SN 92(6)

Sales and Use Taxes on Tax Preparation Services

BACKGROUND: On November 5, 1991, the Department issued SN 91 (17) to describe the imposition of sales and use taxes on tax preparation services. A paragraph of SN 91 (17) that is captioned "EXCLUDED SERVICES" described services that are not considered to be tax preparation services. Another paragraph of SN 91 (17) that is captioned "RESALE OF SERVICES" described the rules for selling or purchasing services on a resale basis.

PURPOSE: This Special Notice modifies and supersedes the paragraphs of SN 91 (17) that are captioned "EXCLUDED SERVICES" and "RESALE OF SERVICES", by amplifying the type of services that are considered to be excluded services and by providing an explicit example of circumstances under which services can be sold or purchased on a resale basis.

EFFECTIVE DATE: Effective upon issuance and applicable to the provision of tax preparation services on or after October 1, 1991.

STATUTORY AUTHORITY: Conn. Gen. Stat. §12-407 (2) (i) (GG), as added by 1991 Conn. Pub. Acts 3, §103 (June Spec. Sess.).

EXCLUDED SERVICES: Tax preparation services do not include:

• tax, advice, tax research or tax planning, by whatever name called, that is given with respect to a particular tax return on or before the close of the taxable period to which the return pertains. (Tax advice, tax research or tax planning, by whatever name called, that is given with respect to a federal or Connecticut estate tax return, including a succession or inheritance tax return, is not taxable if given before the death of the decedent.)
• bookkeeping services, even if the service provider also provides tax preparation services to the client. As used herein, bookkeeping services mean but are not limited to preparing the books of original entry, posting to the general ledger, and taking off a trial balance from the general ledger, whether or not done manually. (As used herein, the trial balance involves a listing of the net debits and net credits in the general ledger accounts prior to the year-end closing adjustments.)
• accounting services, even if the service provider also provides tax preparation services to the client. As used herein, accounting services mean but are not limited to services involved in the issuance of a written, signed financial statement (or a signed transmittal letter accompanying the statement) including at least a balance sheet and income statement, a copy of which must be retained by the service provider for the purposes of this Special Notice.
• advice in connection with, and preparation of, documents (other than succession tax returns) that are required to be filed with the probate court.
• services rendered in connection with tax audit examinations by, or correspondence pertaining to a tax return that has been filed with, the Internal Revenue Service or the Department of Revenue Services; or tax litigation.

SERVICES INVOLVED IN PREPARING WORKING TRIAL BALANCE: Where the same service provider provides accounting services and tax preparation services to the client, 50% of the charges for services involved in the preparation of the working trial balance will be presumed to be charges for tax preparation services (in addition to the charges for other tax preparation services) and the other 50% will be presumed to be charges for accounting services. As used herein, a working trial balance means a worksheet which starts with the trial balance and to which is posted adjusting entries necessary for the preparation of a tax return (including but not limited to Schedule L, M-1 and M-2 items). The service provider will have the burden of establishing that less than 50% of such charges are attributable to tax preparation services.

RESALE OF SERVICES: Existing rules under Conn. Gen. Stat. §§12-410 (5) and 12-411 (14) for selling or purchasing services on a resale basis will apply to the sale or purchase of tax preparation services. The sale of any service to a tax preparation service provider will be considered a sale or resale only if (1) the service to be resold becomes an integral, inseparable component part of a tax preparation service that is sold by the tax preparation service provider to a particular client and (2) such tax preparation service provider separately states on the bill or invoice to the client the precise service being resold to the client and the exact cost thereof to such service provider.

For example, the computer and data processing services involved in generating computerized tax returns may be purchased on a resale basis by a tax preparation service provider, but only if (1) the computer and data processing service provider separately states the exact charge for its services for a particular client of the tax preparation service provider and (2) the tax preparation service provider separately states on the bill or invoice to the client the precise service that was purchased from the computer and data processing service provider for resale to the client and the exact charge made for those services by the computer and data processing service provider to the tax preparation service provider.

Tax preparation services may also be purchased on a resale basis; however, the sale of tax preparation services to the fiduciary of a trust or estate, to an S corporation or to a partnership will not be considered a sale for resale to the beneficiaries, shareholders or partners, respectively. (A fiduciary that is rebilling as part of the fiduciary's compensation a charge made by an outside tax preparation service provider to the fiduciary for tax preparation services will not be considered to be reselling those services to the trust or estate; however, a fiduciary that, through its employees, provides tax preparation services is a tax preparation service provider, and the portion of its charges that is attributable thereto is subject to sales and use taxes.)

EFFECT ON OTHER DOCUMENTS: The paragraphs of Special Notice 91 (17) that are captioned "EXCLUDED SERVICES" and "RESALE OF SERVICES" are modified and superseded with respect to the type of services that are considered to be excluded services and with respect to the circumstances under which services can be sold or purchased on a resale basis, and may not be relied upon after the date of issuance of this Special Notice. 

SN 92(6)
Sales and Use Taxes
Issued 4/10/92