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Ruling 96-7

Sales and Use Taxes
Computer and Data Processing Services

This Ruling is cited in Ruling 2002-5

NOTE: This ruling should not be relied upon to the extent it conflicts with

the Telecommunications Act of 1996, Pub. Law No. 104-104, 110 Stat. 56 (1996)

FACTS:

A company (the "Company") provides two kinds of services that link personal computer and computer equipment users to data bases or computer networks. In the first service, the Company links the computer equipment of merchants to the computers and data bases of financial institutions that issue credit cards. When a consumer wishes to make a purchase using a credit card, the merchant swipes the consumer's credit card on a computerized authorization device and the device transmits data to the Company's computers. The Company's computers forward the data to the financial institution that issued the credit card to the consumer. The financial institution then returns data either authorizing or declining the charge, which the Company transmits back to the merchant's authorization device. The Company bills the merchant on a per minute or per hour basis for this service.

In the second service, the Company links personal computer Internet users to an ultimate computer service provider (such as Prodigy or CompuServe). The personal computer user signs on to the system and the Company receives the signal from the personal computer user's computer and forwards the signal via computers to the ultimate computer service provider, completing the connection to the Internet. The Company bills the personal computer user for this service.

ISSUE:

Whether the Company's service that links, by means of computers, the computer equipment of merchants with the computers and data bases of financial institutions for purposes of authorizing credit card purchases is a taxable computer and data processing service enumerated in Conn. Gen. Stat. §12-407(2)(i)(A), and whether the Company's service that links personal computer Internet users with other service providers by means of computers is a taxable computer and data processing service enumerated in Conn. Gen. Stat. §12-407(2)(i)(A).

DISCUSSION:

Computer and data processing services are enumerated as taxable in Conn. Gen. Stat. §12-407(2)(i)(A). In Conn. Agencies Regs. §12-426-27(b)(1), "computer and data processing services" are defined to include providing computer time, storing and filing of information, retrieving or providing access to information, designing, implementing or converting systems[,] providing consulting services, and conducting feasibility studies. . . . In both kinds of services provided by the Company, the Company is "retrieving or providing access to information," as that phrase is used in the regulation, by means of computers and computer equipment. When "providing access to information," it is not necessary that the Company provide access to its own data base or computer network. See, e.g., Ruling No. 95-2, where the service provider provided customers with a link between their computers and the data base of a third party. Like the data transmission service provider in Ruling No. 96-1, the Company "provides its customers with a medium by which they may immediately transmit data to and retrieve data from . . . locations through the use of computer equipment." Id., p. 3. However, it is not enough that computers are involved in the service; the use of computers must be found to be essential, and the "true object" must be to provide computer and data processing services. Id. The use of computers is, without question, essential to the performance of both the Company's services. Moreover, in the first service, the true object of the service provided by the Company is not credit card authorization, since the Company provides no such authorization. Instead the true object of the Company's service is to provide a computer link to the financial institutions, which then perform the credit card purchase authorizations.

In Connecticut, computer and data processing services are taxable where the benefit of the services is received. The benefit of the services is considered received in Connecticut if the computer terminal or other computer device at which the service recipient receives the services is in Connecticut. In the first service provided by the Company, if the merchant's authorization device is in Connecticut, the service will be taxable here. In the second service provided by the Company, if the service recipient's personal computer is in Connecticut, the service will be taxable here.

RULING:

The Company's service that links, by means of computers, the computer equipment of merchants with the computers of financial institutions for purposes of authorization of credit card purchases is a taxable computer and data processing service enumerated in Conn. Gen. Stat. §12-407(2)(i)(A). The Company's service that links personal computer Internet users with other service providers by means of computers is a taxable computer and data processing services enumerated in Conn. Gen. Stat. §12-407(2)(i)(A).

LEGAL DIVISION

JULY 12, 1996