Were customer-specific language translations taxable when transferred on floppy disks, and what happened with extra copies or translations sold to a broader market?

Plain-English summary

A company gave a subcontractor an English-language electronic file, received the translated foreign-language file, and delivered it to one customer for compilation into a software program. The files could move on floppy disks or by modem.

California treated the agreement as a nontaxable translation service even when the translated file was delivered on a disk. The subcontractor's translation charge also was nontaxable.

Additional separately charged or bulk copies were taxable. Offering the same translated text or information to the public or a group of customers also changed the transaction from personal services to taxable tangible-property sales.

The translation business was the consumer of disks and other property used incidentally in the service. It owed tax when buying those items or use tax measured by purchase price if it had bought them under a resale certificate and then withdrew them for service work. Pure electronic transmission without other tangible property also was nontaxable.

What this means for you

Translators and localization firms

Customer-specific translation supported service treatment even when one disk carried the work.

Content publishers

Extra copies and the same translated product offered to multiple customers were taxable under the opinion.

Accountants and tax professionals

Track customization, customer count, physical media, extra copies, subcontractors, resale certificates, and inventory withdrawals.

Common questions

Q: Was the customer-specific translation taxable?

A: No.

Q: Was the subcontractor's translation charge taxable?

A: No.

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

A: No, for the single-customer translation service.

Q: Were extra copies taxable?

A: Yes, when separately charged or supplied in bulk.

Q: Who owed tax on the disks?

A: The translation business, as consumer.

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 515.1405
• Original supporting opinion: 515.1405 PDF

Original ruling text

515.1405

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

WILLIAM M. BENNETT
First District, Kentfield

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

December 8, 1992

GRAY DAVIS
Controller, Sacramento
────────
BURTON W. OLIVER
Executive Director

Ms. N--- S--P--- P---, Inc.
XXX --- ----- ---, CA XXXXX
Re:

SR -- XX-XXXXXX

Dear Ms. S---:
This is in response to your letter dated September 30, 1992, in which you state: “I need to know if the following services are taxable or not. If they are taxable, I need to know if there are specific conditions and circumstances that, if followed, would make them non-taxable. I would appreciate a written response from you that I can include in my files. “Question: We contract with a translation service. We provide them an electronic file on diskette and they return to us that file with a foreign language in place of the English. We will deliver the electronic file on a diskette to our client. They will use this file to compile a software program. “Should the translation service be charging us tax? “Is the taxability of this service altered by our delivering the electronic files to the translation service by modem (electronically) and their returning them to us by modem? “Should we be charging tax to our client? “Is the taxability of this service altered by our delivering the electronic files to the translation service by modem (electronically)?”

Ms. N--- S---

-2-

December 8, 1992
515.1405

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. In California there is no exemption for sales of information when the information is delivered in tangible form1/. The only issue is whether a customer has contracted for the information or for the service of compiling the information. We assume that in each transaction you describe, you are requested by a single customer to translate specific documents, data, or other information written in English to a foreign language and that you subcontract the translation work to another firm. The documents, data, or other information are contained on a floppy disk which you give to the subcontractor who takes the information and translates it to the foreign language. The translated information is entered on the disk which is returned to you. You, in turn, give the floppy disk to the customer who uses the translated information with a software program. It is our position that each of your agreements to translate specific documents, data, or other information pursuant to the request of a single customer is a service agreement and therefore is not taxable even though the translation is transferred on a tangible medium. Nor are the charges of the subcontractor taxable. If, however, you provide additional copies of the translation to the customer and charge separately for the copies or provide additional copies in bulk, the transfer of the additional copies is a sale and is taxable. In addition, if you offer translations of the same text or information to the public or to a group of customers, your transactions are not for personal services but rather are sales of tangible personal property. Your business is the consumer of the tangible personal property, such as floppy disks, which it uses incidentally to provide the service. Therefore, tax applies to the sale of such property to your business. If you give your vendor a resale certificate when you purchase such items, you must report and pay use tax measured by your purchase price when you take the items out of inventory and use them in the performance of the service contract.

1/

Information transferred by electronic transmission, e.g. over telephone wires, is not delivered in tangible form. Therefore, assuming no other tangible personal property is transferred, charges for information transmitted electronically are not taxable.

Ms. N--- S---

-3-

December 8, 1992
515.1405

We are enclosing a copy of Regulation 1501 for your information. If you have further questions regarding Sales and Use Tax Law, please do not hesitate to write again.

Sincerely,

Elizabeth Abreu
Tax Counsel
EA:cl
Enclosure:

Regulation 1501