Were calibration charges taxable when a customer received a chart, template, tape, or gauge stick?

Plain-English summary

A calibration business made calculations and furnished different kinds of output to customers. The Board distinguished a report that communicates information from a physical item that performs the customer's required function.

When a contract called only for calibration information, including the relevant calibration chart, the charge was for a nontaxable service. The chart reported the results of the calibration work.

When the contract called for a tape used as a pattern or template, a template, or a gauge stick, the customer was buying the physical property itself. The full charge was taxable, with no deduction for labor spent making the necessary calculations.

The official source has a date conflict. Page one says "June 31, 1972," a nonexistent date. Page two says July 31, 1972, and the letter refers to a telephone opinion given July 28. This page therefore uses July 31, 1972 rather than the annotation page's later 1996 metadata date.

What this means for you

Calibration businesses

The tax result turned on the deliverable. A chart reporting calibration information was a service output, while a template or gauge stick was the functional product the customer wanted.

Manufacturers and laboratories

Do not assume calculation-heavy work is entirely nontaxable. If the contract delivers a working pattern, tape, or gauge, the whole charge can be taxable.

Accountants and tax professionals

Identify whether the physical item merely communicates findings or is itself used as the customer's production or measurement tool.

Common questions

Q: Was a calibration chart taxable?

A: No, when it accompanied delivery of calibration information as a service.

Q: Was a gauge stick taxable?

A: Yes. The customer sought the physical gauge stick itself.

Q: Could calculation labor be deducted from the taxable charge?

A: No. The opinion applied tax to the full charge for a tape, template, or gauge stick.

Q: Why is the issue date July 31, 1972?

A: The first page's June 31 date is impossible; the continuation page says July 31, and the letter refers to a July 28 telephone opinion.

Citations and references

• California Revenue and Taxation Code § 6012

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 515.0002.800
• Original supporting opinion: 515.0002.800 PDF

Original ruling text

515.0002.800

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

June 31, 1972

Mr. D--- K. K--K--- M--- S--- Co.
XXXX --- Dr.
---, California XXXXX

SR --- XX-XXXXXX

Dear Mr. K---:
This is to confirm the opinion which I gave you by telephone on July 28 regarding the application of tax to that part of your business dealing with calibration work. Our legal staff has previously ruled as follows: “You are advised that we have always regarded retail sales of patterns, templates, dies, and similar articles as subject to the tax, regardless of the professional status of the producer of such tangible personal property. Although the computations made by your client and the furnishing of a report thereof may be analogous to an accountant who performs services and summarizes his findings in a report, we are unable to concede that the same is true when your client makes computations for the purpose of furnishing a tape which is used as a pattern or template, or a gauge stick. Thus, the report furnishes only information, but the tape or gauge stick constitutes the very property required by your client’s customers. In the latter case it is our opinion that the transactions constitutes a sale of the property rather than the furnishing of information. “Section 6012 of the Sales and Use Tax Law defines taxable gross receipts to mean the total amount of the sales price of the retail sales of retailers without any other expense. Accordingly, it appears to us that your client is subject to the tax measured by his full charge for tapes and gauge sticks, without deduction on account of his labor in making the calculations required in connection therewith.” Accordingly, when your contract merely calls for the delivery of calibration information, including the pertinent calibration chart, such charges are services and not subject to sales tax. On the other hand, if the contract calls for delivery of a template or gauge stick, the total charge is

Mr. D--- K. K---

-2-

July 31, 1972
515.0002.800

subject to tax without any deduction on account of the labor in making the calculation required in connection therewith. If you need any additional information, please call me. Very truly yours,

Robert Nunes
Principal Tax Auditor

RN:iw