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(4) Custom Computer Program and Programming. A computer program prepared to the special order of the customer. A program prepared to the special order of the customer qualifies as a custom program even though it may incorporate preexisting routines, utilities or similar program components. It includes those services represented by separately stated charges for modifications to an existing prewritten program which are prepared to the special order of the customer.
(5) Data Entry (including Encoding). Recording information in or on storage media by punching the holes or inserting magnetic bits to represent letters, digits, and special characters.
(6) Digital Pre-Press Instruction. The creation of original information in electronic form by combining more than one computer program into specific instructions or information necessary to prepare and link files for electronic transmission for output, within the printing industry, to film, plate, or direct to press, which is then transferred on electronic media such as tape or compact disc.
(7) Input. The information or data transferred, or to be transferred, from storage media into the internal storage of the computer.
(8) Output. The information transferred from the internal storage of the computer to storage media or tabulated listing.
(9) Prewritten Program. A program held or existing for general or repeated sale or lease. The term also includes a program developed for in-house use which is subsequently offered for sale or lease as a product.
(10) Program. The complete plan for the solution of a problem, i.e., the complete sequence of automatic data processing equipment instructions necessary to solve a problem; includes both systems an application programs and subdivisions such as assemblers, compilers, routines, generators, and utility programs.
(11) Proof Listing. A tabulated listing of input.
(12) Source Documents. A document supplied by a customer of a data processing firm from which basic data are extracted (e.g., sales invoice).
(13) Storage Media. Includes hard disks, floppy disks, diskettes, magnetic tape, cards, paper tape, drums and other devices upon which information is recorded.
(c) Basic Applications of Tax.
(1) The transfer of title, for a consideration, of tangible personal property, including property on which or into which information has been recorded or incorporated, is a sale subject to tax.
(2) Charges for producing, fabricating, processing, printing, imprinting or otherwise physically altering, modifying or treating consumer-furnished tangible personal property (cards, tapes, disks, etc.), including charges for recording or otherwise incorporating information on or into such tangible personal property, are generally subject to tax.
(3) A transfer for a consideration of the title or possession of tangible personal property which has been produced, fabricated, or printed to the special order of the customer, including property on which or into which information has been recorded or incorporated, is generally a sale subject to tax. However, if the contract is for the service of researching and developing original information for a customer, tax does not apply to the charges for the service. The tangible personal property used to transmit the original information is merely incidental to the service.
(4) Charges for the transfer of computer-generated output are subject to tax where the true object of the contract is the output and not the services rendered in producing the output. Examples include artwork, graphics, and designs. However, the transfer by the seller of the original information created by digital pre-press instruction is not subject to tax if the original information is a custom computer program as explained in subdivision (f)(2)(F).
(5) Charges for processing customer-furnished information (sales data, payroll data, etc.) are generally not subject to tax. (For explanation and specific application of tax, see subdivision (d).)
(6) Leases of tangible personal property may be subject to tax under certain conditions. (See Regulation 1660 for application of tax to leases.)
(7) Charges made for the use of a computer, on a time-sharing basis, where access to the computer is by means of remote telecommunication, are not subject to tax (See subdivision (i).)
(8) Generally, data processing firms are consumers of all tangible personal property, including cards and forms, which they use in providing nontaxable services unless a separate charge is made to customers for the materials, in which case tax applies to the charge made for the materials.
(d) Manipulation of Customer-Furnished Information as Sale or Service.
(1) General. Generally tax applies to the conversion of customer-furnished data from one physical form of recordation to another physical form of recordation. However, if the contract is for the service of developing original information from customer-furnished data, tax does not apply to the charges for the service. The tangible personal property used to transmit the original information is merely incidental to the service.
(2) Data Entry and Verification. This covers situations where a data processing firm's agreement provides only for data entry, data verification, and proof listing of data, or any combination of these operations. It does not include contracts under which these services are performed as steps in processing of customer-furnished information as discussed under subdivision (d)(5).
Agreements providing solely for date entry and verification, or data entry providing a proof list and/or verifying of data are regarded as contracts for the fabrication of storage media and sale of proof lists. Charges therefor are taxable, whether the storage media are furnished by the customer or by the data processing firm. Tax also applies to charges for the imprinting of characters on a document to be used as the input medium in an optical character recognition system. The tax application is the same regardless of which type of storage media is used in the operation.
