How did California treat plastic copy cards used to prepay for photocopies, and did college libraries get the library-machine exception?

Plain-English summary

A copy provider sold magnetically encoded plastic cards in denominations representing a fixed number of future copies. Each machine use reduced the remaining value, and the depleted card was returned to the customer for disposal.

The provider was consumer of the plastic card. Selling it was not itself a transfer of tangible personal property under section 6016; the customer was prepaying for photocopies, which were tangible property. Sales tax applied to the copies, and reimbursement could be collected when the card was sold.

The memorandum also said a state university, college, or community-college library did not fall within Regulation 1574(b)(1)(A)'s specified library categories.

What this means for you

Copy providers, colleges, and stored-value program advisers

Treat the card as the payment medium and account for the underlying copies. Do not assume every institution called a library receives the municipal, county, or library-district machine treatment.

Common questions

Q: Was the plastic card sold as tangible property?

A: No.

Q: What did its price represent?

A: Advance payment for photocopies.

Q: Did college libraries qualify for the specified exception?

A: No.

Citations and references

• California Revenue and Taxation Code § 6016
• California Sales and Use Tax Regulation 1574(b)(1)(A)

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 590.0148
• Original supporting opinion: 590.0148 PDF

Original ruling text

590.0148
State of California

Board of Equalization
Legal Division (MIC:82)

Memorandum
To:

From:

Subject:

Mr. Joseph Young
Hayward Branch Office Supervisor

Date:

December 18, 1990

Ronald L. Dick
Senior Tax Counsel
REDACTED TEXT, Inc.
SR CHA REDACTED TEXT
Your November 15, 1990 memorandum to Senior Tax Counsel John Abbott regarding the application of sales tax to charges for plastic copy cards and photocopies has been referred to me for reply. You note the following facts: “Taxpayer is in the business of selling photocopies through coinand card-operated copy machines. These copy machines are located in municipal libraries, large retail drug stores, college libraries, military installations and other professional offices. “At a card-operated copy machine, the customer who desires to purchase photocopies is required to purchase a plastic copy card that is magnetically encoded with pre-determined denominations that entitles the card holder to a certain number of photocopies. Sales tax is generally charged by the taxpayer on the selling price of the copy card (price is determined by the number of photocopies that can be made with the card). To activate the copy machine, the customer inserts the copy card into the machine, when the copying is completed, an amount representing the number of copies made, is deducted from the copy card electronically. The card would be returned to the customer in the same manner as a BART transit ticket with the exception that when the value of the copy card is depleted, the copy card is returned to the customer for his/her disposal.” Given these facts, you asked the following questions: “1. With regards to the plastic copy cards, is the taxpayer the retailer of the cards as well as the photocopies or is the taxpayer the consumer of these cards as they are being used as a medium of exchange?”

Mr. Joseph Young

-2-

December 18, 1990
590.0148

We agree with your conclusion that the taxpayer is the consumer of the copy cards. When a printer sells coupons and cards to be used as indicia to purchase other tangible personal property, sales tax applies to the printer’s sale of the coupons and cards. The sale of the copy card by the taxpayer does not constitute the sale of tangible personal property, as that term is defined in Revenue and Taxation Code section 6016. Rather, by purchasing the copy card, the taxpayer’s customer is paying in advance for a certain number of copies which are tangible personal property. The copies are then made at the customer’s convenience. Therefore, sales tax applies to the taxpayer’s sale of copies, as represented by the sale of the copy card. The taxpayer may properly collect sales tax reimbursement from the customers when the customers purchase the cards from the taxpayer. “2. Per Regulation 1574, (b)(1)(A), the taxpayer is considered the consumer of photocopies sold at retail through a coin- or cardoperated copy machine located at a library facility pursuant to a contract with a library district, municipal library, or county library. Does machine located in a college library pursuant to a contract with the college library qualify the taxpayer as a consumer of photocopies sold at retail through a coin- or card-operated copy machine?” After sending your memorandum, you contacted us and noted that Tax Counsel Robert Stipe answered this question in a February 24, 1986 letter to Mr. REDACTED TEXT of REDACTED TEXT affiliates and took the position that, a state university, college or community college library does not fall within the provisions of Regulation 1574, subd. (b)(1)(A). to me.

If you have any further questions regarding this, feel free to write directly

RLD:sr
bc:

Oakland District Administrator