Ruling 94-2, Sales and Use Taxes / Computer and Data Processing Services

This Ruling is cited in Rulings 95-1, 96-1 

FACTS:

The Company, which has an office in Connecticut, manually collects from town records information on real property transfers. It then enters the information onto its own database. The Company's subscribers may gain 24-hour access to the database using a variety of different search terms (e.g., by town or region, grantor or grantee, date, price range, etc.) and can print out reports in a variety of formats. A search takes only seconds to complete. Information on the database is updated daily. The Company charges a one-time connect fee plus "line charges" based on the time spent by a subscriber on-line.

ISSUE:

Whether the true object of the contract between the Company and its subscribers, under which the Company is obligated to maintain land record information on an electronic database to which the subscribers are granted immediate access, is for the Company to render computer and data processing services that are taxable under Conn. Gen. Stat. §12-407(2)(i)(A).

DISCUSSION:

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).

In determining whether the Company's services are taxable as computer services, an analysis must be made as to whether the true object of the contract is for the Company to render computer and data processing services to its subscribers. Hartford Parkview Associates Limited Partnership v. Groppo, 211 Conn. 246, 558 A.2d 993 (1989); see also Ruling Nos. 93-6, 93-8 and 93-11. In determining whether the "true object" standard articulated in Hartford Parkview has been met with respect to a computer service, it is not enough that computer equipment is employed by the Company in transmitting, and by the subscribers in receiving, the information. 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 services being offered by the Company under the contract provide a means by which its subscribers can gain immediate access to data from the land records of various towns in Connecticut. The Company itself is not the originator of the data, but merely collects it from the towns and reformats it into an easily accessible database to which its subscribers have around-the-clock access. In Ruling No. 93-8, the service provider made its database available around the clock to subscribers through satellite transmissions. Such information, which was constantly being updated by the service provider, was compiled into the database from a wide array of sources. Ruling No. 93-8 concluded that the true object of the subscribers in entering the contract was to receive computer and data processing services, because the subscribers were purchasing immediate access to a database created and maintained by the service provider.

In the instant case, similar to the facts in Ruling No. 93-8, the Company provides its customers with immediate access to a database that is created and kept up-to-date by the Company. If it were not for the Company's database, its subscribers would have to rely on their own staff performing hand searches of the land records in the offices of the various towns. The true object of the subscribers in contracting with the Company is to gain the convenience and accuracy possible only through immediate access to a database maintained by the Company, which, rather than being "merely incidental" to the service, is the very reason the subscribers choose to avail themselves of the Company's services. Such services constitute taxable computer and data processing services when provided to Connecticut subscribers. (See Ruling Nos. 93-8, 93-11.)

RULING:

The Company, by maintaining a database to which its subscribers have immediate access, is rendering computer and data processing services that are subject to tax under Conn. Gen. Stat. §12-407(2)(i)(A). The Company must collect tax on its one-time connect charge and the "line fees" charged to the subscribers.

LEGAL DIVISION

Issued: January 6, 1994