City and
TAX GUIDE
Topic No. 42
INFORMATIONAL SERVICES
The DRMC imposes sales/use tax on the sale or purchase of informational services wherein the relay or transmission of electromagnetic waves is necessary for the informational service to be received. In addition, the end-product of informational services received in any tangible form, such as on disk, flash media, Compact Disc (CD), Digital Versatile Disc or Digital Video Disk (DVD), paper, or tape, is tangible personal property and, as such, is also subject to sales/use tax.
“Information services” include the furnishing of information of any kind, which as been collected, compiled, or analyzed by the seller and which is made available through electromagnetic waves. Examples include: credit reports; on-line newspapers, magazines, and other subscriptions; legal libraries, including Lexis and Westlaw; and historical stock, bond, and mutual fund quotes. The tax is imposed on the purchase price or charge for access, use, or receipt of such information or the rights to access, use, or receive such information. The result is that such information is taxable whether it is accessed, used, or received electronically or in hard copy, such as in books, publications, or reports.
“Information services” do not include producing custom research for a specific client that creates information that was previously not in existence.
1. Metrodemographics is a firm that maintains a database of information about the population of the metro area. They also perform special studies, marketing research, etc. A candidate for political office, a client of Metrodemographics, requests the following information:
A. A list on paper and mailing labels of the registered voters in the county who had contributed to a political campaign in the past.
B. Computer access via modem to the database so that he could search it and extract names by various criteria.
C. A political poll specific to the political office the candidate in running, updated weekly, with results reported to him on paper and also maintained on Metrodemographics' computer so that he can access and analyze the poll results.
Item A: The list and labels are taxable as tangible personal property.
Item B: Access via modem is taxable as an informational service
Item C: The political poll and its resulting database are not taxable because it involved producing custom research for a particular candidate. This was a service performed by Metrodemographics. The initial copy of the report and the initial copy of each of the updates given to the candidate are also not subject to sales/use tax. However, subsequent sales of the report and each of the updates would be subject to sales/use tax, and recurring or subsequent charges to access the database would also be subject to sales/use tax.
2. Attorneys
Inc., a
3. ACME
Service Corp is doing a nationwide recruitment to select their new CEO. As part of the selection process ACME hires
Employment Research Company (ERC) to perform background checks on the
candidates. ERC compiles credit reports,
criminal histories, employment histories, and educational information on each
of the candidates. Even though ERC is
doing custom research on the candidates, the charges from ERC to ACME would be
taxable in whatever form delivered. ERC
is not creating information that was previously not in existence, rather, they
are compiling and collecting information.
Down
to their final three candidates, ACME re-hires ERC to perform more detailed
research. This time, ERC interviews
neighbors, co-workers, and old classmates to produce an in-depth background
report. The initial charge for this
custom research, which was previously not in existence, would not be taxable.
* DRMC Section 53-25(1),(6) & (7). Imposition of tax.
* DRMC Section 53-96(1),(5) & (6). Imposition of tax.
The
complete
THE
ABOVE INFORMATION IS A SUMMARY IN LAYMAN'S TERMS OF THE RELEVANT
6/2009