Were charges for creating a manuscript index taxable when the contractor delivered one floppy disk, and what about related management and messenger fees?

Plain-English summary

A corporation hired a contractor to review a book manuscript, identify each occurrence of relevant terms and phrases, record the corresponding page numbers, and return the completed index on one floppy disk.

California treated indexing as a service. The one disk was incidental to the contractor's work, so the indexing charges were nontaxable.

The official annotation page goes further and says all charges connected with the indexing, including management fees and messenger services, were nontaxable. The supporting letter listed those charges but did not separately analyze them.

What this means for you

Indexers and editors

Creating a new manuscript index was treated as a service even though one physical disk carried the result.

Publishers

The official annotation treated related management and messenger charges consistently with the nontaxable indexing service.

Accountants and tax professionals

Confirm the contractor performs original indexing work, how many copies or media are transferred, and whether other charges truly connect to that work.

Common questions

Q: Was the indexing service taxable?

A: No.

Q: Did delivery on a floppy disk make it taxable?

A: No, as long as only one disk containing the index was transferred.

Q: Were management and messenger fees taxable?

A: The official annotation page says connected management and messenger charges were not taxable.

Citations and references

• California Revenue and Taxation Code §§ 6006(a) and 6051
• California Sales and Use Tax Regulation 1501

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 515.1150
• Original supporting opinion: 515.1150 PDF

Original ruling text

515.1150

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-8208

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles

January 22, 1993

GRAY DAVIS
Controller, Sacramento
BURTON W. OLIVER
Executive Director

REDACTED TEXT
Dear Mr. REDACTED TEXT:
This is in response to your letter dated January 12, 1993 to the Board of Equalization. Attached to that letter is a copy of a letter dated September 21, 1992 in which you state: "Recently my corporation hired another firm to perform the work of creating a book index. The contractor was instructed to review the written manuscript and index each occurrence of relevant terms and phrases found within the manuscript and note the appropriate page numbers. The contractor returned to my firm a computer floppy disk with the index. "When the contractor remitted an invoice for this work, sales tax was included. I would appreciate a ruling as to whether the following items are or are not subject to State of California sales tax: "Indexing service Messenger service (contractor hired a delivery service to pickup and deliver to and from contractor's business site) Management fee" Revenue and Taxation Code section 6051 imposes a sales tax on all retailers measured by their gross receipts from retail sales of tangible personal property. To be subject to tax, a transaction must be a sale which includes any transfer of title or possession of tangible personal property for a consideration. Rev. & Tax. Code § 6006(a). On the other hand, a transaction which is a service is not subject to sales tax even though there is a transfer of tangible personal property if the transfer of such property is incidental to the performance of the service. Sales and Use Tax Regulation 1501 (copy enclosed). The Board's staff generally regards indexing as a service even though the completed index is transferred to a client on tangible medium. As long as only one floppy disk containing the index was transferred to you by your vendor, none of the vendor's charges for indexing are subject to tax.

515.1150

-2-

January 22, 1993
Sincerely,

Elizabeth Abreu
Tax Counsel
EA:cl
REDACTED TEXT
Enclosure
bc:

Oakland District Administrator