Is a subscription fee for an online financial newspaper, and for interactive online stock screens and performance ratings, subject to Colorado sales or use tax?

Plain-English summary

A financial news and research company sells subscriptions to two things: (1) an online version of its daily financial newspaper (an exact duplicate of its printed paper, downloadable as a PDF), and (2) interactive online stock screens, comparative performance ratings, and emerging-stock tools. It asked whether either subscription is subject to Colorado sales or use tax. The Department issued a binding private letter ruling and concluded that neither is taxable — but for two different reasons.

The online newspaper — exempt as a "newspaper." Colorado taxes sales of tangible personal property but expressly excludes "newspapers" that qualify as a "legal publication" (§ 39-26-102(15); § 24-70-102). A "legal publication" is one printed and published daily (or daily except Sundays and legal holidays). The company's paper edition — published daily, formatted in columns, carrying news, editorials, and advertising — is a qualifying newspaper, so it isn't taxable. The harder question was the online edition, because the statute says "printed" and the legislature couldn't have imagined online papers when it wrote the exclusion in 1943. The Department held that "printed" is not a substantive requirement — the heart of the "legal publication" test is the frequency of publication, not how it's printed — and because the online edition is an exact duplicate of the printed daily, it's a newspaper too. So the online newspaper subscription is not tangible personal property and isn't taxed. (The Department flagged the contrast: magazines are not excluded and are taxable, and the line between newspaper and magazine "is, to say the least, subtle.")

The stock screens — exempt as a service. Whether the stock-screen subscription is taxable turns on the "true object" test (City of Boulder v. Leanin' Tree, 72 P.3d 361 (Colo. 2003)): is the customer commonly understood to be buying property or a service? The Department noted that static market-survey publications sold for general consumption — like a Kelley Blue Book — are taxable property, even though they contain data and some analysis. But the company's online products are not static: subscribers query databases with the company's software, build quasi-customized reports with search-and-filter tools, and get real-time data. That interactivity and real-time character make the true object a service. So the stock-screen, performance-rating, and emerging-stock subscriptions are not subject to state sales or use tax. (Colorado, unlike Ohio or New York, hasn't enacted a tax on "information services.")

What this means for you

Digital publishers and newspaper companies

If your online product is a faithful duplicate of a print newspaper published daily, Colorado treats it like the paper — exempt — and the word "printed" in the statute isn't the obstacle it looks like. The decisive feature is daily (or near-daily) frequency. But don't over-read this: a magazine (and, by extension, a magazine-like digital periodical) is not excluded and is taxable, and a standalone digital "book" of static data can be taxable property.

Sellers of data, research, and online tools

Interactivity is your friend on taxability. A static data publication sold to everyone (a price book) looks like taxable property; a queryable, real-time, customizable online system looks like a non-taxable service under the true-object test. How dynamic and individualized the product is — not just that it delivers data — drives the result. If you bundle a static publication with an interactive tool for one price, expect a closer look.

Accountants and tax professionals

Two independent grounds here: (1) the statutory newspaper exclusion (§ 39-26-102(15); § 24-70-102), where "legal publication" hinges on daily frequency and "printed" is non-substantive, so a duplicate online daily qualifies; and (2) the true-object test (Leanin' Tree), where interactivity/real-time/quasi-customization push an information product from taxable property toward non-taxable service. Note the magazine/newspaper distinction and that Colorado has no "information services" tax. Binding on the requesting taxpayer only.

Common questions

Q: Is an online newspaper subscription taxable in Colorado? A: Not where the online edition is an exact duplicate of a newspaper published daily (or daily except Sundays/holidays). Colorado excludes qualifying daily newspapers from taxable tangible personal property, and the Department treats the duplicate online edition the same way — "printed" isn't a substantive requirement; frequency is what matters.

Q: What about a magazine or a magazine-style digital periodical? A: Magazines are not excluded from the definition of tangible personal property, so they are taxable. The Department acknowledged the newspaper/magazine line is subtle.

Q: Are online stock screens and research tools taxable? A: In this ruling, no. Because the products are interactive — subscribers query databases, build quasi-customized reports, and access real-time data — the true object is a service, which Colorado doesn't tax. A static data publication sold to the general public (like a price guide) would be taxable property.

Q: Can my business rely on this ruling?
A: Only the taxpayer it was issued to can rely on it, and only on its disclosed facts. A private letter ruling binds the Department as to that taxpayer; it can't be relied on by anyone else and is subject to modification or revocation under Reg. 24-35-103.5. It does not cover self-collected home-rule city taxes.

