California Code of Regulations › Title 18 - Public Revenues › Division 2 - California Department of Tax and Fee Administration- Business Taxes (State Board of Equalization- Business Taxes, See Ch. 6 and 9.9) › Chapter 4 - Sales and Use Tax › Article 1 - Service Enterprises › Section 1501 - Service Enterprises Generally

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
Persons engaged in the business of rendering service are
					 consumers, not retailers, of the tangible personal property which they use
					 incidentally in rendering the service. Tax, accordingly, applies to the sale of
					 the property to them. If in addition to rendering service they regularly sell
					 tangible personal property to consumers, they are retailers with respect to
					 such sales and they must obtain permits, file returns and remit tax measured by
					 such sales. If their purchases of tangible personal property are predominantly
					 for consumption rather than for resale, they should not give resale
					 certificates covering such purchases but should follow the procedure prescribed
					 in the regulation governing "Tax-Paid Purchases Resold."
The basic distinction in determining whether a particular
					 transaction involves a sale of tangible personal property or the transfer of
					 tangible personal property incidental to the performance of a service is one of
					 the true objects of the contract; that is, is the real object sought by the
					 buyer the service per se or the property produced by the service. If the true
					 object of the contract is the service per se, the transaction is not subject to
					 tax even though some tangible personal property is transferred. For example, a
					 firm which performs business advisory, record keeping, payroll and tax services
					 for small businesses and furnishes forms, binders, and other property to its
					 clients as an incident to the rendition of its services is the consumer and not
					 the retailer of such tangible personal property. The true object of the
					 contract between the firm and its client is the performance of a service and
					 not the furnishing of tangible personal property. Similarly, an idea may be
					 expressed in the form of tangible personal property and that property may be
					 transferred for a consideration from one person to another; however, the person
					 transferring the property may still be regarded as the consumer of the
					 property. Thus, the transfer to a publisher of an original manuscript by the
					 author thereof for the purpose of publication is not subject to taxation. The
					 author is the consumer of the paper on which he has recorded the text of his
					 creation. However, the tax would apply to the sale of mere copies of an
					 author's works or the sale of manuscripts written by other authors where the
					 manuscript itself is of particular value as an item of tangible personal
					 property and the purchaser's primary interest is in the physical property. Tax
					 would also apply to the sale of artistic expressions in the form of paintings
					 and sculptures even though the work of art may express an original idea since
					 the purchaser desires the tangible object itself; that is, since the true
					 object of the contract is the work of art in its physical form.
When a transaction is regarded as a sale of tangible
					 personal property, tax applies to the gross receipts from the furnishing
					 thereof, without any deduction on account of the work, labor, skill, thought,
					 time spent, or other expense of producing the property.
Examples of service enterprises and regulations pertaining
					 thereto will be found in regulations which follow.
1. Amendment
					 and renumbering of former Section
					 1901 filed 11-5-69; effective
					 thirtieth day thereafter (Register 69, No. 45).
Note: Authority cited: Section
						7051,
						Revenue and Taxation Code. Reference: Sections
						6006
						and
						6015,
						Revenue and Taxation Code. Advertising Agencies, Commercial Artists and
						Designers, see regulation 1540 (unrevised series 1902). Installers, Repairers
						and Reconditioners, see regulation 1546, et seq. Occasional Sale exemption,
						application to Service Enterprises, see regulation 1595. Tax-Paid Purchases
						Resold, see regulation 1701. X-ray Laboratories, see regulation 1528 (unrevised
						series 1933).