How did California tax forms, binders, and similar items furnished through franchised consultants as part of business advisory, record-keeping, payroll, and tax services?

Plain-English summary

A provider performed business advisory, record-keeping, payroll, and tax services through franchised consultants. Forms, binders, and similar items were furnished to the consultants for distribution to subscribers.

California concluded that the tangible items were incidental to the services. The provider was therefore the consumer of those materials rather than their retailer to the subscribers.

Tax applied to the provider measured by its cost of the forms, binders, and similar items furnished to subscribers.

What this means for you

Business-service providers and franchise networks

Incidental forms and binders did not convert the described advisory and administrative service into a retail sale of those items.

Accountants and tax professionals

Track the service package, subscriber materials, provider cost, consultant distribution, separately stated charges, and any property sold independently.

Common questions

Q: Was the provider treated as a retailer of the forms and binders?

A: No.

Q: Who was the consumer of those items?

A: The service provider.

Q: What measured the provider's tax?

A: Its cost of the forms, binders, and similar items.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 515.0780
• Original supporting opinion: 515.0780 PDF

Original ruling text

515.0780
July 29, 1965

Gentlemen:
This is in reply to your letter of July 13 in which you inquired about the application of sales or use tax with respect to your business advisory, record keeping, payroll and tax service. This service was previously performed by "S", a subsidiary of "B". It is our understanding that "N" will perform the service in a substantially similar manner. On the basis of the information which you have submitted, it appears to us that “N” will be furnishing tangible personal property to its franchised consultants for distribution to their subscribers as an incident to the rendition of services to such subscribers. Under such conditions "N" will be regarded as the consumer of tangible personal property used in rendering services and will be subject to tax measured by its cost of forms, binders, and similar items furnished to the subscribers. Very truly yours, George A. Trigueros Associate Tax Counsel GAT:ls [lb]