Were charges taxable when a national public-station network electrically transmitted printed material and reproduced an exact copy at a distant location?

Plain-English summary

A national public-station network transmitted a customer's chart, photograph, contract, or other document over telephone lines and reproduced an exact copy at a distant station. The recipient could pick up the copy or have it delivered by messenger, and the customer paid a transmission fee plus telephone charges.

California treated the receipts as nontaxable service charges, although the opinion said the issue was close. The customer primarily wanted rapid mailing or communication rather than the paper copy itself.

The network was the consumer of photocopy paper and other property used in providing the service. Tax applied when it acquired that property, not to customer receipts.

The telecopier equipment was leased from the manufacturer, with tax paid on the monthly lease charge.

What this means for you

Communication providers

Remote reproduction remained incidental when transmission speed and communication were the true object.

Accountants and tax professionals

Review transmission, telephone, paper, pickup, messenger, equipment rental, copy quantities, and whether the customer seeks communication or reproduced property.

Common questions

Q: Were the transmission receipts taxable?

A: No.

Q: Who consumed the remote copy paper?

A: The network provider.

Q: Is this a different transaction from Annotation 515.0011.200?

A: No. CDTFA separately publishes the same formal opinion as support for both annotations.

Citations and references

• California Sales and Use Tax Regulation 1501

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 515.0010
• Original supporting opinion: 515.0010 PDF

Original ruling text

STATE OF CALIFORNIA

515.0010

STATE BOARD OF EQUALIZATION

October 27, 1970

--- --- ----- --- -----, -- XXXXX
Dear Mr. ---:
Your letter of May 19, 1970 addressed to Mr. John T. Quick of our Pasadena office has been referred to this office for reply. You request our opinion as to the application of the Sales and Use Tax Law to the activities of your client, “F”. We understand that “F” is part of a national network which sends printed information over telephone lines through signals generated by a telecopier machine to reproduce an exact copy at a distant location. This operation is accomplished by establishing public locations which performs the sending and receiving operations. “F”’s customer brings his chart, photo, contract or any other material to the nearest “F” public station. If he is a registered subscriber, he can show his ID card to have the charges billed to him. As a registered subscriber he will also receive a discount from list “F” rates. The charge made to the customer consists of a transmission fee plus the normal telephone charges involved in the transmission. The “F” station operator places the material into the facsimile transmission unit. The operator then places a call to the “F” station nearest the desired location and inserts her telephone into the acoustic coupler. The customer’s material is then automatically transmitted. The receiving “F” station operator removes the facsimile copy from the facsimile receiving unit and acknowledges that the message has been received. The receiving “F” station then calls the local recipient to advise him that a message has been received. The recipient can pick up the message or have it delivered to him by special messenger. The equipment used for this service is leased from the manufacturer, and tax is paid, measured by the monthly lease charge.

--- --- ---

-2-

October 27, 1970
515.0010

In our opinion tax does not apply to “F”’s receipts from the operation of its photocopy transmission service. Although the question is a close one, we think the service element outweighs the sales element in these transactions, such that the “true object” of the transactions can be said to be the performance of a service and not the furnishing of the property produced by the service [see our Regulation 1501, Service Enterprises Generally, copy enclosed]. What the customer desires, in coming to “F”, is a rapid mailing or communication service. “F” is the consumer and not the retailer of tangible personal property, such as photocopy paper, used by it in rendering its photocopy transmitting service. Tax applies to the sale of such property to “F” and not to “F”’s receipts from the performance of its service. Very truly yours,

Gary J. Jugum
Tax Counsel

GJJ:ab

[lb]