Is market/consumer research delivered on paper or CD a taxable product or a nontaxable service in Colorado?

Plain-English summary

Note: The letter's opening line says it responds to a request about "drug screening medical kits," but the issue and entire discussion address consumer/market research reports. That appears to be a clerical slip in the letter; the substance is about research reports.

A company supplies syndicated consumer-research and service-quality reports to the communications and media markets, delivered electronically (web), on hard copy, and/or on CD-ROM. It described the product as "intangible market research" and asked whether the reports are taxable.

The framework — true object, and the custom-vs-repetitive factor. Colorado taxes sales of tangible personal property (corporeal property) and generally doesn't tax services (§ 39-26-104(1)(a); § 39-26-102(15)). But the medium can be a trap: books, videos, magazines, trade publications, and "canned" software on CD are taxable TPP even though they embody intangible work and intellectual property (Special Reg 7). On the other hand, some transactions are nontaxable services even though incidental property changes hands — e.g., an author selling a manuscript to a publisher sells a service, and the medium is incidental (Special Reg 52). Which one applies turns on the true object of the transaction (City of Boulder v. Leanin' Tree, 72 P.3d 361 (Colo. 2003)).

The crucial factor: one specific customer vs. repetitive sales to many. A film or manuscript created for a specific client is a nontaxable service; repetitive copies of the same film or book (a video store, a publisher's print run) are taxable sales of TPP (Special Reg 52). Market research is treated the same way:

• Custom research for a specific customer = nontaxable service, even if delivered as a hard copy or CD (the medium is incidental).
• Research repetitively sold to many customers = taxable, because it's indistinguishable from trade publications and periodicals — when delivered on a tangible medium.

To tell custom from repetitive, the Department looks at whether the research was performed in response to a specific client's order. Research done before a client's request — or after it but that would have been performed anyway — is not customized (cf. California Ruling 515.0012; Mass. Reg. 64H.1.3(8) and Mass. LR 00-13; Virginia PD 01-219, holding a subscription market report taxable).

Applied here: the facts didn't say whether the reports are custom or repetitive, but the company calls them "syndicated" — which strongly suggests taxable if delivered on a tangible medium. If the research is for a single client, it's a nontaxable service (hard copy/CD incidental). If distributed to two or more customers, it's taxable when delivered on a tangible medium like hard copy or CD.

What this means for you

Research firms, data providers, and publishers

The tax question isn't "is it data or a report?" — it's who is it made for. Bespoke research for one client is a nontaxable service. Syndicated/subscription research sold to many is treated like a trade publication and is taxable on a tangible medium. The label "syndicated" pushes you toward taxable.

The delivery medium matters

The Department repeatedly tied the tax to delivery "in the form of a tangible medium such as a hard-copy or CD." That implies the tangible copy is the hook — purely electronic delivery of the same report has no tangible personal property to tax. How you deliver can change the result, so track medium per customer.

Custom means truly responsive to the order

"Custom" requires the work to be done in response to that client's specific request. Pre-existing research, or work you'd have done regardless and then resold, is not customized — even if only one client buys it this time.

Common questions

Q: Is market research taxable in Colorado?
A: Custom research made for a single specific client is a nontaxable service (the paper or CD is incidental). Syndicated research repetitively sold to many customers is taxable when delivered on a tangible medium like hard copy or CD.

Q: My reports are syndicated. Are they taxable?
A: Likely yes, if you deliver them on a tangible medium (hard copy/CD). "Syndicated" indicates repetitive sales to many customers, which the Department treats like a taxable trade publication.

Q: What about purely electronic delivery?
A: The Department tied taxability to delivery on a tangible medium. A report delivered only electronically has no tangible personal property to tax.

Q: Can I rely on this letter?
A: No. It's a General Information Letter — general guidance, not binding on the Department.

Citations and references

Statutes, regulations, and cases:
- § 39-26-104(1)(a), C.R.S. — imposition of sales tax on tangible personal property
- § 39-26-102(15), C.R.S. — tangible personal property = corporeal personal property
- Special Regulation 7 — canned software on a tangible medium is taxable
- Special Regulation 52 (Service Enterprises) — custom vs repetitive sales; medium incidental to a service
- City of Boulder v. Leanin' Tree, 72 P.3d 361 (Colo. 2003) — the true-object test
- (Persuasive) California Ruling 515.0012; Mass. Reg. 64H.1.3(8); Mass. LR 00-13; Virginia PD 01-219

Related Colorado true-object / medium letters:
- [[gil-07-006-gift-card-stock]] — Leanin' Tree and incidental tangible property
- [[gil-07-003-remediation-services]] — true-object service even though property is conveyed
- [[gil-08-016-software-updates-and-support-services]] — software on a tangible medium and separately stated services

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-07-027.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