(3) Addressing (Including Labels) for Mailing. Where the data processing firm addresses, through the use of its computer or otherwise, material to be mailed, with names and addresses furnished by the customer or maintained by the data processing firm for the customer, tax does not apply to the charge for addressing. Similarly, where the data processing firm prepares, through the use of its computer or otherwise, labels to be affixed to material to be mailed, with names and addresses furnished by the customer or maintained by the data processing firm for the customer, tax does not apply to the charge for producing the labels, whether or not the data processing firm itself affixes the labels to the material to be mailed. (For the sale of mailing list by the proprietor or such list as a sale of tangible personal property or as a nontaxable addressing, see Regulation 1504 "Mailing-Services.")
(4) Microfilming and Photorecording. Tax applies to charges for microfilming or photorecording except, as provided in subdivision (d)(5), where the microfilming or photorecording is done under a contract for the processing of customer-furnished information. Tax applies to a contract where data on magnetic tape are converted into combinations of alphanumeric printing, curve plotting and/or line drawings, and put on microfilm or photorecording paper.
(5) Processing of Customer-Furnished Information.
(A) "Processing of customer-furnished information" means the developing of original information from data furnished by the customer. Examples of automatic data processing processes which result in original information are summarizing, computing, extracting, sorting and sequencing. Such processes also include the updating of a continuous file of information maintained by the customer with the data processing firm.
(B) "Processing of customer-furnished information" does not include: (1) an agreement providing solely for the reformatting of data or for the preparation of a proof listing or the performance of an edit routine or other pre-processing, (2) the using of a computer as a mere printing instrument, as in the preparation of personalized computer-printed letters, (3) the mere converting of data from one medium to another, or (4) an agreement under which a person undertakes to prepare artwork, drawings illustrations, or other graphic material unless the provisions of subdivision (f)(2)(F) apply regarding digital pre-press instruction and custom computer programs. Additionally, graphic material furnished incidentally to the performance of a service is not subject to tax. For example, graphics furnished in connection with the performance of architectural, engineering, accounting, or similar professional services are not subject to tax. With respect to typography, clip art combined with text on the same page is considered composed type as explained in Regulation 1541.
(C) Contracts for the processing of customer-furnished information usually provide that the data processing firm will receive the customer's source documents, record data on storage media, make necessary corrections, process the information, and then record and transfer the output to the customer.
Where a data processing firm enters into a contract for the processing of customer-furnished information, the transfer of the original information to the customer is considered to be the rendering of a service. Except as described in subdivisions (c)(8) and (d)(5)(E), tax does not apply to the charges made under contracts providing for the transfer of the original information whether the original information is transferred on storage media, microfilm, microfiche, photorecording paper, input media for an optical character recognition system, punched cards, preprinted forms, or tabulated listing. The breakdown of the total charge into separate charges for each operation involved in processing the customer-furnished information will not change the application of tax.
(D) The furnishing of computer programs and data by the customer for processing under direction and control of the data processing firm will not alter the application of tax, notwithstanding that charges are based on computer time.
(E) Taxable Items. Where a data processing firm has entered into a contract which is regarded as a service contract under subdivision (d)(5)(C) and the data processing firm, pursuant to the contract, transfers to its customer tangible property other than property containing the original information, such as duplicate copies of storage media: inventory control cards for use by the customer; membership cards for distribution by the customer; labels (other than address labels); microfiche duplicates; or similar items for use, tax applies to the charges made for such items. If no separate charge is made, tax applies to that portion of the charge made by the data processing firm which the cost of the additional computer time (if and), cost of materials, and labor cost to produce the items bear to the total job cost.
(F) Additional Copies. When additional copies of records, reports, tabulation, etc., are provided, tax applies to the charges made for the additional copies. "Additional copies" are all copies (other than carbon copies), whether the copies are prepared by rerunning the same program, by using multiple simultaneous printers, by looping a program such that the program is run continuously, by using different programs to produce the same output product, or by other means. Where additional copies are prepared, the tax will be measured by the charge made by the data processing firm to the customer. If no separate charge is made for the additional copies, tax applies to that portion of the gross receipts which the cost of the additional computer time (if any), the cost of materials and labor cost to produce the additional copies bear to the total job cost. Charges for copies produced by means of photocopying, multilithing, or by other means are subject to tax.
(e) Training Services and Materials. Data processing firms provide a number of training services, such as data entry and verification, programming, and specialized training in systems design.
(1) Charges for training services are nontaxable, except as provided in subdivision (g) where the training services are provided as part of the sale of tangible personal property. The data processing firm is the consumer of tangible personal property which is used in training others, or provided to trainees without a separate charge as a part of the training services.
(2) Tax applies to charges for training materials, including books, furnished to trainees for a charge separate from the charge for training services.
