Is selling subscribers online access to a company's land-records database a taxable computer and data processing service in Connecticut?

Plain-English summary

A company built a searchable database of real-property transfers. It manually gathered the information from town land records, entered it into its own database, and updated it daily. Subscribers got 24-hour access and could search by town, grantor/grantee, date, price range, and more, printing reports in seconds. The company charged a one-time connect fee plus "line charges" based on time spent online. DRS was asked whether that is a taxable computer and data processing service under § 12-407(2)(i)(A).

Yes. The regulation defines computer and data processing services to include "storing and filing of information" and "retrieving or providing access to information" (Conn. Agencies Regs. § 12-426-27(b)(1)). But the real test is the Connecticut Supreme Court's "true object" standard from Hartford Parkview: it isn't enough that a computer is used to transmit and receive information — the use of the computer must be essential to the service, not "merely incidental."

DRS held the computer was essential. The company isn't the originator of the data; it collects town records and reformats them into an easily accessible database. What subscribers pay for is the convenience and accuracy of immediate access to that maintained database — something they could otherwise get only by sending their own staff to hand-search each town's land records. That access is the reason they subscribe, so it's the true object. DRS compared it to Ruling 93-8 (around-the-clock access to a provider-maintained database = taxable computer services). Result: the company must charge sales tax on both the connect fee and the line fees.

DRS's reasoning here was later cited in Rulings 95-1 and 96-1, part of a line of "true object" computer-service rulings.

What this means for you

Online database and data-access providers

If your core offering is subscriber access to a database you compile and maintain — even from public records you didn't originate — Connecticut generally treats that as a taxable computer and data processing service. The value you sell is the fast, accurate access, and that makes the computer essential, not incidental.

The "true object" line is what matters

Ask what the customer is really buying. If it's access to or processing of data and the computer is central to delivering it, it's likely taxable computer services. If the computer is just a delivery pipe for something whose true object is non-computer, the answer can differ. Both the connect fee and usage-based line charges here were taxable because they were all consideration for the same computer service.

Real-estate, title, and legal information services

Products that let subscribers search compiled land-record or similar data online sit squarely in this category. Build the tax into your pricing and billing.

Common questions

Q: Is selling access to an online database taxable in Connecticut?
A: Under this ruling, yes — when the true object is immediate access to a database the provider creates and maintains, it's a taxable computer and data processing service, because the computer is essential to the service.

Q: The data comes from public town records — does that change anything?
A: No. DRS noted the company wasn't the originator of the data, but that didn't matter. Subscribers were paying for convenient, accurate access to the maintained database, which is the taxable service.

Q: Are both the connect fee and the per-minute line charges taxable?
A: Yes. Both are consideration for the same taxable computer and data processing service, so tax applies to each.

Q: What is the "true object" test?
A: From Hartford Parkview, it asks whether the use of the computer is essential to the service (taxable) or merely incidental to it (not). Here, immediate database access was the very reason customers subscribed, so the computer was essential.

Citations and references

Statutes, regulations, and case law:

• Conn. Gen. Stat. § 12-407(2)(i)(A) (computer and data processing services)
• Conn. Agencies Regs. § 12-426-27(b)(1) (definition — storing/filing and retrieving/providing access to information)
• Hartford Parkview Associates Ltd. Partnership v. Groppo, 211 Conn. 246, 558 A.2d 993 (1989)
• Texaco Refining & Marketing Co. v. Commissioner of Revenue Services, 202 Conn. 583, 600, 522 A.2d 771 (1987)

Related guidance (described in prose, not linked):

• Ruling Nos. 93-6, 93-8, 93-11 (true-object analysis of computer/database services)
• Rulings 95-1 and 96-1 (cite this Ruling)

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 94-2

Original ruling text

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