Was the full contract price taxable for editing, codifying, publishing, and supplementing a city or county ordinance code?

Plain-English summary

A publisher contracted to edit, codify, publish, and supplement city or county ordinance codes and deliver completed copies.

California treated all contract receipts as taxable sales of tangible personal property. Editorial work could not be deducted because it was part of producing the completed code.

The entire basic contract price, extra-copy sales, tabbed title dividers, and supplemental-service sales price were taxable.

The opinion superseded an earlier June 25 letter that had taxed only the fair market value of completed copies and supplemental pages.

If a municipality bought codes for resale and held a valid seller's permit, it could give a resale certificate. The opinion preferred collection of use tax followed by the municipality's deduction if it actually resold the codes before use.

What this means for you

Legal publishers and municipalities

Editorial labor remained part of the taxable code publication when the contract required completed copies.

Accountants and tax professionals

Track basic contracts, supplements, extra copies, dividers, editorial charges, digital versions, municipal use, resale permits, and resale timing.

Common questions

Q: Was editorial work deductible?

A: No.

Q: Were supplemental pages and services taxable?

A: Yes, in full.

Q: Could a municipality buy codes for resale?

A: Yes, with the resale conditions described.

Citations and references

• California Revenue and Taxation Code § 6011

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 515.0900
• Original supporting opinion: 515.0900 PDF

Original ruling text

515.0900
July 3, 1968
Gentlemen:
Please refer to our letter to you dated June 25 in which we advised you that only that part of your basic price for the production of a code which approximated the fair market value of the copies of completed codes delivered pursuant to the terms of the contract would be subject to tax, and that tax would apply to that part of the supplemental service charge which approximated the fair market value of supplemental pages. At the time I reviewed this matter, it was my impression that we had not previously determined how tax applied to receipts from a contract providing for the production of a code. However, further research has disclosed that we have previously considered this situation, and that we have held that under the provisions of our Sales and Use Tax Law, all receipts from the codification and publication of a code constitute receipts from the sale of tangible personal property and are subject to tax. Although the contract may call both for editorial work and for the furnishing of completed copies of the code, we have held that the cost of editorial work is not a proper deduction from taxable gross receipts when the contract calls for delivery of completed copies of the code. Similarly, the cost of editorial work would not be a proper deduction from the sales price in such a case. Under Section 6011, sales price includes any services that are a part of the sale and no deduction is allowed on account of the cost of materials used, labor or service cost, or any other expenses. Accordingly, to the extent that our June 25 letter is inconsistent with our prior ruling, it is hereby superseded. The entire basic contractual price, to the sales price of any sales of copies in addition to those provided for in the contract, the sales price of all tabbed title dividers, and the entire supplemental service sales price are all subject to tax. Thus, your schedule by quarterly calendar periods, commencing with the October-December 1960 quarter, should include the total sales prices of all California sales made by you since that time, and hereafter, you should collect use tax measured by the sales prices of your California sales. In those cases where completed codes may be offered for sale by a municipality, the sale of those codes by you to the municipality would be a sale for resale and the municipality, assuming it held a valid seller's permit, could give you a resale certificate. We believe, however, that the preferable procedure is for you to collect use tax and then, if the municipality sells the codes prior to using them, it may claim an appropriate deduction on its own tax return in the amount of the price paid to you on the codes on which use tax was computed. Very truly yours, J. Kenneth McManigal Assistant Tax Counsel JKM:smk [lb]