Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2014
 

Sales and Use Tax Annotations


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S

515.0000 SERVICE ENTERPRISES GENERALLY—Regulation 1501

Annotation 515.0005.075

(a) IN GENERAL—SERVICE DISTINGUISHED FROM SALE

515.0005.075 Customer Survey Program. A taxpayer contracts with a client who manufactures and sells products to gather data regarding customers' satisfaction of the products the client sells. The client provides the taxpayer with a computer disk of the names and addresses of its customers. The taxpayer creates a customer letter and address label, prints a customer survey card and envelope, and imprints a pen with the client's logo to be enclosed in the survey mailing (in order to motivate responses). The printing and assembly is all done in California. The taxpayer mails the survey cards, pen, and personalized letter to the client's customers all over the country via the U.S. Mail. Upon receiving the responses to the survey, the taxpayer analyzes the data and provides a written report to the client summarizing this information.

Two invoices are sent to the client for this transaction. The first invoice is generated upon the mailing of the survey form, etc., and it includes charges for material and printing cost (plus a small mark up) and for out-going postage. The second invoice is generated when the taxpayer submits its written report to the client and includes the charges for the balance of the contract amount.

Sales tax does not apply to the gross receipts from the sale of pens and printed materials which, pursuant to the contract of sale, the taxpayer ships to persons outside this state by U.S. Mail provided neither the client nor its agent obtains possession of the property inside this state. Tax does apply, however, to the gross receipts the taxpayer receives from its sales to the client of printed material and pens that are shipped to the client's customers inside this state. Tax does not apply to the taxpayer's charges for postage for shipping the pens and printed material provided its charges for transportation are separately set forth in its contract of sale to the client and the amount deducted represents only the amount for shipment (and not "handling") of the property.

The transfer of the original unique report which is specifically collected, created, compiled, and customized for this specific client on a custom basis is incidental to the providing of a nontaxable service. The taxpayer is the consumer of any such property transferred. The taxpayer is the retailer, however, of any additional copies of the report transferred to the client. 4/10/96.