Current through Register Vol. 49, No. 13, September 23, 2024
Subpart 1.
In general.
A sales or use tax is imposed upon the gross receipts from
selling, leasing, or granting a license to use tangible personal property. When
separately stated, the labor charges for repair, service, and maintenance of
tangible personal property is not subject to tax. The producing, fabricating,
processing, printing, or imprinting of tangible personal property for a
consideration for consumers who directly or indirectly furnish the materials
used in the producing, fabricating, processing, printing, or imprinting is also
subject to tax. The transfer of property produced, fabricated, or printed to
the special order of the customer is also subject to tax.
This part sets forth guidelines for the application of the
general statutory provisions to transfers of property and service rendered in
the automatic data processing industry.
"Automatic data processing services" are those rendered in
performing all or part of a series of data processing operations through an
interacting assembly of procedures, processes, methods, personnel, and
automatic data processing equipment. Automatic data processing services may be
provided by manufacturers of data processing equipment, data processing
centers, systems designers, consultants, software companies, etc. In addition,
there are banks and other businesses which own or lease automatic data
processing equipment and use it primarily for their own purposes but
occasionally provide services to others. Businesses rendering automatic data
processing services will be referred to as "service bureaus."
Subp. 2.
Description of terms.
Data processing terms are described as follows:
A. The specific job performance by an
automatic data processing installation is called an "application." For example,
data processing for a payroll may be called a payroll application.
B. The term "automatic data processing
equipment" includes computers and their peripheral equipment as well as punched
card tabulating machines.
C.
"Coding" means the list, in computer code, of the successive computer
instructions representing successive computer operations for solving a specific
problem.
D. "Input" means the
information or data transferred, or to be transferred, from external storage
media (e.g., punched cards, punched paper tape, and magnetic tape) into the
internal storage of the computer.
E. "Keypunching" means recording information
in cards, paper tapes, or magnetic tapes, discs, or drums by punching holes in
the cards, paper tapes or inserting magnetic bits on magnetic tape, discs, or
drums, to represent letters, digits, and special characters. Keypunching
includes the necessary preliminary encoding or marking of the source
documents.
F. "Keystroke verifying"
means the use of a machine known as a punched card verifier or tape
transcriber, which has a keyboard, to ensure that information punched in a
punch card or transcribed on magnetic tape during the keypunching operation has
been punched properly. The machine signals when the punched hole on the card
and the depressed key disagree, or when the data on magnetic tape differs from
depressed keys.
G. "Off-line" is
descriptive of a system and the devices in a system in which the operation of
equipment is not under the control of a computer.
H. "Online" is descriptive of a system and
the devices in a system in which the operation of such system or devices is
under control of a computer.
I.
"Output" means the information transferred from the internal storage of the
computer to an external storage media (e.g., punched cards, magnetic tape, and
tabulated listing).
J. "Program" is
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.
It includes both systems and application programs and subdivisions such as
assemblers, compilers, routines, generators, and utility programs.
K. A "proof listing" is a tabulated listing
of input.
L. A "source document" is
from which basic data are extracted (e.g., sales invoice).
Subp. 3.
Taxable transactions, unless
otherwise exempt under Minnesota Statutes, chapter 297A.
Certain transactions are treated as follows:
A. Retail sales of new or used data
processing equipment are taxable.
B. Leases of equipment are subject to tax. A
lease includes a contract by which a lessee secures for a consideration the use
of equipment which may or may not be on the lessee's premises if the lessee or
the lessee's employees operate the equipment, or if the equipment is operated
under the direction and control of the lessee or the lessee's employees.
Subleasing receipts are taxable without any deduction or credit for tax paid by
the original lessee to the lessor, if the original lessee uses the property in
addition to subleasing it. Use of equipment on a time-sharing basis, where
access to the equipment is only by means of remote access facilities, is not a
taxable leasing of such equipment.
C. Persons who sell or lease data processing
equipment may provide a number of training services with the sale or rental of
their equipment. Training services, per se, when separately stated, are not
subject to the tax. Training materials, such as books, videos, and cassettes,
furnished to the trainees for a specific charge are taxable.
D. Generally tax applies to the conversion of
customer-furnished data from one physical form of recordation to another.
For example, if all or some data in punched cards is
duplicated into another set of cards, charges for this service are
taxable.
E. When additional
copies of records, reports, or tabulations are provided, tax applies to the
charges made for the additional copies. "Additional copies" are all copies in
excess of those produced on multipart carbon paper simultaneous with the
production of the original and on the same printer, 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 service bureau to the customer. Charges for copies produced by
means of photocopying, multilithing, or by other means are also subject to
tax.
