Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2014
Sales and Use Tax Annotations
515.0000 SERVICE ENTERPRISES GENERALLY—Regulation 1501
(a) IN GENERAL—SERVICE DISTINGUISHED FROM SALE
515.0004.350 Copies of Reports Furnished to Members. Utility companies nationwide pay a lump-sum yearly fee to become members of an association. As members, the utility companies are given access to conferences, telephone support, and computer code access to the association's data base, published reports, and report updates. The association contracts with various research contractors to perform scientific research pertinent to the electric power industry. At the conclusion of a research project, a written report is submitted by the contractor to the association. The association then contracts with a graphic designer and printer to produce a number of copies of the report in book form. Some of the books are delivered to the association directly and others are delivered to a distributor who is responsible for the distribution of the reports on order of the association. The distributor, under direction of the association, sends copies of the report to members. There is generally no limit on the number of reports sent to members.
At times, the distributor is requested to send additional copies to the association for internal use or distribution in a seminar. If nonmembers attend a seminar, there is a lump-sum charge.
Under these facts, the association is the consumer of copies of the reports which it furnishes at no additional charge to the members and to persons attending seminars. This is based on the fact that members receive significant services from the association which do not constitute taxable sales and a member may order any number of reports during the membership period. When the association conducts seminars and distributes copies of reports to participants for a lump-sum charge as part of the seminar, tax does not apply because the conduct of the seminar is a service transaction and the distribution of the reports is incidental to that transaction.
If the printer and the distributor are both located in California, the sales tax applies to the printer's sale of the reports to the association which the distributor will store on behalf of the association.
If the printer is located out of state and the distributor is located in state, the use tax applies on reports shipped by the printer to the distributor. If the distributor subsequently ships reports to members located outside California, the exemption from use tax provided by section 6009.1 would apply to those reports. The association would have made no use of the reports in California other than to store them for use solely outside the state. This exemption also applies to reports which the distributor ships out of state for the association's use at seminars out of state.
If both the printer and distributor are located out of state, neither sales nor use tax will apply to reports which are never delivered either to the association or its members in California. If the distributor sends a report to a member located in California, the association would be liable for the use tax on that report. 6/14/89.