How did California tax public educational seminars that included lunch and course materials, and optional training on separately sold software?

Plain-English summary

A company asked about public tax-law seminars whose price included course materials and lunch. California said significant classroom instruction would make the participant charge nontaxable except for lunch, assuming materials were not separately charged. The company would be the consumer of those materials and owe tax when buying them.

The result changed if the event was only a short speech at lunch and participants had to buy lunch to attend and receive handouts. That transaction was a retail sale of lunch and materials, making the entire charge taxable.

The company also sold a software package and separately billed an optional training seminar. If customers did not have to buy training or course materials as a condition of buying the software, the seminar charge was nontaxable. Included, unpriced materials remained consumed by the company.

What this means for you

Seminar providers

The depth of classroom instruction and whether lunch or materials drive attendance can change the tax result.

Software companies

Optional, separately billed training was treated differently from a required component of the software sale.

Accountants and tax professionals

Document instructional substance, mandatory meals, material pricing, customer choice, software-sale conditions, and tax on provider-consumed materials.

Common questions

Q: Was a substantial educational seminar taxable?

A: Not except for the lunch charge, under the stated assumptions.

Q: Were included course materials taxable to participants?

A: Not when unpriced and incidental to significant instruction; the provider owed tax on acquiring them.

Q: Was a short lunch speech taxable?

A: Yes, when lunch and handouts were mandatory; the entire charge was taxable.

Q: Was optional software training taxable?

A: No, when separately billed and not required to buy the software.

Citations and references

• The opinion states its conclusions without numbered statutory or regulatory citations

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 515.0015.500
• Original supporting opinion: 515.0015.500 PDF

Original ruling text

STATE OF CALIFORNIA

515.0015.500

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-6450

April 29, 1992

Ms. L--- S--Corporate Tax Department
C--- C---, Inc
XXXXX --- Blvd.
---, CA XXXXX
Attn: M/S 25
SY -- XX-XXXXXX
Dear Ms. S---:
This is in reply to your February 12, 1992 letter regarding the application of sales tax to charges in connection with educational seminars. Specifically, you asked for the application of tax to the following charges: “1. An update on current tax law presented to the general public at an off-site location. Price includes course materials and lunch.” We are unable to give you a definitive answer without further information as to the amount charged for the seminar, the nature of the course materials, and a description of the instruction provided. If you provide significant classroom instruction to the seminar participants, only the charge to the participants for the lunch is subject to sales tax. Assuming that a separate charge is not made to the participants for the course materials, the charge to the participants for the course materials is non-taxable. In such case, tax applies to the sale of the course materials to you. On the other hand, if the seminar were to consist only of a short speech with handout materials at a lunch, and all of the participants were required to purchase the lunch in order to attend the speech and obtain the handout materials, we would view the transaction as being a retail sale of the lunch and handout materials. Tax would apply to the entire charge. The speech would merely be a service that was part of the sale of the lunch and handout materials. “2. A seminar that trains customers on the use of our software package. The seminar includes course materials and is billed separately from the software.”

Ms. L--- S---

-2-

April 29, 1992
515.0015.500

We assume that the charge to the customer for the seminar and materials is entirely optional; that is, you do not require the customer to purchase the seminar or the materials as a condition of buying the software. In such case, tax does not apply to the charge for the seminar. Assuming that your do not make a separate charge for the course materials, the charge is part of the non-taxable charge for the seminar. You are the consumer of the course materials in that event, and tax applies to the sale to you of the materials. If you have any further questions regarding this, feel free to write again. Very truly yours,

Ronald L. Dick
Senior Tax Counsel

RLD:es