Were receipts taxable when a publisher performed editorial codification and manufacturing under a contract to deliver completed municipal codes?

Plain-English summary

A publisher performed editorial codification and manufactured completed books of municipal ordinances for delivery to cities.

California treated the receipts as taxable sales of tangible personal property. Under section 6012, editorial services that were part of the completed-code sale could not be deducted from gross receipts.

The source described possible resale treatment when a city intended to sell some codes. A city with a valid seller's permit could provide a resale certificate, although the opinion preferred tax reimbursement followed by an appropriate tax-paid-purchase deduction if the city later sold the codes before use.

A contract limited to editorial work might be a nontaxable service, but the source withheld a definite ruling until it could examine such a contract.

Out-of-state subcontracting of editorial and manufacturing work did not change the publisher's tax obligation on its own completed-code sales.

What this means for you

Publishers and municipalities

Editorial work embedded in delivery of finished code books was treated differently from a potentially standalone editorial engagement.

Accountants and tax professionals

Document deliverables, editorial-only versus publication terms, manufacturing, subcontractors, city use or resale, permits, certificates, and tax-paid-purchase treatment.

Common questions

Q: Were completed municipal codes taxable?

A: Yes.

Q: Could editorial work be deducted from the completed-code price?

A: No.

Q: Was an editorial-only contract definitely exempted?

A: No; the source said it probably was a service but wanted to review the contract before ruling.

Citations and references

• California Revenue and Taxation Code § 6012

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 515.0880
• Original supporting opinion: 515.0880 PDF

Original ruling text

515.0880
December 2, 1955
REDACTED TEXT
Attention: REDACTED TEXT
Gentlemen:
This is in response to your letter of November 3 requesting a ruling as to your liability under the California Sales and Use Tax Law to receipts from the codification and publication of municipal ordinances. Your receipts from the codification and publication of municipal ordinances constitute in our opinion receipts from sales of tangible personal property and are subject to the sales tax. Your letter, however, indicates that some of the completed codes may be offered for sale by the city. Thus, the sale of the codes by you to the city would be a sale for resale and the city, assuming it held a valid seller’s permit, could give a resale certificate. We believe, however, the preferable procedure would be for the city to reimburse you for the tax and then if the city sells the codes prior to using them, the city could claim an appropriate deduction on its own tax return in the amount of the price paid to you for the codes upon which tax reimbursement was computed. You mention that there are two steps in your work. The first step is the editorial work and the second is the actual manufacturing process. We do not believe the cost of the editorial work would be a proper deduction from your taxable gross receipts under a contract calling for delivery to the city of a completed code. Under Section 6012 of the Sales and Use Tax Law, gross receipts include any services that are a part of the sale and do not allow any deduction on account of the cost of materials used, labor, or any other costs. In those cases, however, where you have a contract which calls only for editorial work, your charges would probably be regarded as for a service and not taxable. Before issuing you a definite ruling on this point, we would like the opportunity of examining a copy of the contract under which you perform only editorial work. We note that practically all the editorial work and manufacturing work is done by a corporation outside this State which bills you for the cost of the work. We do not believe this would have any effect upon your tax obligation as your receipts would be for the sale of tangible personal property whether that property is actually produced by you or a sub-contractor. Very truly yours,

EHS:ds
cc: Santa Monica - Compliance

E. H. Stetson
Tax Counsel