Citations and references

Statutes:

• § 39-26-102(15), C.R.S. — definition of tangible personal property; excludes newspapers (per § 24-70-102)
• § 24-70-102, C.R.S. — definition of "legal publication" / newspaper (daily, or daily except Sundays and legal holidays)
• § 39-26-104(1)(a), 202, C.R.S. — imposition of sales and use tax

Cases and guidance referenced:

• City of Boulder v. Leanin' Tree, 72 P.3d 361 (Colo. 2003) — the "true object" test
• GIL-07-27 (12/04/2007) — market-survey publications (e.g., Kelley Blue Book) are taxable property
• Reg. 24-35-103.5 (private letter ruling procedure)

Related Colorado rulings (true object / digital goods vs. services):

• [[gil-13-022-material-safety-data-sheet]]
• [[gil-13-020-electronically-delivered-software]]
• [[gil-15-025-digital-photographs]]
• [[gil-16-015-credentialing-services]]
• [[plr-16-003-billing-services]]

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/PLR-12-007.pdf

Original ruling text

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

PLR-12-007

December 31, 2012

xxxxxxxxxxxxxxxxx
ATTN:XXXXXXXXXXXX
xxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxx
Re: Private Letter Ruling

DearXXXXXXXXXXXX,
You submitted on behalf of XXXXXXXXXXXXXXXX ("Company") a request for a private letter ruling to the Colorado Department of Revenue ("Department") pursuant to Regulation 24-35-103.5. This letter is the Department's private letter ruling. Issues

1. Does sales tax apply to the subscription fee charged to customers for access to
   Company's publication on Company's Web site?
2. Is Company's subscription fee charged to customers for access to Company's
   online proprietary stock screens and comparative performance ratings subject to sales or use tax? Conclusion
3. Sales tax does not apply to Company's subscription fee charged to customers for
   access to Company's publication on Company's Web site.
4. Company's online proprietary stock screens and comparative performance ratings
   are not subject to sales or use taxes.
   Background
   Company is a financial news and research organization that provides finance information to customers, who typically are investors in financial instruments such as stocks and bonds. Company has historically published, in paper form, a daily (except Sundays) publication containing financial information. Company characterizes this publication as a newspaper. Company has more recently provided its customers

access to an exact duplicate of this publication on its Web site. The publication can be downloaded as a PDF file. Company also provides financial proprietary stock screens, comparative performance ratings, and identifies stock leaders as they emerge on its Web site. Customers pay a subscription fee to receive the publication and access to financial information provided by Company on its Web site. It is not clear from the ruling request whether customers pay one fee for access to both the publication and the financial information or whether customers can purchase them separately. Discussion

Newspaper
Colorado levies sales and use tax on the sale or use of tangible personal property.
§§39-26-104(1)(a) and 202, C.R.S.1 Colorado has, by statute, expressly excluded newspapers that qualify as a "legal publication" from the definition of tangible personal property.2 As such, newspapers that meet the qualifications of this section are exempt from sales and use tax. Newspapers that are "printed and published" daily, or daily except for Sundays and legal holidays, qualify as a "legal publication."3 Two issues arise when addressing the taxability of Company's online publication. First, we must decide whether Company's publication is a newspaper.4 Colorado statutes do not define what constitutes a newspaper. In the absence of such definitions, we look to how the term is commonly used and understood. A newspaper is commonly understood to be a paper publication printed on a daily or some other frequent basis and contains news and other information useful to its consumers.5 As noted above, Company characterizes its publication as a newspaper. The publication is formatted in columns, typical of newspapers, and contains news, editorials, and advertisements. It is printed and published daily, which is also typical of newspapers. Although the issue is not particularly clear, we rule that Company's paper publication is a newspaper and, because it is published daily, is a qualified legal publication. Therefore, this publication is not tangible personal property and its sale is not subject to sales or use taxes. The second issue, and the question posed in the request for ruling, is whether the online version of the publication also qualifies as a newspaper. We note that the statutory definition of a "legal publication" refers to a publication that is "printed." The 1 2

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Statutes can be viewed at www.Colorado.gov/revenue/tax > Tax Library> Statutes "Tangible personal property means corporeal personal property. The term shall not be construed to include newspapers, as legally defined by section 24-70-102, C.R.S., reprinted newspaper supplements ... "§ 39-26-102(15), C.R.S. Section§ 24-70-102, C.R.S. The characterization is important because, for example, magazines are not excluded from the definition of tangible personal property and are subject to sales and use taxes. The Merriam-Webster dictionary defines a newspaper as "a paper that is printed and distributed usually daily or weekly and that contains news, articles of opinion, features, and advertising." The dictionary defines "magazine" as, "(a) a periodical containing miscellaneous pieces (as articles, stories, poems) and often illustrated; also : such a periodical published online, (b) : a similar section of a newspaper usually appearing on Sunday." The distinction between newspaper and magazine is, to say the least, subtle.

