Was a consulting firm the consumer of its original technical report but the retailer of extra printed copies supplied under the client contract?

Plain-English summary

A natural-resources consulting firm prepared written reports describing its technical findings. Many contracts required additional copies, ranging from a few to 50 or 100, and most clients were outside California.

California treated the firm as the consumer of property used for the original report because the client's true object was the professional consulting service.

The firm was the retailer of additional report copies. It had to hold a seller's permit and collect tax measured by the copies' selling price when they were delivered and used in California. If the contract did not state a separate copy price, the taxable measure was their fair retail selling price.

The firm could give its printer a resale certificate only for the actual additional-copy printing cost, not for type-setting or other charges attributable to the original report.

Reports shipped outside California under the contract were not taxable. The opinion recommended separately charging for extra copies to simplify billing and audit support.

What this means for you

Consultants and professional firms

An original report can be incidental to professional services while later or multiple copies are separate taxable property sales.

Accountants and tax professionals

Track original-report costs, extra-copy quantities, separate prices, printer invoices, resale certificates, delivery destination, customer use, and digital copies.

Common questions

Q: Was the original report taxable?

A: No.

Q: Were extra printed copies taxable?

A: Yes, when delivered and used in California.

Q: What if no extra-copy price was stated?

A: Tax was measured by fair retail selling price.

Q: Were contract shipments outside California taxable?

A: No.

Citations and references

• California Sales and Use Tax Regulation 1501

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 515.0032
• Original supporting opinion: 515.0032 PDF

Original ruling text

STATE OF CALIFORNIA

515.0032

STATE BOARD OF EQUALIZATION
March 21, 1973

REDACTED TEXT
In your letter of March 2 you explain that REDACTED TEXT is a consulting firm in the broad field encompassing the development and management of natural resources. Your contracts with clients usually call for you to provide a written report detailing the results of your technical findings. In many of the contracts it is required that you supply your client additional printed copies of the original report detailing the results of your service. The copies supplied range from a few to 50 or 100. The vast majority of your clients are located out of the State of California and 80 percent of them are outside the United States. You have been advised that instead of paying sales tax to the printer you should obtain a resale permit number from the State Board of Equalization and collect sales tax reimbursement from your clients when the items are subject to tax. You ask us to advice you on how this matter can best be handled. Generally, consulting firms are engaged in a service enterprise and under Regulation 1501, copy enclosed, are the consumers of the property which they use incidentally in rendering this service. This is so even though the property is transferred to their clients in the form of a written report. The basic distinction in determining whether a particular transaction involves a sale of tangible personal property or the transfer of tangible personal property incidental to the performance of a service is one of the true object of the contract. That is, is the real object sought by the buyer the service in and of itself or the property produced by the service. The professional services of architects, engineers, and similar professional people are not considered subject to the tax upon the basis that they are predominantly engaged in formulation and expression of ideas rather than selling tangible personal property. However, when such an individual supplies additional copies of reports or the like they are regarded as the retailer of these additional reports. Accordingly, such an individual should take out a seller’s permit and collect tax measured by the selling price of the reports that are delivered and are used in California. It there is no separate charge for these extra reports, we would regard the taxable measure as the fair retail selling price of such copies. Of course, the retailer can in such a case issue a resale certificate to his printer for the charges the printer makes for the additional copies. It should be noted that the resale certificate only covers the actual cost of printing the extra copies and not any charges made for setting type, etc., which is attributable to the original printed report. For example, if the printer charges $100 for the printing of the original report and will charge 3 cents a page for making copies it is only this latter amount that may be regarded as a sale for resale. Summarily, it is our opinion that except for the original copy you are the retailer of the additional copies and accordingly can issue a resale certificate to the printer for the additional copies. The reports that are being shipped outside the state pursuant to the contract are not subject to tax. We

March 21, 1973

2

515.0032

suggest that for case of auditing and billing that you make a separate charge for the additional copies. If you have any further questions in this regard, please let us know. Very truly yours, Glenn L. Rigby Tax Counsel