(3) Where a person sells tangible personal property, such as computers or programs, and provides training materials to the customer without making an additional charge for the training materials, this is a sale of the training materials. The selling price of the training materials is considered to be included in the sales price of the tangible personal property.
(f) Computer Programs.
(1) Prewritten (Canned) Programs. Prewritten programs may be transferred to the customer in the form of storage media, or by listing the program instructions on coding sheets. In some cases they are usable as written; however, in other cases it is necessary that the program be modified, adapted, and tested to meet the customer's particular needs. Tax applies to the sale or lease of the storage media or coding sheets on which or into which such prewritten (canned) programs have been recorded, coded, or punched.
(A) Tax applies whether title to the storage media on which the program is recorded, coded, or punched, passes to the customer, or the program is recorded, coded, or punched on storage media furnished by the customer. The temporary transfer of possession of a program, for a consideration, for the purpose of direct use or to be recorded or punched by the customer, or by the lessor on the customer's premises, is a lease of tangible personal property. The tax applies unless the property is leased in substantially the same form as acquired by the lessor and the lessor has paid sales tax reimbursement or use tax with respect to the property.
(B) Tax applies to the entire amount charged to the customer. Where the consideration consists of license fees, all license fees, including site licensing and other end users fees, are includable in the measure of tax. Tax does not apply, however, to license fees or royalty payments that are made for the right to reproduce or copy a program to which a federal copyright attaches in order for the program to be published and distributed for a consideration to third parties, even if a tangible copy of the program is transferred concurrently with the granting of such right. Any storage media used to transmit the program is merely incidental.
(C) Maintenance contracts sold in connection with the sale or lease of prewritten computer programs generally provide that the purchaser will be entitled to receive, during the contract period, storage media on which the prewritten program improvements or error corrections have been recorded. The maintenance contract also may provide that the purchaser will be entitled to receive, during the contract period, telephone or on-site consultation services.
If the purchase of the maintenance contract is not optional with the purchaser, that is, if the purchaser must purchase the maintenance contract in order to purchase or lease a prewritten computer program, then the charges for the maintenance contract are taxable as part of the sale or lease of the prewritten program. Tax applies to any charge for consultation services provided in connection with a maintenance contract except as provided below.
For reporting periods commencing on or after January 1, 2003, if the purchase of the maintenance contract is optional with the purchaser, that is, if the purchaser may purchase the prewritten software without also purchasing the maintenance contract, and there is a single lump sum charge for the maintenance contract, 50 percent of the lump sum charge for the maintenance contract is for the sale of tangible personal property and tax applies to that amount; the remaining 50 percent of the lump sum charge is nontaxable charges for repair.
If no tangible personal property whatsoever is transferred to the customer during the period of the maintenance contract, tax does not apply to any portion of the charge. Tax does not apply to a separately stated charge for consultation services if the purchaser is not required to purchase those services in order to purchase or lease any tangible personal property, such as a prewritten computer program or a maintenance contract.
(D) The sale or lease of a prewritten program is not a taxable transaction if the program is transferred by remote telecommunications from the seller's place of business, to or through the purchaser's computer, and the purchaser does not obtain possession of any tangible personal property, such as storage media, in the transaction. Likewise, the sale of a prewritten program is not a taxable transaction if the program is installed by the seller on the customer's computer except when the seller transfers title to or possession of storage media or the installation of the program is a part of the sale of the computer.
If the transfer of a prewritten program is a nontaxable transaction, then the seller is the consumer of tangible personal property used to produce written documentation or manuals (including documentation or manuals in machine-readable form) designed to facilitate the use of the program and transferred to the purchaser for no additional charge. If a separate charge is made for the documentation or manuals, then tax applies to the separate charge.
(E) The transfer of a prewritten program on storage media is not a sale for resale when the storage media, or an exact copy, will be used to produce additional copies of the program.
Charges for testing a prewritten program on the purchaser's computer to insure that such a program operates as required are installation charges and are nontaxable
(2) Custom Programs.
(A) Tax does not apply to the sale or lease of a custom computer program, other than a basic operational program, regardless of the form in which the program is transferred. Nor does the tax apply to the transfer of a custom program, or custom programming services performed, in connection with the sale or lease of computer equipment, whether or not the charges for the custom program or programming are separately stated.
(B) However, charges for custom modifications to prewritten program are nontaxable only if the charges for the modifications are separately stated. Otherwise, the charges are taxable as part of the sale of the prewritten program.