F. Sales of mailing lists in
the form of cheshire tapes, gummed labels, and heat transfers produced as a
result of a computer run are taxable. However, computer-generated mailing lists
alone involving no transferable product are not taxable. Where the service
bureau, through the use of its automatic data processing equipment, addresses
material to be mailed, with names and addresses furnished by the customer or
maintained by the service bureau for the customer, tax does not apply to the
charge for addressing. Similarly, where the service bureau prepares labels to
be affixed to material to be mailed, with names and addresses furnished by the
customer or maintained by the service bureau for the customer, tax does not
apply to the charge for producing the labels, when the service bureau itself
affixes the labels to the material to be mailed.
G. For taxation of retail sales of computer
software, see part
8130.9910.
Subp. 4.
Nontaxable services.
Certain services are treated as follows:
A. "Processing a client's data" means the
developing of original information from raw data furnished by the customer.
Examples of automatic data processing operations which result in original
information are summarizing, computing, extracting, sorting, and sequencing.
Such operations also include the updating of a continuous file of information
maintained by the customer with the service bureau.
Generally, if a person enters into a contract to process a
client's data by the use of a computer program, or through an electrical
accounting machine programmed by a wired plugboard, the contracts are
nontaxable (except if the contract is in the nature of a lease as outlined in
subpart
3, item B). Such contracts
usually provide that the person will receive the client's source documents,
record data in machine-readable form (such as in punch cards or on magnetic
tape), make necessary corrections, rearrange or create new information as the
result of the processing, and then provide tabulated listings or record output
on other media. This service is considered nontaxable even if the total charge
is broken down into specific charges for each step. The furnishing of computer
programs and data by the client for processing under direction and control of
the person providing the service is nontaxable even though charges may be based
on computer time. The true object of these contracts is considered to be a
service, even though some tangible personal property is incidentally
transferred to the client.
"Processing a client's data" does not include:
(1) work performed under 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 preprocessing;
(2) the using of a computer as a mere
printing instrument, as in the preparation of personalized computer-printed
letters; or
(3) the mere converting
of data from one medium to another.
B. Designing of systems, converting of
systems, consulting, training, and miscellaneous services are services which
consist of the developing of ideas, concepts, and designs. Common examples of
such services are:
(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)
converting manual systems to automatic data processing systems and converting
present automatic data processing systems to new systems (e.g., changing a
second generation system to a third generation system);
(4) consulting services (e.g., a study of all
or part of a data processing system);
(5) feasibility studies (e.g., studies to
determine what benefits would be derived if procedures were automated);
and
(6) evaluation of bids (e.g.,
studies to determine which manufacturer's proposal for computer equipment would
be most beneficial).
C.
Persons engaged in providing nontaxable computer services are the consumers of
all tangible personal property used in such activities and the tax must be paid
on their acquisition of such property.
D. Keypunching and keystroke verifying is an
item which covers situations where a service bureau's agreement provides only
for keypunching, keystroke verifying, 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 a client's data as
described in item A.
Agreements providing for keypunching and keystroke
verification, or keypunching, providing a proof list, and/or verification of
data are not regarded as contracts for the fabrication of punch cards and sales
of proof lists. Charges therefore are not taxable, whether the cards are
furnished by the customer or by the service bureau. Data from source documents
may also be recorded directly on magnetic tape (off-line). This operation may
include keystroke verifying and/or proof listing of data and is comparable to
the punch card operation. Charges for this operation are not taxable whether
the magnetic tapes are furnished by the customer or by the service bureau. No
tax 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
treatment is the same even though paper tape or other medium were used in the
operation.
Subp.
5.
Microfilming and/or photorecording services.
Microfilming and photorecording services are treated as
follows:
A. Some electronic data
processing systems accept signals directly from the computer (online) at high
speeds and then records them on microfilm or on photorecording paper. The
computer output medium is merely changed from the more common output media of
magnetic tape and tabulated listings to microfilm or photorecording paper. When
this end product is the result of a complete computer program as outlined in
subpart
4, item B, the tax will not
apply.
B. In all situations where
data is converted by means other than by the use of a complete computer program
as outlined in subpart
4, item B, the receipts for
microfilming or photorecording are subject to sales tax.
An example of this is where data on magnetic tape is
converted into combinations of alphanumeric printing, curve plotting, and/or
line drawings and put on microfilm or photorecording paper.
Subp. 6. [Repealed, 18 SR
784]
Statutory Authority: MS s 270.06;
270C.06;
297A.29