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online version of the publication is not printed, but it is the duplicate of a printed newspaper. We also note that the legislature could not have contemplated online newspapers when, in 1943, it enacted the exclusion of newspapers from the definition of tangible personal property. However, we do not view the term "printed" as a substantive term of this statute. The gravamen of the "legal publication" requirement is the frequency in which the newspaper is published, not how often it is printed. As to the issue of the legislative purpose or intent at the time of this exclusion, it is not clear why the legislature excluded newspapers. It may have been to avoid difficulties related to collecting a penny or two on each sale, particularly when sold at coin-operated newspapers stands - a problem not faced by Company's subscription fee for its online version. In any event, we are persuaded that the online version is a newspaper because it is a duplicate of the paper version.6 Therefore, we conclude that the online publication is not tangible personal property and is not subject to state and state-administered local sales and use taxes. Stock Screens and Comparative Performance Company requests a ruling whether the subscription fee for its stock screens, comparative performance information, and other similar information are subject to sales tax. The principal question presented here is whether the transaction is the sale of tangible personal property or a non-taxable service.7 The Department uses the "true object" test to measure whether a transaction is a non-taxable service or a sale of tangible personal property. In City of Boulder v Leanin' Tree, 72 P.3rd 361 (Colo. 2003), the Colorado Supreme Court, after discussing the "true object" test, as well as others, concluded that the most appropriate question to ask is whether the transaction is one which is commonly understood to be for tangible personal property or a service. See, also, Hellerstein & Hellerstein, State Taxation, 1{13.03[2][a]. This is a particularly difficult issue when discussing transactions for the access to information.8 On the one hand, we have previously concluded, as have most other states, that market survey publications made available for general consumption, such as a Kelley Blue Book on car prices, and not made to order for one customer or one group of customers, are tangible personal property and not the sale of a service.9 These publications consist primarily of data but can include some analysis of the data. Company's online product is similar in that it provides access to a variety of financial data and analysis, such as identifying emerging stocks. On the other hand, the online products are not static as is commonly found in at least the paper version of taxable publications. Subscribers to Company's online products have the ability to query the 6

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We purposefully have not addressed the issue of whether Company's online publication is tangible personal property. We have held in other contexts that the digital goods such as music, videos, and books downloaded to a customer's computer or other device is tangible personal property. Colorado generally does not impose sales tax on services, although inseparable services or services bundled with the sale of taxable goods can be subject to tax. 39-26-104, C.R.S. As Hellerstein notes, it is extremely difficult to create a consist theory in this area. Hellerstein, ,115.11. Colorado General Information Letter No. GIL-07-27,12/04/2007

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databases using its computer software and create quasi-customized reports based on search and filter functionally options. Customers also have access to real time data. The interactive nature of this system, as well as the real-time information provided, is more suggestive of a service than they are of the sale of a product. The issue here would be easier to resolve had the information services been made available by an investment company. Investment companies, through which clients can buy and sell financial investments, are clearly providers of services. Information services, such as those provided here, would likely be viewed as a service, primarily because such information services are generally incidental to the investments services. In this case, however, the information services are not offered in conjunction with other clearly service oriented transactions. A number of states have directly addressed transactions for acquiring information by enacting sales tax legislation on "information services."10 We think this is a particularly apt description of these online systems because of the interactive and real time characteristics of the product. Therefore, we conclude that the true object of the stock screens, comparative performance ratings, and emerging stock services are the provisioning of a service, and, thus, not subject to state sales or use tax. Miscellaneous This ruling applies only to sales and use taxes administered by the Department. Please note that the Department administers state and state-collected city and county sales taxes and special district sales and use taxes, but does not administer sales and use taxes for self-collected home rule cities and counties. You may wish to consult with local governments which administer their own sales or use taxes about the applicability of those taxes. Visit our web site at www.colorado.gov/revenue/tax for more information about state and local sales taxes. This ruling is premised on the assumption that Company has completely and accurately disclosed all material facts. The Department reserves the right, among others, to independently evaluate Company's representations. This ruling is null and void if any such representation is incorrect and has a material bearing on the conclusions reached in this ruling. This ruling is subject to modification or revocation in accordance to Department Regulation 24-35-103.5. Enclosed is a redacted version of this ruling. Pursuant to statute and regulation, this redacted version of the ruling will be made public within 60 days of the date of this 10

Ohio Rev. Code § 5739.01(B}(3)(e), (Ohio defines a taxable sale to include automatic data processing, computer services, or electronic information services.); NY Tax Law §§ 1105(c}(1), 1105(c)(9), (New York distinguishes between taxable information services and the provision of information that is "personal or individual" in nature.)

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letter. Please let me know in writing within that 60 day period whether you have any suggestions or concerns about this redacted version of the ruling. Sincerely,

Office of Tax Policy
Colorado Department of Revenue

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