When the charges for modification of a prewritten program are not separately stated, tax applies to the entire charge made to the customer for the modified program unless the modification is so significant that the new program qualifies as a custom program. If the prewritten program was previously marketed, the new program will qualify as a custom program, if the price of the prewritten program was 50 percent or less of the price of the new program. If the prewritten program was not previously marketed, the new program will qualify as a custom program if the charge made to the customer for custom programming services, as evidenced in the records of the seller, is more than 50 percent of the contract price to the customer.
(C) Charges for any written documentation or manuals designed to facilitate the use of a custom computer program by the customer are nontaxable, whether separately stated or not. The vendor of the custom computer program is the consumer of the written documentation or manuals, or of any tangible personal property used by the vendor in producing the written documentation or manuals.
(D) A custom computer program includes a program prepared to the special order of a customer who will use the program to produce and sell or lease copies of the program, and the charge for such custom computer program is not subject to tax. Sales or leases of the copies, however, are taxable as sales of prewritten computer programs.
(E) A computer program prepared to the special order of a customer to operate for the first time in connection with a particular basic operating system is a custom computer program even though a different version currently operates in connection with an incompatible basic operating system.
(F) Digital pre-press instruction is a custom computer program under section 6010.9 of the Revenue and Taxation Code, the sale of which is not subject to tax, provided the digital pre-press instruction is prepared to the special order of the purchaser. Digital pre-press instruction shall not, however, be regarded as a custom computer program if it is a "canned" or prewritten computer program which is held or existing for general or repeated sale or lease, even if the digital pre-press instruction was initially developed on a custom basis or for in-house use. The sale of such canned or prewritten digital pre-press instruction in tangible form is a sale of tangible personal property, the retail sale of which is subject to tax.
(g) Service Charges. The following activities are service activities. Charges for the performance of such services are nontaxable unless the services are performed as a part of the sale of tangible personal property.
(1) Designing and implementing computer systems (e.g., determining equipment and personnel required and how they will be utilized).
(2) Designing storage and data retrieval systems (e.g., determining what data communications and high-speed input-output terminals are required).
(3) Consulting services (e.g., study of all or part of a data processing system).
(4) Feasibility studies (e.g., studies to determine what benefits would be derived if procedures were automated).
(5) Evaluation of bids (e.g., studies to determine which manufacturer's proposal for computer equipment would be most beneficial).
(6) Providing technical help, analysts, and programmers, usually on an hourly basis.
(7) Training Services.
(8) Maintenance of equipment. (See Regulation 1546 for application of tax to maintenance contracts.)
(9) Consultation as to use of equipment.
(h) Pick-up and Delivery Charges. If the data processing firm's billing is for nontaxable processing of customer-furnished information, the tax will not apply to pick-up and delivery charges. If pick-up and delivery charges are made in conjunction with the sale of tangible personal property or the processing of customer-furnished tangible personal property, the tax will apply to the pick-up charges. Tax will apply to the delivery charges to the extent specified in regulation 1628, "Transportation Charges."
(i) Rental of Computers. A lease includes a contract by which a person secures for a consideration the use of a computer which is not on his or her premises, if the person or his or her employees, while on the premises where the computer is located operate the computer, or direct and control its operation. A lease does not include a contract whereby a person secures access by means of remote telecommunication to a computer which is not on his or her premises, if the person or his or her employees operate the computer or direct and control its operation by means of remote telecommunication. (See Regulation 1660 for application of tax to leases.)


Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 995.2, 6006, 6007, 6010, 6010.9, 6011, 6012, 6015 and 6016, Revenue and Taxation Code.


s 1502.1. Word Processing.
(a) General. Tax does not apply to charges for furnishing original letters or documents, or carbon copies produced simultaneously with the original, prepared by using a typewriter or word processing equipment. Where the word processing company provides only an original letter or document, or carbon copies produced simultaneously with the original, the true object of the contract is the performance of a service and not the furnishing of tangible personal property. The word processing company is the consumer of tangible personal property used in providing the service.
Tax applies to charges for producing multiple copies of letters, manuscripts, or other documents using word processing equipment. Multiple copies include form letters produced with a slight variation which personalizes essentially the same letter. Tax applies to the entire charge without deduction for charges for setting up the machine, keyboarding, or assembling the material. Charges for providing additional copies are subject to tax regardless of whether the original was prepared using a typewriter or word processing equipment and regardless of whether the copies are produced by computers, word processors, copying machines, or other methods.
Tax does not apply to charges made by a word processing company for keyboarding original names and address, setting up and sorting, and for printing the names and addresses onto mailing labels. (See Regulation 1504 for an explanation of how tax applies to mailing services.)
