Were charges for creating and maintaining a customer database, processing and updating mailing lists, and producing response reports taxable?

Plain-English summary

X Corporation contracted with a Connecticut firm to develop and maintain a customer database used for customer analysis and mailing lists. The Connecticut firm subcontracted the work to an out-of-state firm.

Each month Y Corporation supplied magnetic-tape customer data to the out-of-state processor. That firm created a mailing list and sent it to a New York company, which sorted the list by ZIP code and attached mailing labels to a mailer supplied by Y Corporation. The division could also request response-analysis reports measuring the mailer's effectiveness.

DRS ruled that the entire receipts were taxable as computer and data processing services under the cited historical regulation. The taxable amount covered creating and maintaining the database, processing and updating mailing lists, and generating response-analysis reports.

What this means for you

The ruling treated the connected database, list-processing, update, and reporting work as one taxable computer/data-processing service. The published result did not change because the Connecticut contractor used an out-of-state subcontractor and a New York mailing company.

Common questions

Which charges were taxable? Database creation and maintenance, mailing-list processing and updates, and response-analysis reports.

Was the database used only for mailing? No. The ruling also says it supported customer analysis and other purposes.

Did out-of-state subcontracting make the receipts nontaxable? No. DRS still ruled that the total receipts were taxable.

Citations and references

• Conn. Agencies Regs. § 12-426-27(b)(1).

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 90-35

Original ruling text

Ruling 90-35, Computer Services

Ruling 90-35

Computer Services

You have inquired as to the applicability of the sales and use tax to a service that involves creating and maintaining a computer data base.

X Corporation, a Division of Y Corporation is entering into an agreement with a Connecticut firm to develop and maintain a customer data base that will be used for many purposes such as customer analysis and producing mailing lists. The Connecticut firm rendering the service has subcontracted the work to an out-of-state firm. The Y Corporation prepares a magnetic tape on a monthly basis containing the information that is used to create and maintain the customer data base and forwards it to the out-of-state firm. The out-of-state firm processes a mailing list from the customer data base and sends it to a New York Company who organizes the mailing list by zip code sequence and affixes mailing labels to the mailer. The mailer is provided by the Y Corporation to the New York company performing the mailing service. Response analysis reports are furnished to the division upon request which monitors the effectiveness of the mailer.

Based on the foregoing, it is ruled that the total gross receipts for creating and maintaining the computerized customer data base as well as processing the mailing lists, updating the mailing lists and generating response analysis reports are subject to sales and use tax as computer and data processing services pursuant to section 12-426-27(b)(1) of the Regulations of Connecticut State Agencies.

LEGAL DIVISION

March 16, 1990