Were charges taxable for individually prepared computerized menu lists matched to a patient's prescribed allergen-free diet?
Apply this to your situation
This page answers the general question as of 1987. Ask about yours and see what current California tax law says, with citations.
Plain-English summary
A business compiled a database of allergen-free diets. When an allergist referred a patient, the business used that database to prepare a computerized list of menus compatible with the diet prescribed for that individual.
California treated the charge as a nontaxable service. The true object was the transfer of original, individually prepared information, not the paper on which the menu list was printed.
The result changed for additional copies. Multiple copies sold to the original customer or to other customers would be taxable.
What this means for you
Custom information providers
An individualized report created for one customer's facts could be a service even when delivered on paper, while later copies could be taxable property sales.
Accountants and tax professionals
Identify whether the customer bought original analysis or standardized content, and separately track original deliverables, additional copies, printing, and digital delivery.
Common questions
Q: Was the first individualized menu list taxable?
A: No.
Q: Did printing the list make it taxable?
A: No. The paper was incidental to the original-information service.
Q: Were multiple copies taxable?
A: Yes.
Citations and references
- California Sales and Use Tax Regulation 1501
Source
- Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
- Annotation page: Annotation 515.0004.100
- Original supporting opinion: 515.0004.100 PDF
Original ruling text
515.0004.100
(916) 445-6493
August 17, 1987
Data base information – computerized lists of menus
Dear REDACTED TEXT:
In your June 30, 1987 letter to the Board’s legal staff, you write that the Board’s Auburn office advised you to request an opinion regarding whether your business transactions will be subject to sales tax. You write: “The nature of my business deals in a computer service rather than goods. I have compiled a data base of various allergen-free diets; when an allergist refers a patient to me, I will (for a fee) provide that individual with a computerized list of menus (i.e., compilation of medically allowed foods) compatible with whatever specialized diet his/her physician has prescribed. “There are no products or inventory involved: no sales of special foods, literature, devices, etc. It could be compared with the service rendered by a tax preparer, who takes information, runs it through a computer, and hands the client a finished product; but it is still considered dealing in a service rather than goods.” Opinion Our opinion is that sales or use tax does not apply to your charges for providing original information to your customers, consisting of individually prepared computerized lists of menus from your data base of allergen-free diets. Our view is that this is a service transaction in which the true object of the contract is the transfer of original information, and not the transfer of the tangible property on which the information is printed. (See Regulation 1501). However, we note that if you were to also sell multiple copies of these computerized lists of menus, either to your original customer, or to other customers, then your sales of these copies would be subject to tax. I enclose for your information a copy of Regulation 1501. Please feel free to contact me if you have any further questions or comments about this letter. Sincerely, John Abbott Tax Counsel
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