Tax does not apply to charges made when a word processor is used to produce copy which is acquired and used exclusively for reproduction purposes since Revenue and Taxation Code Section 6010.3 excludes typography from the definition of sale or purchase.
(b) Examples of the Application of Tax under Specific Circumstances.
(1) Preparation of Standard Letters and Envelopes for Mailing. A word processing operator keyboards and records an address list and standard letter on magnetic media. The letter is then automatically typed to each person on the address list. The prerecorded address list is then used to address envelopes inserted into the machine. The charges made for setting up the machine, keyboarding the material and typing out the letters are taxable. The charges made for addressing the envelopes are nontaxable if separately stated (See Regulation 1504.)
(2) Manuscripts. An author brings a manuscript to a word processing company. The operator keyboards the material and records it on magnetic media. A draft copy of each page of the recorded material is printed out (typed automatically) and given to the author to proofread. The author makes corrections and changes on the draft and returns it to the operator. The operator makes the necessary changes using a word processor. A final copy is then printed out for the author to submit to a publisher. The charges made for the original keyboarding of the manuscript, printing out the draft copy, editing, and printing out a final copy are nontaxable. Tax does not apply to charges for carbon copies prepared at the same time as the original copy; however charges for photocopies are taxable.
(3) Assembling Final Product From a Paragraph Library. An attorney brings several paragraphs to a word processing company which uses word processing equipment to keyboard and record the paragraphs on magnetic media to form a "paragraph library." The attorney then notifies the company to select certain stock paragraphs, for example paragraphs 1, 8, 11, 29, 16, 12, 87, 100, 56, and 57 in that order, to create a will for his client. The attorney provides variable information to be inserted into proper position in the paragraphs, such as: maker of the will, maker's spouse, maker's children and their date of birth, city and county of residence. The operator instructs the machine (with keyboard commands) to assemble those specified paragraphs with the necessary variable client information and to print out (automatically type) a will. All of the charges made for keyboarding original paragraphs, printing out a draft of all paragraphs for the attorney's use, assembling the paragraphs as requested, and printing out individual wills (and any carbon copies of the original) are nontaxable. Charges for photocopies are taxable.
(4) Addressing Mailing Labels. A client has a list of 2,000 names that he is going to use monthly for a mailing. Every month the list has to be sorted into ZIP code sequence, typed on labels to be applied to envelopes which are then mailed. The word processing company keyboards the names and addresses and records them on magnetic media. The machine is instructed (using keyboard commands) to sort the names into correct ZIP code sequence before the list is finally stored on the magnetic media. Each month the equipment is set up and, with an operator in attendance (giving keyboard commands), the names are printed (automatically typed) onto continuous form labels. The charges made by the word processing company for keyboarding original names and addresses, for setting up and sorting, and for the monthly setting up and printing of names onto labels are all nontaxable charges for addressing.


Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6010, 6011, 6012, 6015 and 6016, Revenue and Taxation Code.


s 1503. Hospitals and Other Medical Service Facilities, Institutions and Homes for the Care of Persons.
(a) Meals.
(1) There are exempt from sales and use tax the sale of meals and food products to and the use of meals and food products by the following institutions when furnished or served to and consumed by their residents or patients:
(A) A health facility as defined in section 1250 of the Health and Safety Code, which holds the license required pursuant to section 1253, or is exempt from the license requirement pursuant to subdivision (a) of section 1270, or is operated by the United States.
(B) A community care facility as defined in section 1502 of the Health and Safety Code, which holds the license required by section 1508, or is a residential facility selected by a licensee pursuant to section 1506 and exclusively used for the reception and care of persons placed by such licensee, or is exempt from the license requirement pursuant to subdivision (f) of section 1505, or is operated by the United States.
(C) A residential care facility for the elderly, as defined in Section 1569.2 of the Health and Safety Code, that holds the license required by Section 1569.10 of the Health and Safety Code or is exempt from the license requirements pursuant to Section 1569.145 of the Health and Safety Code, or is operated by the United States.
(D) Any house, retirement home or similar establishment supplying board and room for a flat monthly rate and serving as a principal residence exclusively for persons 62 years of age or older, and any housing that primarily serves older persons and that is financed by state or federal programs. For purposes of this regulation, the term "exclusively" is defined to mean that no more than four persons under 62 years of age are in residence during any calendar quarter.
(E) An alcoholism or drug abuse recovery or treatment facility, as defined in section 11834.02 of the Health and Safety Code, which holds the license required by section 11834.30 of the Health and Safety Code.
(2) "Meals," for purpose of this subdivision, include any of the following:
(A) Carbonated beverages furnished or served as part of the meals.
