Ruling 93-13, Sales and Use Taxes / Business Analysis, Management, Management Consulting and Public Relations Services

This Ruling is cited in Ruling 95-7

FACTS:

A corporation that maintains its principal place of business in Connecticut (hereinafter "the Company") is the parent of two wholly-owned subsidiaries. One of the Company's subsidiaries (hereinafter "the California Subsidiary") owns and operates an oil refinery in California; the other (hereinafter "the Canadian Subsidiary") owns and operates two refineries in Canada through its own Canadian subsidiary.

The Company's business activities are limited to providing to its subsidiaries services which the Company considers to be "business analysis, management, management consulting and public relations services" as described in Conn. Gen. Stat. § 12-407(2)(i)(J) and Conn. Agencies Regs. § 12-407(2)(i)(J)-1 (hereinafter referred to as "business management services"). Each subsidiary reimburses the Company for services rendered to it.

The Company recently acquired the California Subsidiary and the Canadian Subsidiary from another corporation (hereinafter "the Seller"). As part of the acquisition agreement, the Company and the Seller agreed that for a specified transitional period the Company would provide to the Seller certain services relating to the separation of the California and Canadian subsidiaries from the Seller's group. The Company considers these services also to be business management services as described in Conn. Gen. Stat. § 12-407(2)(i)(J) and Conn. Agencies Regs. § 12-407(2)(i)(J)-1. The agreement also provided that the Seller would pay the Company for such services.

The subsidiaries and the Seller intend to use any reports that the Company generates in the course of rendering said services at their respective principal places of business located outside Connecticut.

Neither subsidiary, nor the Seller, has property or employees in Connecticut. However, the Company's president and chief operating officer, a California resident, will attend periodic meetings at the Company's Connecticut headquarters. As the Company's president and chief operating officer he coordinates all refining and marketing activities for California and part of Canada. Such person is also the president of the California Subsidiary. In that capacity he provides operational guidance to such subsidiary.

ISSUE:

Whether the charges made by a Company, which maintains its principal place of business in Connecticut, to its subsidiaries and to the Seller, for business management services rendered by the Company to them, are subject to sales and use taxes where the service recipients do no business in Connecticut and the benefit and use of such services inures solely outside Connecticut.

DISCUSSION:

The Sales and Use Taxes Act, Conn. Gen. Stat. § 12-406 et seq., imposes sales and use taxes, inter alia, on sales of certain enumerated services. Included among such enumerated services are "business analysis, management, management consulting and public relations services." Conn. Gen. Stat. § 12-407(2)(i)(J).

The Sales and Uses Taxes Act generally imposes sales and use taxes on enumerated services only when some benefit or use of the service is realized in, or inures to, Connecticut. For example, collection services performed before July 1, 1987 by a collection agency were taxable if the collection was made on behalf of a creditor located in Connecticut. Conn. Agencies Regs. § 12-426-27(e). Protection, patrol, or watchman services rendered in connection with property located in Connecticut are taxable; armored car services are taxable when the service is provided to a Connecticut client. Conn. Agencies Regs. § 12-426-27(f). Employment services are taxable if the agency rendering such services procures a job or position in a Connecticut business for a person seeking employment, but if a job or position is procured without the state such services are not taxable. Conn. Agencies Regs. § 12-426-27(g). Personnel services are taxable if the agency rendering such services furnishes temporary or part-time help to a Connecticut business seeking such help, but if temporary or part-time help is furnished to a business without the state such services are not taxable. Conn. Agencies Regs. § 12-426-27(h). Interior decorating and design services performed before October 1, 1991 were taxable when rendered in connection with property located in Connecticut. Conn. Agencies Regs. § 12-426-27(i). In addition, Conn. Agencies Regs. § 12-426-27(d) states that computer and data processing services, credit information and reporting services, and private investigation, protection, patrol, watchman and armored car services are usually rendered in the form of a report by the service agency to its customer. Such services are taxable if their resultant reports, whether in written, oral or any other form, are delivered to or intended for use in Connecticut. Conn. Agencies Regs. § 12-426-27(d).

At least three rulings have expressed the principle that sales and use taxes are imposed on enumerated services only when some benefit or use of the service is realized in, or inures to, Connecticut. Ruling No. 93-1 stated that "computer and data processing services are deemed taxable at the location where they are delivered or intended for use." Ruling No. 93-1 (emphasis added). Also in the context of computer and data processing services, Ruling No. 93-11 stated that "[s]uch services constitute taxable computer and data processing services when provided to Connecticut customers." Ruling No. 93-11 (emphasis added). Ruling No. 89-180, on the imposition of sales and use tax on new products design services, stated the same principle another way: "[t]he charge for the design services rendered by the small design company to the large design company located outside Connecticut is not subject to sales and use tax provided the sole benefit and use of the service inure outside Connecticut." Ruling No. 89-180 (emphasis added). (That portion of Ruling No. 89-180 concluding that the service of designing packaging and delivery systems was a business analysis and management service was consistent with the since-repealed Conn. Agencies Regs. § 12-426-27(b)(10) but has been obsoleted by the since-adopted Conn. Agencies Regs. § 12-407(2)(i)(J)-1). See Ruling No. 93-4.)

Like computer and data-processing services, business management services generally are rendered in the form of a report by the service provider to its customer, and such services are delivered or used, and any benefit of such services inures, only where the service recipient does business or has some presence, most often at the recipient's principal place of business. The services at issue here are rendered to companies that do no business in Connecticut. In fact, the subsidiaries and the Seller intend to use any reports that the Company may generate in the course of rendering business management services at their respective headquarters located outside Connecticut.

The periodic visits by the Company's president and chief operating officer, a California resident and president of one of the subsidiaries, to the Company's Connecticut headquarters for meetings there do not provide an adequate basis to conclude that a benefit or use of services rendered to such subsidiary is realized in, or inures to, Connecticut. That person visits Connecticut not in his capacity as president of the California Subsidiary, but as a member of the Company's board of directors.

RULING:

Because the Company's subsidiaries and the Seller maintain their principal places of business outside Connecticut, and because they do no business in Connecticut, the business management services rendered by the Company to its subsidiaries and to the Seller are not delivered or intended for use in Connecticut. Therefore the benefit of said services inures solely outside Connecticut and the charges made by the Company for business management services rendered by the Company to its subsidiaries and to the Seller are not subject to sales and use taxes.

LEGAL DIVISION

July 9, 1993