Which market studies were nontaxable commissioned services, and which general, local-market, software, or industry products were taxable?

Plain-English summary

California treated a market study contracted for in advance by one radio or television station, advertiser, or similar client as a nontaxable service. The contract price could include compiling data, and use of a precompiled database did not change that result.

General industry reports, specialty products, standard microcomputer programs, and data were taxable when delivered on tangible media. Electronic delivery was nontaxable because no tangible personal property transferred.

The company also produced local-market surveys after first assessing whether enough buyers would make the project economically viable. California treated those as taxable report sales rather than commissioned services. A prior periodical exemption had been repealed, and the opinion directed reporting on local-market survey sales beginning April 1, 1992 because the inquiry had been pending.

Separately priced daily-report access through a data terminal was nontaxable.

What this means for you

Market-research firms

Research commissioned and funded in advance by a particular client differed from speculative work later marketed to interested buyers.

Media companies and advertisers

Physical reports and separately priced terminal access received different treatment under this historical opinion.

Accountants and tax professionals

Review when the project begins, who funds it, customer count, marketing, report completeness, delivery medium, software, subscription terms, and separately priced access.

Common questions

Q: Were advance-commissioned custom studies taxable?

A: No.

Q: Did using a precompiled database make them taxable?

A: No.

Q: Were speculative local-market surveys taxable?

A: Yes.

Q: Were general reports, standard software, and data taxable?

A: Yes on tangible media; electronic delivery was nontaxable.

Q: Was separately priced terminal access taxable?

A: No.

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 515.0970
• Original supporting opinion: 515.0970 PDF

Original ruling text

515.0970
(916) 445–3723
March 20, 1992

REDACTED TEXT
Dear REDACTED TEXT,
In your letter of October 23, 1991, addressed to Mr. Lynn Thompson of the Board of Equalization’s Chicago office, you summarized your position on the taxability of several of your products. You also provided various sample materials, including a “typical” contract for a local market survey, a sample of a local market survey (REDACTED TEXT, San Diego, Summer 1983), and a description of custom studies from your product manual. We agree with you that “custom market studies” contracted for in advance with a particular radio or television station, or others such as advertisers, are nontaxable. This is the performance of a service. The contract price includes the charge for compiling the data. The use of a pre-compiled database will not change the application of tax. We also agree with you that “specialty type products” and “industry wide market data,” including general reports on various industry segments, standard micro-computer programs, and data are all taxable when delivered as tangible media. When any of these products are delivered electronically, they are exempt, because there has been no transfer of tangible personal property. However, it is still our position, as it has been for the past 25 years, that sales of “local market surveys” as typified by the “REDACTED TEXT, San Diego, Summer 1983,” and as typically contracted for by your sample “REDACTED TEXT” contract, are sales of tangible personal property. The fact that you may first survey a market to determine that a project is economically viable does not turn the transaction into a service transaction. Many of these reports previously qualified for exemption as periodicals. The exemption for periodicals has now been repealed. Because your inquiry has been pending for a substantial period of time, we believe it appropriate that you begin reporting tax on sales of your “local market surveys” effective April 1, 1992. We do note that in the typical contract the station has access to daily reports via a data terminal. If this access is separately priced in the licensing agreement, that portion of the contract is nontaxable. Very truly yours,

GJJ:sr
cc:
Mr. Robert Nunes
Mr. Glenn A. Bystrom

Gary J. Jugum
Assistant Chief Counsel