(B) Food provided to the patient or resident by way of enteral feeding, Total Parenteral Nutrition (also called TPN), and Intradialytic Parenteral Nutrition (also called IDPN), as each is defined in Regulation 1591, provided these forms of nutrition are furnished or served to and consumed by a resident or patient of an institution specified in this subdivision (a).
(C) Nonreusable items that become components of the meals. These include straws, paper napkins, and plastic eating utensils. These also include bags and tubing, as well as filters, locks, tape, clamps, and connectors which are integral to the tubing, each of which is used to dispense enteral feeding as meals to the patient or resident including: gastrostomy tubes (also called G tubes) which are used to deliver the nutrition directly into the stomach; jejunostomy tubes (also called J tubes) which are used to deliver the nutrition directly into the intestinal tract; and nasogastric tubes (also called NG tubes) which are used to deliver the nutrition directly through the nasal passage to the stomach. Needles, syringes, cannulas, bags, and tubing, as well as filters, locks, tape, clamps, and connectors which are integral to the tubing, used to dispense TPN or IDPN as meals to the patient or resident are also regarded as components of those meals provided each of these items is used primarily to dispense the TPN or IDPN.
(b) General.
(1) Sales to Medical Service Facilities. "Medical service facilities" for purposes of this subdivision are those institutions specified in subdivision (a) of this regulation as well as surgery centers and similar medical service facilities whether patients are accepted for periods of less than or more than twenty-four hours. For example, dialysis centers, AIDS centers, and cancer centers are medical service facilities. [Operative April 1, 2001, e]xcept as provided in subdivisions (b)(2) of this regulation, medical service facilities are service providers to their patients and residents and are the consumers of tangible personal property furnished in connection with those services, whether separately itemizing charges for the services and for the tangible personal property or billing in lump sum, and sales of that tangible personal property to the medical service facilities are taxable retail sales unless specifically exempted.
(2) Sales by Medical Service Facilities. When a medical service facility is the retailer of property furnished, tax applies to its charge for that property unless the sale is exempt from tax. A medical service facility is the retailer of property furnished for a charge to persons other than residents and patients.
A medical service facility is the retailer of tangible personal property for which it makes a separately itemized charge if the property is furnished to a patient or resident with the intent that the patient or resident remove the property from the premises of the medical service facility for use by the patient or resident. Examples of such items include crutches or a wheelchair provided upon release from the medical service facility and discharge kits for new mothers (which might include formula, diapers, etc.). Notwithstanding subdivision (b)(1) of this regulation, a medical service facility is the retailer of any property furnished in connection with its medical services if its contract with the medical service facility's resident or patient or other customer specifically provides that title to the subject tangible personal property passes to the resident or patient or other customer. When the contract has a provision passing title to the subject tangible personal property to the resident or patient or other customer, the medical services facility may purchase such property for resale, and tax applies to the charge by the medical services facility unless its sale is otherwise exempt from tax.
(3) Laboratory Charges. Laboratory charges, such as charges for blood-counts, are not taxable. Tax does not apply with respect to purchases, sales or donations of whole blood or blood plasma for use in transfusions.


Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6007, 6015, 6016, 6051, 6359 and 6363.6, Revenue and Taxation Code.


s 1504. Mailing Lists and Services.
(a) Transactions in Mailing Lists.
(1) Definition. A "mailing list" as used herein means a written or printed list, series, set, group, aggregation, etc., of names and addresses of, and occasionally, other information concerning persons, such as potential customers or donors, which is intended for use in circulating material by mail. Such a list may be in the form of a manuscript list, directory, Cheshire tape, Dick tape, gummed labels, index cards, or other similar means of communication. Operative January 1, 1994, "mailing list" includes a magnetic tape or similar device used to produce written or printed names and addresses by electronic or mechanical means.
(2) Application of Tax Generally. Except as otherwise provided in (a)(3) below, tax applies to receipts from the transfer of title or possession, rental or granting of a license for use of mailing lists, to the same extent as to receipts from sales or rentals of tangible personal property generally.
(3) Limited Use. Tax does not apply to charges for the transfer or use of mailing lists, where a contract restricts the transferee or user to use of the mailing list one time only. The charges in such cases are considered to be for information or addressing services.
(4) Magnetic Tapes. Where the names and addresses are recorded on magnetic tapes or similar devices used to produce written or printed names and addresses by electronic or mechanical means, charges for the transfer or use of the tape or similar device are subject to tax to the same extent as receipts from sales or rentals of tangible personal property generally regardless of any contractual restrictions on the frequency of use. Operative January 1, 1994, such magnetic tapes or similar devices are considered a mailing list and charges for their transfer and use under (a)(3) above are exempt from tax.
