Ruling 2001-2, Sales and Use Taxes / Business Analysis, Management Consulting and Public Relations Services
FACTS:
The Company is a manufacturer whose products are sold through manufacturer’s representatives. The Company has entered into a consulting contract for an interim Vice President of Sales and Marketing ("consultant") until an employee is hired to permanently fill this position.
The consultant will perform the following duties under the consulting contract:
- Recruit additional manufacturer’s representatives, mentor and motivate manufacturer’s representatives and mentor certain employees;
- Aid in mentoring an existing employee to become the Company’s Vice President of Sales and Marketing or recruit an employee for this position;
- Negotiate contracts with the Company’s major customers;
- Make monthly project presentations to the Company’s board of directors;
- Improve the Company’s industrial image and create sales leads;
- Aid in the development of the Company’s sales materials (such as the Company’s web page and brochures); and
- Review and suggest enhancements to the Company’s Internet web page, current sales literature, manufacturer’s representatives’ contracts and policies regarding manufacturer’s representatives.
ISSUES:
Whether the consultant’s services rendered to the Company under the consulting contract are taxable as business management, business analysis, business management consulting or business public relations services under Conn. Gen. Stat. §12-407(2)(i)(J).
Whether the consultant’s services rendered to the Company under the consulting contract are taxable as advertising services under Conn. Gen. Stat. §12-407(2)(i)(U).
RULINGS:
The services rendered by the consultant under the consulting contract, other than the services described as advertising, are subject to tax under Conn. Gen. Stat. §12-407(2)(i)(J) and Conn. Agencies Regs. §12-407(2)(i)(J)-1 as business analysis, business management, business management consulting and business public relations services.
The services rendered by the consultant under the consulting contract involving promoting the Company’s product through developing and revising sales literature and brochures are subject to tax under Conn. Gen. Stat. §12-407(2)(i)(U) as advertising services.
DISCUSSION:
Business analysis, management, management consulting and public relations services are subject to sales and use taxes under Conn. Gen. Stat. §12-407(2)(i)(J). Conn. Agencies Regs. §12-407(2)(i)(J)-1 further provides that business management, business analysis and business management consulting services are taxable when they relate to the core business activities or human resource management activities of a business.
Conn. Agencies Regs. §12-407(2)(i)(J)-1(h) defines the term "core business activities" as
activities directly related to a service recipient’s lines of business involving sales of products, property, goods or services to others, its capital structure, its budgeting and its short-range, long-range or strategic planning.
Under Conn. Agencies Regs. §12-407(2)(i)(J)-1(i), the term "human resource management activities"
means and includes activities relating to…the hiring, development, job-related training, compensation and management of personnel….
The services that the consultant provides are related to the Company’s core business activities because they involve the sales of the Company’s products. The consultant’s services also involve human resource management activities because the consultant is responsible for recruiting, mentoring, motivating and managing manufacturer’s representatives as well as hiring or mentoring an employee to fill the Vice President of Sales and Marketing position.
Under Conn. Agencies Regs. §12-407(2)(i)(J)-1(e), the term "business management services"
means and includes the provision of general or specialized day-to-day management of a service recipient’s personnel with respect to, or the controlling or directing of, all or a portion of the core business activities…or human resource management activities…of a service recipient….
Under Conn. Agencies Regs. §12-407(2)(i)(J)-1(d), the term "business analysis services"
means and includes the examination of data relating to core business activities…or human resource management activities…of a service recipient…and the formulation of conclusions, and the making of recommendations, based on such examination….
Under Conn. Agencies Regs. §12-407(2)(i)(J)-1(f) the term "business management consulting services"
means and includes the furnishing of advice and assistance on matters pertaining to the management of core business activities…or human resource management activities….
Recruiting, mentoring, motivating and managing manufacturer’s representatives and recruiting or mentoring an employee to fill the Vice President of Sales and Marketing position are business management services, business analysis services and business management consulting services related to human resource management activities and are subject to tax. Recruiting and developing employees are also human resource management activities and also subject to tax. Managing and motivating employees or manufacturer’s representatives under contract with the Company are taxable business management functions.
Negotiating contracts with major customers is a taxable business management service because it involves entering into sales agreements, which is a core business activity of the Company. Making monthly progress projections to the Company’s board of directors is a taxable business analysis service and a taxable business management consulting service because it involves both analyzing Company data and advising the board of directors. Services described as reviewing and suggesting changes to the Company’s manufacturer’s representatives’ contracts and policies are also taxable business management consulting services because they involve analyzing and making recommendations on such contracts and policies.
Conn. Agencies Regs. §12-407(2)(i)(J)-1(g) states that
[the term "business public relations services" means and includes the preparation of materials, written or otherwise, that are designed to influence the general public or other groups by promoting the interests of a service recipient….
Improving the Company’s industrial image to create sales leads is a taxable business public relations service because it involves trying to positively influence the public to increase sales by establishing new customers.
Advertising services, including layout, art direction, graphic design, mechanical preparation or production supervision, not related to the development of media advertising or cooperative direct mail advertising, are subject to sales and use taxes under Conn. Gen. Stat. §12-407(2)(i)(U). Media advertising and cooperative direct mail advertising services are excluded from taxation under that section.
The services rendered in connection with aiding in the development of sales materials such as the sales literature and sales brochures are taxable either as business public relations services, to the extent they involve improving the Company’s image, or advertising services, to the extent that they involve promoting the sales of the Company’s products in order to promote their sales. The Company’s contract states that the consultant will "[review and suggest enhancements to the company Internet web page [and] current sales literature…." Reviewing and making suggestions to improve the Company’s Internet web page is a media advertising service and excluded from tax. Reviewing and making recommendations to enhance the Company’s sales literature and sales brochures are taxable advertising services.
Marketing services are excluded from taxable business public relations services. Conn. Agencies Regs. §12-407(2)(i)(J)-1(g) describes marketing services as
involving] the performance of testing, research or analysis of existing or potential consumer markets in connection with the development of particular products, property, goods or services for sale to others by the service recipient, including consulting in connection therewith.
Although the consultant is performing the duties of the Company’s Vice President of Sales and Marketing, the services being provided are not marketing services as described in the regulation. The services fall under Conn. Gen. Stat. §12-407(2)(i)(J) because they involve such activities as managing manufacturer’s representatives, influencing potential customers, hiring activities and advisory services and as such are taxable. Conn. Agencies Regs. §12-407(2)(i)(J)-1(c)(1) states that
[i]t is the nature of the services being rendered, and not what those services are called or termed by the service provider or service recipient, that determines whether services described in section 12-407(2)(i)(J) of the general statutes are being rendered.
LEGAL DIVISION
January 17, 2001