Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2014
 

Sales and Use Tax Annotations


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A

120.0000 AUTOMATIC DATA PROCESSING SERVICES AND EQUIPMENT—Regulation 1502

Annotation 120.2780

(b) PROCESSING CUSTOMER-FURNISHED INFORMATION

120.2780 Processing Customer-Furnished Information. A taxpayer is in the business of automating legal documents for customers, making them easily searchable by computer, using a key word or phrase. The documents are first scanned into a computer and temporarily stored on a disk. The scanned images on the disk are then placed into a laser data format, and the printed words changed into an ASCII text file. A high speed computer software then indexes each word into a database and cross references it back to the original document.

If all the taxpayer did was convert the customers data from paper documents to computer storage, the charge for the conversions would be subject to tax. However, creating an index is considered a sorting and sequencing function, which are examples of nontaxable processing of customer-furnished information. Regulation 1502 (d)(5)(E) does not require an allocation between operations, which if performed by themselves would be taxable from those that are nontaxable; rather, as long as customer furnished information is processed, the entire transaction relating to the copying and processing of the original information is nontaxable. However, additional copies of records, reports, tabulations, and storage media are taxable. 1/29/93.