Ruling 95-1, Sales and Use Taxes / Computer and Data Processing Services
An out-of-state company (the "Company") offers an auto parts locating service to Connecticut customers, promising to deliver the right part at the lowest price within an hour. The Company maintains a computerized "phone book" of salvage yards around the United States, organized by their locations and specializations. Connecticut insurance adjusters place requests for "like kind and quality" auto parts over the telephone to Company representatives, providing identifying information and information about the parts needed which the Company representatives enter onto the Company's computer. The Company representatives then select the salvage yards to be contacted using the computerized "phonebook" and telephone the yards to locate the parts requested, entering information about the source, price and availability of the parts onto the computer. The insurance adjusters retrieve the responses over the telephone, either through a voice synthesizer unit, entering identifying information on the telephone keypad as prompted by the unit, or by speaking directly to a Company representative. The Company charges a per-request fee for this service.
Whether the Company's auto parts locating service is a computer and data processing service subject to sales and use taxes under Conn. Gen. Stat. §12-407(2)(i)(A).
Conn. Gen. Stat. §12-407(2)(i)(A) defines "sale" and "selling" as including 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 information, and retrieving or providing access to information." In analyzing whether the Company's services are taxable computer and data processing services, a determination must be made as to whether the true object of the contract is computer and data processing services. Hartford Parkview Hilton Associates Limited Partnership v. Groppo, 211 Conn. 246, 558 A.2d 993 (1989); see also Cummings & Lockwood v. Commissioner of Revenue Services, Super. Ct., No. CV 92-0510759 S (July 20, 1994); Ruling Nos. 93-6, 93-8, 93-11, 94-2 and 94-15. In determining whether the "true object" standard articulated in Hartford Parkview has been met with respect to computer and data processing services, it is not enough that computer equipment is employed by the Company in the course of rendering its auto parts locating service. Id. at 250. Instead, the use of the computer must be found to be essential to the provision of the service, and not "merely incidental" to it. Id. at 253.
The Company provides its customers with a medium by which they can locate "like kind and quality" auto parts rapidly and at the lowest price available. The Company acts as the gatherer of information about the availability of auto parts, using its telephones and computers as its tools. In Ruling No. 91-11, the service provider requested driving records from the Department of Motor Vehicles ("DMV") on behalf of the service provider's customers. The requests were transmitted to the DMV on magnetic tape on a daily basis, and the responses were received by the service provider on magnetic tape on the next day. The service provider would then either electronically transmit the records to its customers' computers or mail the records in hard copy to its customers. The Department's conclusion in Ruling No. 91-11 was that the use of a computer by the service provider, while helpful, was not essential to the provision of the service of providing driving records to its customers. See also Ruling No. 93-6.
The Company's service is analogous to the service described in Ruling No. 91-11, in that the presence of a computer is not the reason the insurance adjusters contact the Company. Instead, the Company's representatives have access to a larger number of salvage yards than the insurance adjuster is likely to have, and therefore the Company's representatives are able, in a short period of time, to contact more salvage yards over a broader geographic base in order to find the right part at the lowest price available. The true object of the insurance adjusters in contacting the Company is to make use of a staff dedicated to the function of locating the proper auto parts at the lowest price, wherever such parts may be located. The Company's use of a computer to store telephone numbers and other information about salvage yards, while helpful to the Company in contacting salvage yards quickly, is not essential to its service, since the Company could fairly readily accomplish the same result by using note cards and a book of salvage yard telephone numbers. The Company's use of a computerized voice synthesizing unit to provide search results when insurance adjusters call back is likewise helpful but not essential to the Company's provision of its service, since the insurance adjusters always have the option of obtaining the information by speaking directly to a Company representative.
In Ruling No. 93-11, a taxpayer offering two types of auto parts locater services was held to be rendering taxable computer and data processing services. Using one of the taxpayer's services, insurance companies could enter parts requests through their computers onto the taxpayer's computer system. The requests were viewed by salvage yards on their computers and responses about part availability and price were entered by salvage yard employees. As explained in Ruling No. 93-11, this service was a computer and data processing service because the taxpayer provided its customers with a medium by which they gained immediate access to a continually-updated database. The second type of service offered by the taxpayer in Ruling No. 93-11 was the same as the service offered by the Company in this ruling: insurance companies contacted the taxpayer over the telephone to make parts requests; the taxpayer's employees telephoned salvage yards to locate parts; and the insurance companies retrieved their responses by calling a computerized voice synthesizer. Under the reasoning applied in this ruling, the conclusion reached in Ruling No. 93-11 regarding this second type of service was incorrect, and, in accordance with Policy Statement 91(6.2), the portion of Ruling No. 93-11 holding that the second type of service is taxable will not be followed after the date of issuance of Ruling No. 95-1.
The Company's service of locating auto parts over the telephone is not a computer and data processing service described in Conn. Gen. Stat. §12-407(2)(i)(A). Ruling No. 93-11 is modified as described above.
January 17, 1995