(5) Application of Tax to Materials Used, Persons engaged in the business of selling, renting or licensing mailing lists are consumers of tangible personal property used in producing lists the transfer of which is not subject to tax, and tax applies to the sale to them of such property. Tangible personal property which becomes a component part of lists, the transfer of which is taxable may be purchased for resale.
(b) Mailing Services.
(1) General. Tax does not apply to charges for services rendered in preparing material for mailing, such as addressing, enclosing, sealing, collating, affixing labels, blocking out, tucking or clasping envelope flaps, metering, affixing stamps, edging seal or edging with stamp, addressing permit indicia, and sorting, typing and sacking in compliance with postal rules and regulations, nor to charges for the handling or wrapping of material left over after preparation of material for mailing, which is to be returned to the customer.
(2) Addressing Defined. "Addressing" means the actual writing, typewriting, printing, imprinting or affixing of names and addresses or addresses only on property to be mailed. The mailing may be done by the person doing the addressing or by another person. The process may include the preparation of Cheshire tapes, Dick tapes, cards, gummed labels, etc., to be affixed to, or enclosed in, the property so as to serve as addresses for that property and not to be used for any other purpose such as reproduction or reference.
(3) Consumers of Materials. Persons engaged in the business of providing mailing services are consumers of materials used in performing those services.
(c) Printing Related to Mailing.
(1) Sales of Printed Matter. Tax applies to charges for printed matter furnished to a customer by a person engaged in the business of providing mailing services to the same extent as to charges for printing matter generally, even though the printed matter is to be mailed. If such matter is printed by another person, it may be purchased for resale by giving a resale certificate. If the mailing service has reimbursed its vendor for tax which the vendor is required to pay to the state or has paid use tax with respect to the purchase of such matter, a "tax-paid purchases resold" deduction will be allowed.
(2) Separate Statement of Printing Charges. Charges for printed matter should be separately stated on the invoice to the customer. If not separately stated, the amount subject to tax will be determined by the board based on information available to it.


Note: Authority cited: 7051, Revenue and Taxation Code. Reference: Sections 6006, 6006.3, 6009, 6012, 6015, 6016 and 6379.8, Revenue and Taxation Code.


s 1505. Morticians.
(a) In General.
(1) Morticians as Retailers. Morticians are retailers of caskets, boxes, vaults, and clothing. They also are retailers of any other tangible personal property furnished in connection with rendering their services if a separate charge is made for such property. Unless otherwise exempt, tax applies to the sales price of all tangible personal property sold by morticians. [FNa1]
(2) Morticians as Consumers. Morticians are consumers of acknowledgment cards, memorial folders, registration books, embalming fluid, cosmetics, eye caps, morgue supplies, car stickers, and prayer books which are furnished by them in connection with services they render unless a separate charge is made for such property. Tax applies to the sales price to the mortician of all tangible personal property consumed by him.
(b) Application of Tax to Specific Types of Transactions.
(1) Sales in Interstate or Foreign Commerce. The sale of a casket and other tangible personal property by a mortician, which he delivers or ships to an out-of-state point pursuant to the agreement of sale is regarded as a sale in interstate or foreign commerce and is exempt from the tax. The facts that the death of the deceased occurred in this state, that the contracting parties are residents of this state, and that services are held in this state prior to the shipment, are immaterial.
(2) Sales to the United States. All or a portion of charges for funerals of veterans and other persons may be paid by the United States Veterans Administration or by the Social Security Administration. Effective August 1, 1973, the United States Veterans Administration will pay an interment allowance, up to $150, in addition to the regular funeral and burial allowance for veterans. Morticians may take a deduction for sales to the United States Government when claims filed by them with federal agencies are paid directly to the morticians regardless of method of billing. If funeral charges are paid by another person, there is no tax exemption even though such person may receive reimbursement from a federal agency and even though the amount received as reimbursement is assigned or endorsed over to the mortician as a credit against those charges.
In computing the allowable exemption, the funeral allowance and the interment allowance must be treated separately.
(A) Funeral allowance payments received directly from a federal agency are to be prorated between funeral charges for sales or tangible personal property and charges for exempt services. None are to be allocated to accommodation cash advances. The only exception will be when a portion of a payment is clearly identified as applying to something for which a mortician has made a specific charge.
(B) Payments received directly from the United States Veterans Administration which are identified as interment allowances are to be prorated between sales of tangible personal property used in actual interment and charges or advances for services in connection with the interment. The only exception will be when a portion of the payment is clearly identified as applying to something pertaining to interment for which the mortician has made a specific charge.
