Ruling 92-7
Sales and Use Taxes Business Management Consulting Services
FACTS:
An investment advisory company (hereinafter "Company") enters into written agreements whereby it provides a variety of investment related services to clients. The Company assists clients in evaluating their investment policies, objectives, guidelines and restrictions, their asset mixes and allocations, the selection, monitoring and retention of investment managers, and other investment-related matters. In most cases, these services are provided to business clients with respect to the management of their pension plans or of investments they hold for their own accounts.
The Company also provides investment consulting services to other investment advisors, to assist them in providing investment advice to their own clients.
ISSUES:
(a) Whether the Company's investment consulting services provided to clients with respect to their pension plans or investments held for their own accounts are subject to sales and use taxes.
(b) Whether the Company's investment consulting services provided to other investment advisors, to assist them in providing investment advice to their own clients, are subject to sales and use taxes.
DISCUSSION:
The Sales and Use Taxes Act, Conn. Gen. Stat. §12-406 et seq., imposes sales and use taxes, inter alia, on certain enumerated services. Conn. Gen. Stat. §12-407 provides, in pertinent part that
"Sale" and "selling" mean and include: . . . (i) the rendering of certain services for a consideration, exclusive of such services rendered by an employee for his employer, as follows: . . . (J) business analysis, management, consulting and public relations services . . .
Conn. Agencies Regs. §12-407(2)(i)(J)-1, applicable for sales made on or after July 1, 1991, defines "business management consulting services," at subsection (f), to include:
. . . the furnishing of advice and assistance on matters pertaining to the management of core business activities, as defined in subsection (h) of this regulation . . .
In subsection (h) of the regulation, "core business activities" are defined as
. . . activities directly related to a service recipient's lines of business involving sales of products, property, goods or services to others . . . Activities not generally regarded as directly related to a service recipient's core business activities include . . . (3) the management of, or consultation regarding, the service recipient's investments (including those investments over which the service recipient has investment authority), regardless of the nature of the business of the service recipient . . . [Emphasis added.]
The activities of the Company in providing investment-related advice and consulting, including advice regarding selection, investment policies and management of assets, appear to fall generally within the category of "the furnishing of advice and assistance pertaining to the management" of the investment activities of the service recipients, as provided in the definition of "business management consulting" in Conn. Agencies Regs. §12-407(2)(i)(J)-1(f). It remains to be determined whether the "object" of the Company's business management consulting activities is within the ambit of "core business activities" as defined in subsection (h).
In the case of the Company's clients whose assets held for their own accounts are the object of the business management consulting service, the answer is readily apparent--subdivision (3) of subsection (h) of the regulation specifically excludes the management of, or consultation regarding, the service recipient's investments from the "core business activities" category. Clients' pension funds, to the extent that clients retain investment authority over them, would be excluded under subdivision (3) as well.
However, when the Company renders its business management consulting services to other investment advisors, it is doing so with respect to the very line of business of such service recipients, which is to render investment services to others, and this business consulting activity by the Company therefore does relate to the management of the core business of such recipients, to the extent that such recipient do not own or retain investment authority over the investments on which they advise.
RULING:
(a) Consulting services of an investment advisory company involving an investment which the service recipient owns or over which it has investment authority are not subject to sales and use taxes under Conn. Gen. Stat. §12-407(2)(i)(J).
(b) Consulting services of an investment advisory company to another investment advisory company are subject to sales and use taxes under Conn. Gen. Stat. §12-407(2)(i)(J), assuming the service recipient does not own or retain investment authority over the investments involved.
LEGAL DIVISION
April 20, 1992