Were attorneys' charges for preparing ready-to-sign business documents from stored or client-provided model forms taxable?

Plain-English summary

Two attorneys offered document-preparation services to private and corporate counsel. They created ready-to-sign business documents from model forms stored in their computer system or supplied by the client, adapting the documents to the facts of each transaction.

California treated the charge as payment for professional legal services, not for the paper documents. The transferred paper was incidental, so no sales or use tax applied to the client charge.

The law firm was the consumer of the paper and other tangible property used in performing the service, so tax applied to those purchases.

The result would be different for sales of prewritten business documents to attorneys or non-attorneys. Blank prewritten documents would be tangible personal property, and their sales would be taxable.

What this means for you

Law firms and document providers

Fact-specific legal judgment and customization differed from selling a library of ready-made forms.

Accountants and tax professionals

Review attorney involvement, client facts, degree of customization, whether documents are blank or ready to sign, delivery format, and tax on provider inputs.

Common questions

Q: Were customized ready-to-sign documents taxable?

A: No.

Q: Did using stored model forms change the result?

A: No.

Q: Were prewritten blank business documents 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 515.0007
• Original supporting opinion: 515.0007 PDF

Original ruling text

515.0007

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

(916) 445-6493

July 25, 1988

REDACTED TEXT
Legal services – preparation of business documents
REDACTED TEXT
In your June 17, 1988 letter to the Board’s legal staff, you request our opinion on the application of sales and use tax to a service that your new law firm is offering. You and your partner, both attorneys, are offering a document preparation service for other attorneys (your clients). You will be preparing ready-for-signature business documents for private and corporate counsel. You prepare the documents from model forms stored in your computer system or from a model form provided by your client. You might quote a flat rate for preparing the average form, or you might have an estimated project cost based on the applicable fact situation. Our opinion is that no sales or use tax will apply to your charges for your legal services. Under Sales and Use Tax Regulation 1501, the Board employs a true object of the contract test to determine whether a contract calls for nontaxable services or taxable sales of tangible personal property. In this situation, we view the true object of the contract between you and your clients to be the providing of professional services, not the transfer of the documents you prepare. The tangible property transferred (the paper on which the documents are written) is considered incidental to the service provided. Tax would apply to your purchases of paper and other tangible property which you use in providing your services. If, by contrast, a law firm sold prewritten business documents for use by other attorneys, or by non-attorneys, then the law firm would be selling tangible property, not providing a service, and tax would apply to the sales of the blank documents. I enclose a copy of Regulation 1501 for your information. Please feel free to contact me if you have any further questions or comments about this letter. Sincerely,

JA:jb
Enclosure

John Abbott
Tax Counsel