(3) Examples of Application of Amounts Received by Morticians Directly From a Federal Agency (Examples are at 6 percent rate).
Mortician's invoice to client:
Charges
Services.............................. $400.00
Casket................................ 355.00
Vault................................. 200.00
Suit.................................. 45.00
_________
Subtotal......................... $1,000.00
Accommodation Cash Advances
Cemetery Space and Opening............ $50.00
Clergy................................ 25.00
Music................................. 15.00
_________
Subtotal......................... $90.00
Total............................ $1,090.00
Sales Tax (6% of $355, $200 & $45).... 36.00
_________
Total................................. $1,126.00

Example 1. Funeral allowance only.
Cash received by the mortician directly from a federal agency as a funeral allowance, and not allocated by the United States Government to any specific portion of the above charges, was $300. No interment allowance was received.
Since $600 of the $1,000 charged the client (exclude the cash advances) was for tangible personal property, 60% of the amount received from the federal agency (60% of ____ equals ____) is considered a sale of such property to the United States Government and is exempt from sales tax.
Computation of Tax:
Total Charges....................... $1,090.00
Less: Accommodation Advances........ $90.00
Exempt Services........... 400.00
Sale to United States..... 180.00 670.00
______ _________
Taxable Sale........................ $ 420.00
Tax at 6W4B 25.20
_________
Taxable Sale Including Tax.......... $ 445.20
_________

Example 2. Funeral allowance and interment allowance received by mortician.
Cash received by the mortician directly from a federal agency, and not allocated by the United States Government to any specific portion of the above charges, was $300 as a funeral allowance and $150 as an interment allowance.
Since the total charges by the mortician related to interment were $250 (vault $200 plus cemetery space and opening $50), and the charge for tangible personal property related to interment was $200 (vault), 80% of the amount received from the federal agency as an interment allowance (80% of $150 equals $120) is considered a sale of such property to the United States Government and is exempt from sales tax.
Since $400 (casket $355 and suit $45) of the $800 charged the client for the funeral (exclude the cash advances and the vault) was for tangible personal property, 50% of the amount received from the federal agency as a funeral allowance (50% of $300 equals $150) is considered a sale of such property to the United States Government and is exempt from sales tax.
Computation of Tax:
Total Charges...... ................................ $1,090.00
Less: Accommodation Advances.......... $ 90.00
Exempt Services................. 400.00
Sale to United States Government
($120 plus $150)................ 270.00 760.00
________________________________ _______
Taxable Sale......................................... $ 330.00
Tax at 6W4B 19.80
_________
Taxable Sale Including Tax........................... $ 349.80
_________

(4) Accommodation Cash Advances. Tax does not apply to accommodation cash advances for such items as cemetery charges, newspaper notices, railroad tickets, ministerial fees and flowers.
(5) Tax-paid Purchases Resold. A mortician may claim a "tax-paid purchases resold" deduction if the mortician reimbursed the vendor for tax which the vendor is required to pay to the state or has paid use tax with respect to the property and has resold the property prior to making any use of it.
(c) "Pre-Need" Agreements. Where a mortician, cemetery association or other person enters into an agreement with a customer to provide services upon the death of the customer, no sale occurs for sales and use tax purposes until the services are rendered.
An amount designated as "sales tax" in the agreement will be considered an estimate of tax which may become due when the services are rendered. No sales tax should be paid to the board in connection with "pre-need" agreements until the services are rendered.
________
[FNa1] On October 25, 1972, the board adopted an amendment to the regulation by which the 50 percent standard service reporting procedure in effect until October 18, 1970, and the 45 percent standard service reporting procedure in effect thereafter, are no longer allowable.


Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6015 and 681, Revenue and Taxation Code.


s 1506. Miscellaneous Service Enterprises.
(a) Licensed Architects.
(1) In General. Fees paid to licensed architects for their ability to design, conceive or communicate ideas, concepts, designs, and specifications are not subject to tax. Any plans, specifications, renderings or models or other instruments of service provided by a licensed architect under a licensed architect's contract or commission are integral to the licensed architect's services and are not subject to tax. The licensed architect is the consumer of any tangible personal property, including plans, specifications, renderings or models, used or transferred in the performance of professional services notwithstanding the fact that a fee may be added to the cost of the property and separately stated on a billing to the customer. If after the completion of the contract or commission the licensed architect provides additional copies of the original plans or specifications, or any models or renderings of anexisting structure, the architect is regarded as making a sale of such copies, models or renderings. (continued)