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Ruling 93-15, Sales and Use Taxes / Computer and Data Processing Services

This Ruling is cited in Ruling 95-2


A division ("the Division") of a large out-of-state corporation ("the Corporation") provides data storage services to Connecticut customers at facilities outside Connecticut. Such storage can be either on-line, so that the customers may access the stored data through their office computers, or archival, in which the data has been transferred onto magnetic tapes or disc packs which are then removed from the computer system. Upon a customer's request, data may be retrieved from archival storage on an overnight basis. The customers decide how much data is to be stored and whether it is to be in on-line or archival form.

On-line storage is billed to each customer according to the amount of data being stored each day. Customers may request archival storage of specified data files from their office computers. The Division duplicates the specified files onto magnetic tapes or disc packs and stores such tapes outside the on-line system. Data stored in archival form may be retrieved overnight upon a customer's request. A flat charge per file is made each time files are transferred to or retrieved from archival storage, and a separate charge is made for storing archived data based on the amount of such data stored each day.

In 1976, a ruling was issued to the Division which stated that its data storage services were not taxable. The Division continues to rely on the 1976 ruling.


Whether the service of providing either on-line or archival storage of data is a computer and data processing service under Conn. Gen. Stat. § 12-407(2)(i)(A).

Whether the Division must collect and remit Connecticut sales and use taxes from Connecticut customers on the data storage services provided by the Division to such customers.


Conn. Gen. Stat. § 12-407(2)(i)(A) includes in the definition of "sale" and "selling" the rendering of computer and data processing services. Conn. Agencies Regs. § 12-426-27(b)(1) defines such services as including, among others, "providing computer time, storing and filing of information, [and] retrieving or providing access to information." The Connecticut Supreme Court has stated that "legislative ratification of a ... regulation supports the position that the regulation is consistent with the general statutory scheme that the regulation was designed to implement." Texaco Refining & Marketing Co. v. Commissioner of Revenue Services, 202 Conn. 583, 600, 522 A.2d 771 (1987).

Charges made for "downloading" data from on-line storage to archival storage, as well as charges for the on-line storage of data permitting the direct and immediate access to stored data from the customers' own computers, are taxable as gross receipts from "the storing and filing of information" within the meaning of "computer and data processing services" in Conn. Agencies Regs. § 12-426-27(b)(1). In addition, charges made for "uploading" data from archival storage to on-line storage are taxable as gross receipts from computer and data processing services as "retrieving or providing access to information."

On the other hand, the off-line storage of data in archival form, where the magnetic tapes or disc packs onto which data has been transferred have been detached from the computer system, does not constitute ongoing computer and data processing services. Instead, what is being stored is the tangible medium, the tapes or discs, onto which data has been recorded. The storage of tangible personal property is not included in the definition of "sale" and "selling" in Conn. Gen. Stat. § 12-407(2) and therefore is not taxable.

An out-of-state service provider engaged in business in this state is required to register to collect and remit use tax to Connecticut on behalf of its customers who use services in Connecticut. Conn. Gen. Stat. § § 12-411(3) and (8). "Engaged in business" is defined in Conn. Gen. Stat. § 12-407(15)(c) to include "rendering in this state any service described in any of the subdivisions of [§ 12-407(2)] ...." In Connecticut, computer and data processing services are deemed taxable at the location where they are delivered or intended for use. See Conn. Agencies Regs. § 12-426-27(d). "Such reports are taxable, whether given in written, oral or any other form, if delivered to or intended for use in the State of Connecticut." Therefore, with respect to any of the Division's customers who are located in Connecticut, the Division is "engaged in business" here, as that term is used in the Sales and Use Taxes Act. However, another prerequisite of nexus is the physical presence of a retailer in the taxing state, such as through the ownership of tangible personal property or the presence of representatives, solicitors, retail outlets or offices. See National Bellas Hess, Inc. v. Department of Revenue of Illinois, 386 U.S. 753, 18 L. Ed. 2d 505 (1967). This physical presence "nexus" requirement has been acknowledged and adhered to by the Supreme Court of this state in Cally Curtis Company v. Groppo, 214 Conn. 292, 572 A.2d 302 (1990) and SFA Folio Collections, Inc. v. Bannon, 217 Conn. 220, 585 A.2d 666 (1991), and recently affirmed by the United States Supreme Court in Quill Corporation v. North Dakota, 504 U.S. , 119 L.Ed.2d 91 (1992).

The Division itself does not appear to maintain such a physical presence in this state in connection with its data storage services. However, for purposes of determining who is a "retailer" for sales and use tax purposes, the Department looks beyond the divisional organization of a corporation to the corporation itself. Because the Corporation to which the Division belongs does maintain a physical presence in this state, there is sufficient nexus with Connecticut under National Bellas Hess for the Corporation to be responsible for collecting and remitting sales and use taxes from its Division's Connecticut customers. See also National Geographic Society v. California Board of Equalization, 430 U.S. 551, 560, 51 L. Ed. 2d 631, 639-40 (1977).


The on-line data storage services provided by the Division are taxable as computer and data processing services under Conn. Gen. Stat. § 12-407(2)(i)(A), as are the services of "downloading" data from on-line storage to archival storage and "uploading" data from archival storage to on-line storage. Charges for maintaining data in archival storage are not included in the definition of "sale" and "selling" in Conn. Gen. Stat. § 12-407(2) and are not subject to sales and use taxes.

Because of the services rendered to Connecticut customers, and the physical presence of the Corporation in Connecticut, the Division has contacts with Connecticut that are sufficient under National Bellas Hess, supra, to require the Corporation to collect sales and use taxes from the Division's Connecticut customers.

The ruling issued to the Division on January 15, 1976 is revoked and may not be relied upon for sales occurring on and after the date of issuance of this ruling.


Issued: July 28, 1993