GIL-2007-27

XXXXXXXXXXXX
Attn: XXXXXXXX
XXXXXXXXXXXX
XXXXXXXXXXXX
December 4, 2007

Re: Taxability of consumer research and service quality reports
Dear XXXXXXXXX,
This letter is in response to your letters to the Colorado Department of Revenue, dated June 2, 2007,
re: taxability of drug screening medical kits. We apologize for the time it has taken to respond to your
inquiry.
Colorado Department of Revenue provides informational letter as a service to taxpayers. These
letters represent the opinion of knowledgeable and experienced department staff and can be a
valuable resource in making informed decisions regarding your tax obligations. However, these
letters are not binding on the department. §24-35-103.5, C.R.S.
Issue
Are consumer research and service quality reports taxable in Colorado?
Background
Your company supplies syndicated consumer research and service quality reports to the
communications and media markets. Your clients are given the option of receiving this information
electronically via the web, on hard copy and/or CD Rom. You state that the product is intangible
market research and service quality reports and data. Data is collected and available for customers
upon signing a contract.
Discussion
Broadly speaking, Colorado imposes tax on the sale of tangible personal property. §39-26-104(1)(a),
C.R.S. “Tangible personal property” is defined as corporeal personal property. §39-26-102(15),
C.R.S. Services are generally not taxable in Colorado.
Books, videos, magazines, trade publications are clearly taxable tangible personal property, even
though they are the culmination of the personal services of writers, researchers, and analysts and

contain intangible intellectual property, research, and data. Similarly, licensed “canned” software,
which is typically protected intellectual property, is taxable when sold on CD or on other tangible
mediums. Special Regulation 7.
On the other hand, some transactions will be characterized as non-taxable services even though
some incidental tangible personal property is exchanged. See, Special Regulation 52 (Service
Enterprises). The sale by an author of a manuscript to a publisher is a non-taxable sale of a service
and the medium in which it is sold (written manuscript) is treated as incidental to the sale. Special
Regulation 52.
The distinction between sale of taxable tangible personal property and non-taxable services is
sometimes stated in terms of whether the “true object” of the transaction is the acquisition of a service
or tangible personal property. That is, the transaction is taxable if the true object is the sale of
tangible personal property, and not taxable if the true object is the service. Although the true object
test is easy to state in the abstract, it is not always easy to apply in practice. See, City of Boulder v.
Leanin’ Tree, 72 P3d 361 (Colo. 2003).
Often a crucial factor in this type of determination is whether the property is sold only to a specific
customer or sold repetitively to many customers. See, Special Regulation 52. For example, a sale of
a film to a client is generally considered a non-taxable sale of a service. Similarly, a sale of a
manuscript to a publisher is a non-taxable service. However, repetitive sales of copies of the same
film (e.g., sales or rentals by a video store) or same book are clearly taxable sales of tangible
personal property. Special Regulation 52.
The tax treatment of market research and surveys is similar. Market research or surveys which are
created for a specific customer is a non-taxable service, even though the report may be submitted to
the client in a hard-copy or CD form. However, market research and surveys that are repetitively sold
to a variety of customers are indistinguishable from sales of trade publications, scientific periodicals,
and other similar publications. As such, the research and surveys are taxable.
In determining whether the research is for a specific client or is for repetitive sales, the department
will consider whether, and the extent to which, the research was performed in response a specific
client’s order. For example, research performed prior to a client’s request, or research performed
after a client’s request, but which would have been performed regardless of the request, is not
customized market research. Compare, e.g., California Sales Tax Counsel Ruling No. 515.0012.
Other states have taken a similar approach to market research and surveys. Mass. Regs. Code
64H.1.3(8) (furnishing information on tangible medium to two or more customers is taxable and nontaxable if report for only one customer); Massachusetts Letter Ruling 00-13 (individualized reports are
non-taxable; reports sent electronically non-taxable); Virginia Public Document Ruling No. 01-219
(market report produced for multiple industry members and purchased on a subscription basis is
taxable).
It is not clear from your letter whether the market research and surveys you provide are performed at
the request of a specific client or are sold repetitively to a variety of clients. I note that you state that
your market research and survey reports are syndicated. This strongly suggests that the material is
taxable if delivered in a tangible medium. If the market research is performed at the request of a
single client, we will consider the transaction as a non-taxable service and the hard copy or CD
incidental to the sale. If, on the other hand, your market research is distributed to two or more
customers, then it is subject to tax if it is delivered in the form of a tangible medium such as a hardcopy or CD.

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Finally, the Department makes a good faith effort to provide accurate and complete answers to
questions posed to it by taxpayers. However, the information and answers provided here are not
binding on the Colorado Department of Revenue, nor do they replace, alter, or supersede Colorado
law and regulations. The Executive Director, who by statute is the only person having authority to
bind the Department, has not formally reviewed and/or approved this response.
Respectfully,

Office of Tax Policy
Colorado Department of Revenue

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