Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2017
Sales and Use Tax Annotations
515.0000 SERVICE ENTERPRISES GENERALLY—Regulation 1501
(e) MISCELLANEOUS ACTIVITIES
515.1295 Oil Well Drilling Reports. A taxpayer is in the business of gathering data on oil well drilling from clients, public records, and other sources. It has contracts with various clients to provide various reports which are different in the service and data provided. Each type of report is under a separate contract. Generally, clients subscribing to a specific report pay an underwriting fee (initial fee) plus monthly or annual fees to support the data base from which the reports or data are furnished to clients. The taxpayer will not establish a contract unless a specific number of participants (clients) are involved. All clients to a contract receive the same report or information.
A participant is not paying the taxpayer to process the participant's data. Rather, a participant is paying the taxpayer for standardized, common reports which are issued to all participants of a contract at stated intervals. It is reasonable to assume that the price paid under a single contract for a particular set of reports does not cover all of the taxpayer's costs. It is only by marketing and selling the reports to several persons that these costs can be recovered. Thus, the taxpayer is selling data in the form of tangible personal property and, therefore, its initiation fees and monthly/annual charges are taxable.
This contract is distinguished from a service contract in which all of the following factors are present:
(1) There is only one contract for a particular report, document, or other written material, though one or more persons who want the report, etc., may be parties to a single contract.
(2) The parties enter into the contract before the report, document, or other written material is produced. (3) Either the customer specifies which information is to be gathered and included in the report document, or other written material, or the information included in the report, etc., is based upon specific information from, or needs of, that customer
(4) The report etc., transferred is unique and is not marketed to other persons. "Unique" means that no one else who contracts separately with the provider of the report receives an identical or almost identical report, document, or other written material. Transfers of standardized or "canned" reports which are available to more than one person under separate contracts are sales of tangible personal property.
(5) The contract price covers the full cost of performing the service, i.e., the costs of gathering and compiling the data, plus a reasonable share of the overhead of the person providing the report, document, or other written material.
In cases of this type, the Board has considered the contract as a contract for services with an incidental transfer of tangible personal property. 2/2/93.