Which charges were taxable when customers bought or leased hand-held receivers and separately paid for market data, exchange access, sports information, and service?

Plain-English summary

A provider planned to sell or lease pocket-calculator-sized receivers that displayed current securities and commodities information broadcast over an FM sideband. Customers could also subscribe to exchange data, sports scores, maintenance, and damage protection.

California treated the receiver as tangible equipment similar to a radio or television, not as automatic data-processing equipment. A $600 sale of the device was taxable, while the separately stated $30 monthly database fee was a nontaxable service charge.

For leased devices, the opinion assumed the provider did not manufacture them, bought them ex-tax for resale, and leased them in substantially the same form. Under those assumptions, tax was measured by the $55 monthly rental fee.

The separate database, exchange, and sports-information fees were nontaxable. Optional service-contract fees and annual damage-waiver fees were also treated as nontaxable services.

What this means for you

Hardware and data-subscription providers

Separately priced equipment and access services received different treatment, while the lease result depended on how the provider acquired and supplied the device.

Accountants and tax professionals

Separate device price or rent from database access, exchange data, content subscriptions, maintenance, damage waivers, and other service fees, and document whether leased equipment was manufactured or altered.

Common questions

Q: Was the receiver's $600 sale taxable?

A: Yes.

Q: Was the $30 database fee taxable?

A: No.

Q: Was the $55 monthly device rent taxable?

A: Yes, under the opinion's stated acquisition and leasing assumptions.

Q: Were exchange, sports, service-contract, and waiver fees taxable?

A: No.

Citations and references

• California Revenue and Taxation Code § 6012
• California Sales and Use Tax Regulations 1502(b) and 1660(c)

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 515.0011.320
• Original supporting opinion: 515.0011.320 PDF

Original ruling text

515.0011.320

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

September 19, 1983

Mr. W--- J. S-----, --- & --Attorneys at Law
--- Floor, --- Building
XXX --- Street
--- ---, CA XXXXX
Re:

D---, Inc.

SR -- XX-XXXXXX

Dear Mr. S---:
This is in response to your letter of July 1, 1983. We regret any inconvenience caused you by our delay in responding. You asked that we consider the following material pertaining to the “Q---” system which is provided by D--- Inc. (D---) and render our views as to how the Sales and Use Tax Law applies. The Q--The Q--- is a hand-held data processing device which will be able to receive up-to-theminute quotations from various securities and commodities exchanges. Approximately the size of a pocket calculator, the Q--- will be able to provide a user detailed information concerning present market conditions with respect to any stock on a particular exchange. The information received by the Q--- device is first collected and processed by D---’s computer, then transmitted to the signaling station and broadcast over an FM sideband. In the
[California] area, these radio signals will be broadcast under a licensing arrangement with K---. The Q--- has a range of approximately 40 to 50 miles using a fixed and oriented antenna and 15 to 20 miles using a built-in antenna. If the Q--- device is outside this range, a telephone modem will be available later this year which will allow the Q--- user to receive information concerning stocks previously placed in the machine’s memory. The Q--- device will be available either for purchase or lease. At the present time, it is anticipated that the purchase price will be $600.00 and the monthly lease fee will be $55.00. In addition, there will be a $30.00 per month “Database Fee” applicable to both purchases and leases which covers the cost of transmitting and unscrambling the information from the central data station transmitter.

Mr. W--- J. S---

-2-

September 19, 1983
515.0011.320

There will be separate “Exchange Fees” for each exchange to which the purchaser or lessee subscribes. While only those stocks listed on the New York Stock Exchange may be available during the initial phase of operation, it is anticipated that this type of information will be available from several different exchanges over the next few months. Up-to-the minute sports scores for all college and professional sports will also be available in the immediate future at a small additional charge (“Sports Information Fee”). Purchasers may enter into a service contract with D--- to cover maintenance of the Q--- units for an additional charge (“Service Contract Fees”). Lessees of the units may also purchase an optional annual waiver of liability covering damage to their units for an additional charge (“Waiver Fees”). Comments In our opinion, the Q--- device which the customer receives is not automatic data processing equipment within the purview of Regulation 1502 (copy enclosed). We do not consider the Q--device to be either a computer or the peripheral equipment of a computer [see Regulation 1502(b)], rather, it is in the nature of a receiver, similar to an FM radio or television set. Sales of the device to D--- customers are taxable sales of tangible personal property, the measure of which is gross receipts from such sales (see Revenue and Taxation Code Section 6012). In our opinion, the taxable measure with respect to sales of the units is $600.00. We consider the
$30.00 database fee as being a nontaxable service charge.
With respect to leases of the devices, we assume D--- does not manufacture the units, will be purchasing them ex-tax for resale and, will be leasing them in substantially the same for as acquired. Under such circumstances, tax should be reported by D--- based on the $55.00 monthly rental fees
[Regulation 1660(c), copy enclosed]. The remaining data base, exchange, and sports information fees, as well as the optional service contract and waiver fees are considered nontaxable service fees. We hope this has answered your questions. If further assistance is required, don’t hesitate to contact us again. Very truly yours,

Les Sorensen
Tax Counsel
LS:rar
Enclosure