersede it and stated that tax applied to developing negatives even when separately stated. The Board enclosed the proposal and invited comments; the published source supplies neither enclosure nor evidence of the proposal's later disposition.

Source posture and live annotation

The official source does not reproduce the seller's two inquiries, Ruling 23 or proposed Regulation 1528. It supplies no identity, microfilm, customer, order, billing procedure, lump-sum or separate invoice, resale evidence, returned product, return, tax computation, audit, assessment or later outcome. Its normal procedures statement rests on unspecified Board inquiries rather than records from an identified completed transaction.

The live 420.0149 annotation, in the 2026 revision of the Business Taxes Law Guide, retains taxable unprocessed film, full taxation of lump-sum and separately stated processing, customer-furnished-property fabrication, section 6006(b), microfilm, reverse processing and June 16, 1971 date. But where the source says the old exclusion required a separate positive and negative, the live page says separate negatives and processing, a different and unsupported formulation. It omits the two inquiries, billing-revision inconvenience, resale exception, same-raw-film explanation, quoted Ruling 23, May 7 proposal and invitation for comment, missing enclosures and absent applied outcome.

CDTFA's Annotated Legal Opinions collection says the letters are summarized as annotations and that statutory law controls whenever a statute and annotation conflict. The official three-page PDF has a clean native text layer and one small page-1 letterhead stencil rather than scanned text, so no OCR was required. Both fresh direct PDF downloads and both live-page downloads were byte-identical, duplicate default PDF text extractions matched, and the original-text section remains byte-identical to its committed version and fresh extraction after removal of only the extractor's terminal newline and two form feeds.

What this means for you

Microfilm processors and tax professionals

Separately stating processing does not by itself remove fabrication labor from the taxable price. Identify whether the same customer-furnished material is processed and returned, whether the job uses a negative-positive or reverse process, and which current rule applies. Do not rely on the 1971 proposal as final law without independently checking its disposition.

Common questions

Q: Was unprocessed black-and-white microfilm taxable?

A: Yes as a retail sale, unless sold for resale.

Q: Did a separate processing line make the charge nontaxable?

A: No. The entire amount remained taxable because processing the returned customer-furnished microfilm was fabrication under section 6006(b).

Q: What did historical Ruling 23 exclude?

A: Separately stated development of customer-furnished negatives when the process used a separate positive and negative, according to the letter.

Q: Did that exclusion cover reverse processing or microfilm?

A: No. The letter treated the full charge for either as taxable regardless of billing method.

Q: Was proposed Regulation 1528 final?

A: The source does not say. It records a May 7, 1971 proposal, quotes it, encloses it for comment, and provides no later adoption record.

Citations and references

• California Revenue and Taxation Code section 6006(b) — quoted for fabrication of customer-furnished property
• Historical Sales and Use Tax Ruling 23, 18 California Administrative Code 1933 — quoted in part but not reproduced
• Proposed California Sales and Use Tax Regulation 1528, distributed May 7, 1971 — quoted in part and described as enclosed, but not reproduced or confirmed final
• February 23 and May 5 inquiries; film; orders; billing records; invoices; returns; audits; assessments; and outcomes — described or implicated but not included

Verbatim support

From the official June 16, 1971 Legal Counsel letter:

In response to your specific question, the entire selling price is taxable when microfilm is sold with processing, even though the processing charge is billed separately.

Such processing of customer-furnished property constitutes fabrication labor and is taxable under section 6006(b) of the Sales and Use Tax Law, regardless of the method of billing.

This exclusion from tax of separately stated development charges applies only when the development involves the use of a separate positive and negative.

When the processing involves either the reverse processing method or microfilm, the entire charge is taxable, no matter how billed.

We call your attention to the fact that ruling 23, referred to above, is now being revised.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 420.0149
• Original supporting opinion: 420.0149 PDF

Original ruling text

STATE OF CALIFORNIA

420.0149

STATE BOARD OF EQUALIZATION
June 16, 1971

Dear X------------------,
This is in response to your letters of February 23 and May 5, 1971, which were referred to the undersigned for reply. We apologize for the delay in answering your inquiry and for the inconvenience caused you in revising your billing procedure. You inquire as to whether the entire selling price, or only the film portion, is subject to the California sales tax when black and white microfilm is sold with processing and billed at one price. If the entire selling price is subject to tax, when billed at once price, you further inquire whether the processing would be exempt if separately stated. Retail sales of black and white microfilm sold without processing are subject to the California sales and use taxes unless sold for resale. Retail sales of black and white micro film sold with processing and billed at one price are subject to the California sales and use taxes on the entire selling price. In response to your specific question, the entire selling price is taxable when microfilm is sold with processing, even though the processing charge is billed separately. Our inquiries on microfilm processing have revealed that in normal procedures the raw microfilm used for recording pictures is the same microfilm return to the customers as the finished product. Such processing of customer-furnished property constitutes fabrication labor and is taxable under section 6006(b) of the Sales and Use Tax Law, regardless of the method of billing. Therefore, we cannot agree with your statement that “…sales of the service of processing black-and-white microfilm are not subject to tax.” On the contrary, all processing of microfilm for a consumer, regardless of the billing method, is subject to the tax. We believe the confusion in this area results from a misunderstanding of Ruling 23 (18 California Administrative Code 1933, copy enclosed), which provides in part (b): “Tax applies to charges for printing pictures or making enlargements from negatives furnished by the customer but not to charges for developing the negatives if such charges are separately stated.” (Emphasis added.) This exclusion from tax of separately stated development charges applies only when the development involves the use of a separate positive and negative. When the processing involves

either the reverse processing method or microfilm, the entire charge is taxable, no matter how billed. Reverse processing and the processing of microfilm are within section 6006 (b) which defines a “sale” to include: “The producing, fabricating, processing, printing or imprinting of tangible personal property for a consideration for consumers who furnish either directly or indirectly the materials used in the producing, fabricating, processing, printing or imprinting.” We call your attention to the fact that ruling 23, referred to above, is now being revised. On May 7, 1971, we distributed to interested parties a copy of proposed regulation 1528 (the regulation which will supersede ruling 23). This proposed regulation provides that, “Tax applies….to charges for developing negatives….” It would be immaterial to the application of the tax that the charges for developing might be separately stated. We are enclosing for your review a copy of the regulation as proposed. Your comments would be welcome. Very truly yours, Donald J. Hennessy Legal Counsel DJH:kc Enclosures Bcc: Out-of-State – District Adm. New York